ONGC Shares Surge 10% in March: Jefferies Predicts 45% Upside Potential for This Promising PSU Stock!

Oil and Natural Gas Corporation (ONGC) has recently experienced a notable surge in its stock price, climbing 10% this month amidst a recovery in the Indian stock market following five consecutive months of declines. In today’s trading session, ONGC shares jumped by as much as 5%, fueled by news that Saudi Aramco is in discussions to invest in two upcoming refineries in India.

Saudi Investment Talks Boost ONGC Shares

According to sources cited by Reuters, Saudi Aramco is negotiating investments in two significant refinery projects: one at Bharat Petroleum Corp in Andhra Pradesh and another at an ONGC refinery located in Gujarat. This interest from a global oil giant has certainly added momentum to ONGC’s stock performance.

ONGC’s 5-Year Performance: Over the past five years, ONGC has skyrocketed by 283%, establishing itself as a multibagger stock.
Analysts’ Optimism: Global brokerage firm Jefferies is optimistic about ONGC’s future, projecting a 47% potential increase from its current price of ₹254.80 as of March 28.

Reasons Behind Jefferies’ Bullish Outlook

Jefferies has outlined several compelling reasons for their positive stance on ONGC:

Production Growth: The company aims for a 5-6% annual production growth from FY26 to FY28, driven by enhanced crude and gas output from the KG basin and new developments at Daman and DSF2.
Strategic Partnership with BP: ONGC has engaged BP as a technical service contractor, which is expected to increase crude oil and gas recovery rates significantly over the next decade. This partnership could lead to an annual production increase of approximately 5% for crude and 8% for gas starting in FY27.
Gas Pricing Strategy: By FY26, ONGC anticipates that about 20% of its gas production will qualify for the new well gas price of US$ 8.5/mmbtu, with expectations of reaching 100% by 2030.

Focus on Renewables and Asset Acquisition

Jefferies also points out that ONGC’s recent acquisition of Ayana aligns with its strategy to enhance its portfolio of mature assets, particularly in solar energy. The company aims to achieve a 14% equity internal rate of return (IRR) from these solar projects.

Production Growth Projections: Jefferies forecasts a 14% compound annual growth rate (CAGR) in earnings per share from FY25 to FY27, supported by production increases and improved gas pricing.
Market Position: The stock is currently priced as if crude oil is at US$ 55, making it an attractive investment opportunity.

In conclusion, with ONGC’s strategic plans for production growth and investment in renewable energy, coupled with the potential boost from Saudi Aramco’s interest, the outlook for this PSU oil giant appears promising. Jefferies maintains a "Buy" rating with a target price of ₹375, reflecting their confidence in ONGC’s future performance.