245% Dividend: Largecap Oil & Gas PSU Stock ONGC Soars 8% On Strong Q1 Results; Analysts Positive

Oil and Natural Gas Corporation Ltd (ONGC) saw a 8% rally in its share price during Wednesday's trading session, buoyed by the PSU firm's robust June quarter results. This impressive performance has caught the attention of analysts who track the oil and gas sector, noting that ONGC's Earnings Before Interest, Taxes, Depreciation, and Amortization (Ebitda) surpassed expectations, driven by better value-added product sales.

A factor contributing to ONGC's performance is the ramp-up of the KG basin asset. Analysts emphasize that this asset is crucial for ONGC's production growth and earnings strength over the fiscal years 2025-26. The successful development of this basin is expected to play a crucial role in enhancing the company's overall output.

JM Financial has assigned a 'Buy' rating to ONGC with a target price of Rs 325. Interestingly, this target was surpassed in the same trading session as the stock surged by 7.60%, reaching Rs 329.50 per share on the Bombay Stock Exchange (BSE). This marks a 90% climb in ONGC's stock price over the past year.

The brokerage firm highlighted that the oil cartel OPEC+ might support crude oil prices around $75-80 per barrel. Furthermore, there is an expectation that the government may allow ONGC to achieve a net crude realization of $75 per barrel. This potential policy support is a positive signal for ONGC's future earnings.

ONGC is poised for a 10-15% output growth, particularly with the ramp-up of production from the KG DW 98/2 block. The company is also recognized for its attractive dividend yield, ranging between 4-6%. At the current market price (CMP), ONGC trades at 6.2 times its estimated consolidated earnings per share (EPS) for FY26 and 1 times its estimated book value (BV) for FY26.

Anand Rathi, a domestic brokerage firm, prefers upstream companies like ONGC due to the clarity on oil and gas realizations and volume growth. The firm projects crude oil prices to hover between $80-90 per barrel, balancing higher supplies from non-OPEC sources with production cuts by OPEC members. This balance is expected to stabilize the market and benefit companies like ONGC.

Anand Rathi has increased its estimates for ONGC to incorporate changes in Hindustan Petroleum Corporation's (HPC) earnings, reaffirming its 'Buy' rating with a revised target price of Rs 405 per share. This target is based on 4.5 times the estimated enterprise value to Ebitda (EV/Ebitda) for FY26, compared to the previous 4 times for FY25, and includes the value of investments at a 20% discount to market prices.

The recent gains in ONGC's share price are attributed to the attractive valuations at which the stock is trading. Additionally, there has been a correction in the share prices during previous sessions, presenting an opportune moment for investors. The substantial dividend yields offered by upstream oil and gas majors like ONGC and Oil India Ltd are also driving positive sentiment among investors.

Analysts remain optimistic about ONGC's prospects, citing several key reasons: rising production levels, improved gas prices for domestically produced gas, and healthy net realizations. These factors contribute to the overall positive outlook for ONGC and similar companies in the upstream sector.

ONGC's recent share price rally shows that the market's confidence in its future growth and earnings potential. With robust quarterly results, asset development, and supportive market dynamics, ONGC is well-positioned for continued success. Analysts' positive ratings and increased target prices further reinforce the belief that ONGC will remain a strong performer in the oil and gas sector, offering attractive returns to its investors.