ONGC, Oil India Fall Nearly 35% From Their Highs, Should You Buy? Experts Opinion

The shares of Oil and Natural Gas Corporation Ltd. and Oil India Ltd. have now fallen 35% and 32% from their highs after the government on July 1, 2022 imposed Rs 23,250 per tonne additional tax on crude oil production. Check below what experts says about the ongoing decline in the shares of ONGC and Oil India Ltd:

ONGC

Maharatna ONGC is the largest crude oil and natural gas Company in India, contributing around 71 per cent to Indian domestic production. The stock has been witnessed a decline ever since the government-imposed windfall tax on production of petroleum crude.

According to leading brokerage firm Emkay Global, "The windfall tax on the production of petroleum crude and the excise duty on exports of petrol, diesel, and ATF will boost the Centre's revenue kitty by Rs1.35tn, implying an effective revenue gain of approximately Rs1tn for the remaining 9MFY23 (0.4% of GDP).

The current market price of ONGC is Rs 125.50 apiece and today it has fallen 4.24% so far (1: 26 pm). On Friday, the stock witnessed a sharp 13.53% dip in its price. The 52-week high is Rs 194 apiece and 52-week low is 108.50 apiece. Its market capitalization is Rs 1,58,134 crore. It has fallen 35% from its highs now.

Oil India Ltd (OIL)

It is a fully integrated Exploration & Production company in the upstream sector, with origin dating back to the glorious year (1889) of oil discovery in India. A Navratna Company, OIL is a state-owned enterprise of the Government of India, under the administrative control of the Ministry of Petroleum and Natural Gas and is the second largest national oil and gas company in India.

According to Emkay Global, "The government imposed a special additional excise duty (SAED) of Rs13/ltr, Rs6/ltr and Rs6/ltr respectively on diesel, petrol and ATF exports in response to certain refiners drying out their domestic pumps and selling abroad amid all-time high margins. Irrecoverable SAED of Rs23,250/mt was also imposed on domestic crude oil sales, limiting windfall gains from elevated oil prices. Windfall taxes on oil companies will boost exchequer's kitty by Rs1tn in FY23."

The current market price of Oil India Ltd has also experienced a dip of 3.34% so far in today trade (1:29 pm) The current market price of Oil India is recorded at Rs 206.90 apiece. The 52-week high is 306 and 52-week low is Rs 153 apiece, respectively. The stock has fallen 32% from its highs.

It has experienced continuous decline in its share price ever since government levied a Rs 23,250 per tonne additional tax on crude oil produced domestically.

Should You Buy ONGC and OIL?

According to leading brokerage firm Motilal Oswal, "We also assume that the royalty and cess would be calculated on the realized price and the benchmark. At $100/bbl, these two would be equivalent to the additional reduction in realization by $12/bbl. As a result, we cut our EPS of ONGC/ Oil India by 29 per cent/25 per cent for FY23E, respectively."

Meanwhile, Motilal Oswal has given buy rating to the stock of ONGC and Oil India after revising the target prices. It has given a target price of Rs 171 apiece to ONGC and Rs 364 apiece for Oil India. Key risk remains continuation of the windfall tax even if oil price falls below USD100/bbl.

According to Emkay Global, "While the gross fiscal impact of SAED (Special Additional Excise Duty) in FY23 could potentially be 0.4% of GDP, we assume 0.15-0.2% of the same could be later used to fund OMCs' under-recoveries. Besides, high windfall taxes on Upstreams could impact the government's dividends from OIL and ONGC, albeit quite marginally."

Other brokerage firms have also revised and reduced their target prices for both ONGC and Oil India.