ONGC and Oil India drop almost 35% from their highs, should you buy? Expert advice
Maharatna ONGC is India’s largest crude oil and natural gas company, contributing about 71% of India’s national production. The stock has seen a decline since the windfall tax imposed by the government on crude oil production.
According to leading brokerage firm Emkay Global, “The windfall tax on crude oil production and excise duty on petrol, diesel and ATF exports will increase the Centre’s revenue pool by Rs1.35tn, implying an effective revenue gain of around Rs1tn for the remaining 9 MFY23 (0.4% of GDP).
The current market price of ONGC is Rs 125.50 apiece and today it has fallen by 4.24% so far (1:26 PM). On Friday, the stock saw a steep 13.53% drop in price. The 52-week high is Rs 194 each and the 52-week low is 108.50 each. Its market capitalization is Rs 1,58,134 crore. It is down 35% from its highs now.
Oil India Ltd (OIL)
It is a fully integrated Exploration-Production company in the upstream sector, whose origins date back to the glorious year (1889) of the discovery of oil in India. A Navratna Company, OIL is a state-owned company 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 has imposed a Special Additional Excise Duty (SAED) of Rs13/ltr, Rs6/ltr and Rs6/ltr respectively on exports of diesel, petrol and ATF in response to some refiners drying up their domestic pumps and selling overseas amid record margins An unrecoverable SAED of Rs 23,250/tonne was also imposed on domestic crude oil sales, limiting windfall gains from high oil prices.
The current market price of Oil India Ltd has also seen a decline of 3.34% so far in today’s (1:29 PM) trading. The current market price of Oil India is recorded at Rs 206.90 each. The 52-week high is 306 and the 52-week low is Rs 153 each, respectively. The stock has fallen 32% from its highs.
It has seen a continuous decline in its share price since the government levied an additional tax of 23,250 rupees per ton on crude oil produced in the country.
Should you buy ONGC and OIL?
According to leading brokerage firm Motilal Oswal, “We also assume that the royalty and cession would be calculated on the realized price and the benchmark price. At $100/bbl, these two would equal the additional realization reduction of $12 As a result, we reduced our ONGC/Oil India EPS by 29%/25% for FY23E, respectively.
Meanwhile, Motilal Oswal has given ONGC and Oil India shares a buy rating after revising target prices. He gave a price target of Rs 171 each to ONGC and Rs 364 each to Oil India. The main risk remains the maintenance of the exceptional tax even if the price of oil falls below 100 USD/bbl.
According to Emkay Global, “While the gross fiscal impact of SAED (Special Supplementary Excise Duty) in FY23 could potentially be 0.4% of GDP, we assume that 0.15 to 0.2 % of it could be used later to fund JI under-recoveries In addition, high one-off upstream taxes could impact government dividends from oil and ONGC, although rather marginal way.
Other brokerages have also revised and reduced their target prices for ONGC and Oil India.