The brokerage believes ONGC’s risk-reward remains attractive, citing a combination of high dividend yields, a constructive outlook for crude prices and improving prospects at its overseas arm ONGC Videsh Ltd. (OVL).
Here are three key reasons highlighted by Motilal Oswal:
1. Attractive dividend yield: ONGC’s one-year forward dividend yield of 6.9% is at a three-year high. According to Motilal Oswal, this level has been breached only twice in the past decade — during the Covid-19 pandemic and the period of the windfall tax — rather than because of any structural change in the company’s payout policy.
2. Firm crude outlook: Global agencies have become more constructive on crude prices. The US Energy Information Administration (EIA) has raised its CY26 and CY27 Brent crude forecasts to $87 and $69 per barrel, respectively, while the International Energy Agency (IEA) has widened its CY26 supply deficit estimate to 2.7 million barrels per day.
Motilal Oswal expects crude prices to remain firm even if the Strait of Hormuz reopens, pointing to still-low global inventories, which have declined by around 410 million barrels since the start of the war.
3. OVL turnaround: The turnaround at OVL over the past two quarters, coupled with multiple assets moving into the development phase, could add around ₹15 per share to Motilal Oswal’s target price if the improved run-rate is sustained. The brokerage values this potential at 8x price-to-earnings.
Motilal Oswal had recently upgraded ONGC, citing inexpensive valuations, modest production growth and greater operational flexibility amid the government’s multi-year focus on energy security. It expects ONGC’s production to grow at a 1% CAGR over FY26-FY28E.
On valuations, ONGC currently trades at 5.7x FY28E consolidated price-to-earnings, below its long-term average one-year forward P/E of 6.5x, according to Motilal Oswal.
After adjusting for the value of ONGC’s listed investments at ₹65 per share and its valuation of OVL at ₹23 per share, the brokerage estimates that the market is effectively pricing in a Brent crude price of only $65 per barrel over 2QFY27-FY28. Motilal Oswal believes this is overly conservative given the current industry backdrop.
Meanwhile, ONGC on August 18 announced the successful commissioning of gas evacuation facilities at Khoraghat GGS-1 in Assam’s Golaghat district.
The facility will enable surplus associated natural gas from the Upper Assam Shelf to be processed and evacuated through the North East Gas Grid (NEGG), developed by Indradhanush Gas Grid Ltd. (IGGL).
The development follows the commissioning of the Dergaon-Dimapur Pipeline, which has connected Nagaland to the North East Gas Grid and the National Gas Grid. The new connectivity will facilitate the utilisation of nearly 1 lakh standard cubic metres (SCM) of gas per day from ONGC’s Jorhat asset.
ONGC is also developing hook-up facilities at Jantapathar and Kasomarigaon to connect additional producing fields from its Jorhat Asset to the North East Gas Grid. The projects are expected to augment gas availability, reduce flaring and strengthen the gas-based economy in the region.
The improved connectivity is also expected to support gas consumption across households, industry, transport and power sectors in Assam and the wider North-East.
Of the 31 analysts covering ONGC, 22 have a ‘Buy’ rating, five have a ‘Hold’ call and four have a ‘Sell’ rating on the stock.
