Strong Market Momentum Boosts ONGC Stock
Oil and Natural Gas Corporation (ONGC), India’s leading public sector oil and gas company, has witnessed a strong rally in March, gaining 10% amid a broader recovery in the Indian stock market. This comes after a period of five consecutive months of losses across major indices. The stock surged 5% in intraday trading on March 28, following reports that Saudi Aramco is in discussions to invest in two major refinery projects in India.
According to a Reuters report, Saudi Aramco is exploring potential investments in Bharat Petroleum Corporation Ltd (BPCL)’s proposed refinery in Andhra Pradesh and ONGC’s planned refinery in Gujarat. This news has fueled optimism around ONGC’s future growth prospects, with global brokerage Jefferies forecasting a 47% upside in the stock price, citing robust production growth, improved gas portfolio profitability, and expansion in renewable energy ventures.
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March 2025 gains: 10% surge in ONGC share price
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Intraday rally on March 28: 5% increase amid Saudi Aramco investment talks
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Jefferies’ price target: ₹375, implying a 47% upside from the current ₹254.80 level
ONGC’s Multibagger Growth: 283% Returns in Five Years
ONGC has delivered multibagger returns over the past five years, rising 283% during this period. The strong fundamentals and strategic expansion plans of the company have played a crucial role in this stellar growth.
Jefferies believes that ONGC’s stock still has significant upside potential, with multiple catalysts expected to drive its share price even higher in the coming years. The firm remains optimistic about ONGC’s future due to its aggressive production ramp-up, higher gas pricing, and strategic acquisitions in the renewable energy sector.
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Five-year stock performance: 283% increase
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Jefferies’ projected growth potential: 47% additional upside
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Key growth drivers: Higher crude and gas production, renewables expansion, and technical support from BP
Why Jefferies is Bullish on ONGC’s Future
Strong Production Growth Outlook
One of the key reasons for Jefferies’ optimistic stance on ONGC is its planned production growth over the next five years. The company is aiming for an annual crude and gas production increase of 5-6% between FY26 and FY28. A significant portion of this growth is expected to come from the Krishna-Godavari (KG) Basin, which is set to ramp up output by mid-CY25.
Additionally, ONGC is undertaking new development projects in the Daman offshore field and Discovered Small Fields (DSF-2), which will further contribute to its rising production levels.
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Expected annual production growth (FY26-28): 5-6%
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Key production drivers: KG Basin, Daman, DSF-2
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Potential CAGR in production (FY27-30): 10%+ if BP succeeds in enhancing crude and gas recovery
BP Partnership to Enhance Crude and Gas Recovery
ONGC has entered into a 10-year contract with BP as a technical service provider. According to Jefferies, BP aims to increase crude oil recovery by 44% and gas recovery by 90% over ONGC’s previous estimates. If successful, this partnership could significantly boost ONGC’s production growth CAGR to over 10% from FY27 onwards.
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BP’s crude recovery enhancement target: 44%
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BP’s gas recovery enhancement target: 90%
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Expected production CAGR (FY27-30): 10%+
Higher Gas Profitability and New Pricing Policies
Another major catalyst for ONGC’s growth is its rising gas profitability, driven by favorable pricing policies. The company expects that 20% of its total gas production will qualify for the new well gas price of $8.5/mmbtu in FY26, a figure that is projected to rise to 100% by 2030.
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Gas eligible for new pricing (FY26): 20%
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Gas eligible for new pricing (FY30): 100%
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Current new well gas price: $8.5/mmbtu
Renewable Energy Expansion: Ayana Acquisition and Solar Focus
ONGC is also expanding its presence in the renewable energy sector, aligning with India’s goal of achieving net-zero emissions by 2070. The company’s recent acquisition of Ayana Renewable Power is a significant step in this direction. Jefferies noted that ONGC is focusing on acquiring solar energy assets that come with land, grid access, and power purchase agreements (PPAs) already in place.
The firm is targeting a 14% equity internal rate of return (IRR) on its renewable projects, indicating its commitment to generating strong financial returns alongside sustainable energy growth.
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Key renewable acquisition: Ayana Renewable Power
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Current focus: Solar asset acquisitions
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Targeted return on equity (IRR): 14%
Valuation and Price Target: Why ONGC Remains Attractive
Jefferies maintains a ‘Buy’ rating on ONGC, with a price target of ₹375, which represents a 47% upside from the current market price of ₹254.80. The brokerage notes that ONGC’s stock is currently trading at a discount, pricing in crude oil at $55 per barrel, significantly lower than current international oil prices. This discount creates an attractive risk-reward opportunity for investors.
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Jefferies’ rating: Buy
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Price target: ₹375
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Upside potential: 47%
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Current stock valuation: Discounting crude at $55/barrel
Additionally, ONGC is projected to deliver a 14% earnings per share (EPS) CAGR over FY25-27, driven by higher production volumes and improved gas pricing.
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Projected EPS CAGR (FY25-27): 14%
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Stock’s risk-reward profile: Favorable
ONGC’s Long-Term Growth Prospects Look Strong
With higher crude and gas production, strategic partnerships, increased gas pricing, and renewable energy expansion, ONGC remains a top pick among PSU stocks. The recent 10% rally in March, coupled with Jefferies’ bullish stance and 47% upside potential, signals strong growth opportunities for investors looking for exposure in the energy sector.
