Crude price rise: Anand Rathi initiates coverage on ONGC, Oil India with up to 38% upside potential

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ONGC and Oil India, said brokerage house Anand Rathi in a recent report. It further added that risk-reward is favourable for this space. Disturbances due to geo-political tensions, healthy product demand and low stocks would keep refining margins healthy, especially driven by strength in diesel and ATF.

This would benefit Indian refiners as diesel and ATF make up over 60 percent of production, stated Anand Rathi. On the back of this current scenario, the brokerage has initiated coverage on upstream companies ONGC and Oil India with ‘Buys’ at 12-month target prices of ₹256 (38 percent upside) and ₹420 (36 percent upside), respectively. “Oil India is our preferred pick in the sector given its strong volume growth," it said.

However, a sharp increase in crude oil prices, ad hoc change in policy, and delay in capacity commissioning are key risks, cautioned Anand Rathi. Upstream companies like ONGC and Oil India are poised to benefit on the high-priced crude context which would assure $77/bbl realisation, a stable gas price outlook, and higher oil and gas volumes, noted the brokerage. Crude price realisation has been free of government controls since FY15 as crude prices were favourable with no marketing losses.

The sharp spike in crude prices in Q1 FY23, however, due to geopolitical tensions in Russia compelled the government to impose a cap of $77/bbl. This realisation is much higher than the $44-60 over FY15-22, it added. Declines in ONGC and Oil India’s production have been due to natural decline in mature fields.