ONGC Share Price Target at Rs 285: Kotak Securities
Kotak Institutional Equities has recommended a 'BUY' Call on Oil and Natural Gas Corporation (ONGC), establishing a fair value target of Rs 285 per share. With ONGC at a current market price of Rs 239, this exhaustive research report—dated August 13, 2025—dissects ONGC’s robust results, forecasts, sectoral outlook, and strategic pivots. The analysis captures ONGC’s resilience amid operational challenges, its calculated partnerships, and a promising ramp-up in production. Investors now face an inflection point, as legacy risks are juxtaposed with the potential for substantial upside.
Strong Earnings Beat Amid Cost Rationalization
EBITDA Surpasses Street Expectations
Kotak’s analysis notes ONGC’s Q1FY26 net sales reached Rs320 billion—1.7% above projections—driven by buoyant gas sales volumes and price realizations. Crucially, EBITDA landed 10.5% above estimates, thanks to disciplined expense management, notably lower raw material and other costs. However, higher depreciation, depletion, and amortization plus reduced other income trimmed the pretax profit beat to 4%.
Volume Growth Signals Recovery
ONGC’s domestic oil production (ex-JV) increased 1% year-on-year, while oil sales outpaced production to climb 2.6%. Gas production was steady, and gas sales nudged upwards by 1.9%. Upcoming production surges in the KG-98/2 block and Mumbai High strengthen the outlook, positioned for further acceleration in FY2027.
Operational Momentum Buoyed by New Partnerships
BP Partnership at Mumbai High
The report heralds ONGC’s alliance with BP Plc as a transformative endeavor. Mumbai High, after half a century of output, constitutes over a quarter of ONGC’s production. The technical service partnership (TSP) with BP is expected to boost output, with incremental volumes likely by Q4FY26. This opens the door for similar collaborations across major blocks, including the crucial KG-98/2.
ORD Act Amendments Reduce Headwinds
Regulatory risk has diminished following amendments to the Oilfield Regulation and Development Act, 1948. The revised Act ensures fiscal and policy stability, potentially attracting further multinational investment and reducing uncertainty for shareholders.
Production Guidance Reinforces Uptrend Narrative
Robust FY2026-27 Projections
Management projects oil production of 19.9 million metric tons and gas at 20.1 billion cubic meters for FY2026, with further increases to 21.0 mmt and 21.5 bcm in FY2027 respectively. Significant ramp-up at KG-98/2, which is now running at 30 kb/d of oil and 3 mmscmd of gas despite some monsoonal delays, should see marked improvement by Q4FY26. ONGC’s peak targets: 45 kb/d oil and 10 mmscmd gas from KG-98/2.
NWG Reclassification Boosts Revenue
Reclassifying APM to new well gas (NWG) generated an extra Rs3.3 billion revenue in Q1FY26. NWG’s share in total gas production is set to rise to 25% in FY2027, thereby driving higher gas realizations.
Financial Performance and Valuation Matrix
FY2026E Earnings Upgraded
Kotak has elevated FY2026E EBITDA and EPS by 5-7%, citing HPCL’s improved performance and ONGC’s strong Q1. Changes to FY2027/28E targets are modest.
Valuation Table: ONGC Forecasts and Metrics
Below is a financial snapshot of ONGC’s core metrics:
| Parameter | 2025 | 2026E | 2027E |
|---|---|---|---|
| EPS (Rs) | 28.9 | 42.0 | 45.1 |
| P/E (X) | 8.3 | 5.7 | 5.3 |
| P/B (X) | 0.9 | 0.8 | 0.7 |
| EV/EBITDA (X) | 4.3 | 3.4 | 3.3 |
| RoE (%) | 10.7 | 14.5 | 13.9 |
| Dividend Yield (%) | 5.1 | 5.0 | 5.3 |
| Net Profits (Rs bn) | 364 | 528 | 567 |
| Sales (Rs bn) | 6,633 | 5,476 | 5,747 |
ONGC’s Capex Strategy: Balancing Growth and Prudence
Expansive Investment Program
FY2025 saw domestic capex soar to nearly Rs390 billion, with total capex—including stakes in OPAL and ONGC Green—approaching Rs620 billion. Capex guidance for FY2026-27 is Rs350-360 billion, with an emphasis on exploration and drilling.
OPAL: Losses Persist, Debt Remains Elevated
OPAL reported a Q1 EBITDA loss of Rs70 million (markedly less than the Rs1.7 billion loss in Q4FY25), but net losses persisted at Rs6.1 billion. With ONGC’s stake now increased to 95% following an earlier Rs184 billion infusion, OPAL’s outstanding debt remains a concern at Rs249 billion.
Volume and Pricing Trends: A Mixed Bag
Stable Oil, Improving Gas Prices
Average gross crude realization for ONGC aligns closely with benchmark Dubai crude, recorded at US$66.13/bbl (Dubai: US$66.10/bbl). Net crude realization was US$48.9/bbl, buoyed by higher domestic gas prices at US$7.08/mmbtu.
Capex Yields and Reserve Ratios
Post multi-year declines, ONGC’s oil and gas R/P (Reserve-to-Production) ratios stabilize at around 14 and 13 years respectively—solidifying resource longevity.
Risks and Sensitivities: What Investors Need to Watch
Oil & Gas Price Volatility Remains Critical
Given ONGC’s high earnings sensitivity to global crude and gas prices, even marginal price changes can swing EPS by up to 3%. Exchange rate fluctuations merit vigilance, with each Rs1 movement potentially modulating EPS by close to 2%.
Downstream Capex Expansion: A Double-Edged Sword
Kotak flags ONGC’s appetite for further downstream forays, especially in refining or petrochemicals, as a key risk. Large-scale capex may dilute returns if market conditions turn adverse.
ONGC—A Defensive Play with Multiple Catalysts
Stock Levels and Investor Target
At a CMP of Rs239 and a fair value target of Rs285, Kotak's analysis paints ONGC as a compelling accumulation for investors seeking resilience and upside in the energy space. The recommendation is predicated on operational momentum, reduced policy headwinds, and strategic partnerships.
