Shares of state-owned oil exploration & production companies, Oil and Natural Gas Corporation (ONGC) (Rs 150.50) and Oil India (Rs 218) were up 2 per cent to hit over five-month high in Friday’s intra-day trade after cess on domestically produced crude oil was reduced from Rs 4,900 per tonne to Rs 1,700 per tonne. These stocks traded at their highest level since July 1, 2022.
On Friday, the Union government slashed the windfall tax on domestically produced crude oil and diesel effective December 16, 2022.
The Ministry of Finance slashed tax on crude oil produced by firms such as state-owned ONGC to Rs 1,700 per tonne from Rs 4,900 per tonne. The ministry also cut rate on diesel exports to Rs 5 per litre from Rs 8 per litre in the fortnightly revision of the windfall profit tax.
After today’s revision, the windfall tax on domestically-produced crude oil has been lowered by almost 65 per cent.
In the past three months, shares of ONGC (up 13 per cent) and Oil India (up 15 per cent) outperformed the S&P BSE Sensex, which gained 4.6 per cent, during the period. However, in the past six months, ONGC (up 3 per cent) and Oil India (down 18 per cent) have underperformed the market. In comparison, the benchmark index has rallied 20 per cent during the period.
Analysts at HDFC Securities are bullish on both ONGC and Oil India, based on increase in crude price realisation and improvement in domestic gas price realisation.
Meanwhile, analysts at ICICI Securities cautioned about production growth of ONGC despite strong earnings, due to weak results of subsidiaries HPCL and OVL.
“However, even at a realisation of $75/bbl for oil and Rs 20-21/scm for gas, standalone and consolidated EPS for FY23E of Rs 40.5/sh and Rs 43.3/sh, respectively, are well above historical averages. The government’s proactive adjustment of the new tax in line with fall in international crude prices provides comfort on a minimum floor of oil realisations. We believe valuations of 2.7x FY24E consolidated EPS and 2.2x EV/EBITDA remain attractive,” the brokerage firm said.
