JP Morgan changes rating on ONGC from Buy to Neutral

4 Jul 2022 , 11:07 AM

Oil & Natural Gas Corporation (ONGC) shares continued to plummet on July 4 after dropping more than 13% on Friday as a result of brokerage firm JPMorgan India downgrading the stock in response to the new windfall tax.

Investors were taken aback on Friday when the government increased the country’s crude oil output excise levy by $240 per tonne. The implementation of the special tax follows the recent surge in global crude oil prices to levels not seen in eight years.

J PMorgan, a brokerage firm, lowered the stock’s recommendation from ‘buy’ to ‘neutral’ and lowered its price objective from Rs185 to Rs155 because it expects future profit estimates to be sharply reduced.

The set extra tax, according to the brokerage, has a significant negative impact on the stock. Given that the tax is a fixed amount rather than an ad valorem tax that is based on the actual sales, analysts feel that it will place a significant burden on ONGC.
The extra excise tax will eventually lower ONGC’s realisations by up to $35—$40 per barrel.

Brokerage Goldman Sachs reduced its forecast for ONGC’s operating profit for 2022—2023 and 2023—2024 by 23% each, causing it to moderate its price objective from Rs285 to Rs210.

However, the brokerage kept its “buy” rating on the stock because it thinks that the company’s free cash flow will increase by 21% and its dividend yield will be 11% in 2023—2024.