ONGC (a government owned enterprise) is the largest crude oil and natural gas company in India, contributing around 75 per cent to Indian domestic production. Crude oil is the raw material used by downstream companies like IOC, BPCL, and HPCL (subsidiary of ONGC) to produce petroleum products like Petrol, Diesel, Kerosene, Naphtha, and Cooking Gas-LPG.

Rationale:

• ONGC has been amongst the worst-performing Energy stocks in 2019: The stock has been flat over the last 3 months despite oil prices moving up 18% during the same time period.

• Earnings Directly Correlated with Oil Price: With every $1/barrel increase in oil price, company’s earnings increase by 3%

• Oil Price on the Rise: The latest geopolitical flare-up, combined with an encouraging 2020 outlook should bode well for oil prices.

• Attractive Valuations: While the government stake sale overhang could continue for ONGC, an attractive dividend yield (~6%) at a FY21E P/E of 5x makes valuations look reasonable

Disclaimer: The above report is compiled from information available on public platforms. inChat team advises users to check with certified experts before taking any investment decisions.

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