Shares of Oil & Natural Gas Corporation (ONGC) extended their decline on July 4 after falling more than 13 percent on Friday as brokerage firm JPMorgan India downgraded the stock in the wake of the new windfall tax.
The government on Friday surprised investors after imposing a $240 per tonne special additional excise duty on crude oil production in the country. The imposition of the special tax comes in the wake of global crude oil prices surging to eight year highs in recent months.
Brokerage firm JPMorgan downgraded its rating on the stock to ‘neutral’ from ‘buy’ earlier and cut its price target 26 percent to Rs 155 as it sees sharp cut in earnings estimate going ahead.
The brokerage said that the fixed additional tax is sharply negative for the stock. Analysts believe that the tax will impose a heavy burden on ONGC given that it is a fixed quantum instead of an ad valorem tax that depends on the actual sales of the company.
The additional excise duty will reduce ONGC’s realisations by as much as $35-40 per barrel going ahead.
Brokerage Goldman Sachs cut its estimate for ONGC’s operating profit for 2022-23 and 2023-24 by 23 percent each resulting in its price target moderating to Rs 210 from Rs 285.
However, the brokerage retained its ‘buy’ rating on the stock as it believes that the company’s free cash flow will grow 21 percent in 2023-24 along with a dividend yield of 11 percent.
At 10:18 am, shares of ONGC were down 3.6 percent at Rs 126.4 on the National Stock Exchange.