'Sell ONGC' — Here are three reasons why the PSU stock can decline 14% as per Axis Capital

Shares of Oil and Natural Gas Corporation Ltd. (ONGC) declined over 3% on Monday, December 15, after brokerage firm Axis Capital initiated coverage on the stock, projecting a 14% potential downside from its previous close.

Axis Capital has initiated coverage with a "sell" rating on ONGC with a price target of ₹205 per share.

The brokerage said the rating is premised on:

• Continued decline in production despite BP's intervention.


• Muted outlook for oil prices, which could drag estimates for ONGC's standalone profit after tax (PAT) over financial year 2025-2027 by as much as 20%.


• High debt in key subsidiaries ONGC Videsh (OVL) and ONGC Petro additions Ltd. (OPaL), likely requiring parental support.

Decline in Production

Axis Capital said ONGC's domestic oil and gas production comes largely from ageing fields that face nature decline of 7% - 7.5% per annum. Nearly 63% and 74% of its production of oil and natural gas, respectively, in financial year 2025 came from Mumbai offshore, which was discovered over 50 years ago.

ONGC's tie-up with BP as the technical services provider for the Mumbai high field holds promise, as per Axis Capital. However, it estimates the standalone production to still decline at a Compounded Annual Growth Rate (CAGR) of 1.3% and 0.4% respectively over financial year 2025-2030.

Moderation In Earnings

Axis Capital said crude prices should remain under pressure because of rising supply and muted demand.

The International Energy Agency (IEA) has estimated global oil supply to rise by 3.1 million barrels per day in the calendar year 2025 and by 2.5 million barrels per day in the calendar year 2026 due to ramp-up in both non-OPEC and OPEC+ production, the brokerage said.

Meanwhile, global demand growth is expected to be muted at 0.79 and 0.77 million barrels per day in 2025 and 2026 respectively, it said.

"We build in Brent crude price of $66 per barrel for financial year 2026 and $65 per barrel estimate for financial year 2027, in our model. Due to the weak oil price outlook, we estimate ONGC's standalone PAT to decline 20% over FY25-27," the brokerage said in its note.

Axis Capital said a higher crude oil price is the key upside risk for the stock.

Subsidiaries with Unsustainable Leverage

OVL and OPaL have an estimated net debt of ₹31,100 crore (10x of EBITDA) and ₹25,200 crore (53x of EBITDA), respectively, for FY26, Axis Capital said.

In the case of OPaL, cash flows are insufficient to meet even interest payments, it said. Due to the high leverage, Axis Capital said it estimates equity value to be negative to ₹16,200 crore (₹13 per share) for OVL and negative ₹18,900 crore (₹15 per share) for OPaL.

The brokerage believes ONGC will need to infuse equity in these two subsidiaries in the coming years to meet debt obligations.

Of the 31 analysts that have coverage on the ONGC stock, 19 have a "buy" rating and six each have "hold" and "sell" ratings.

ONGC shares declined 3.4% to hit an intraday low of ₹229.94 apiece on Monday. The stock was down 2.4% at ₹232.25 apiece around 11.40 am. It has declined 6.4% in the past month.

Also Read: 'Consensus Buy' TBO Tek shares gain after Jefferies, Goldman Sachs see up to 17% upside