Going cheap: How ONGC compares to the world's most richly valued oil firms

State-owned Oil and Natural Gas Corporation (ONGC) is now the cheapest oil and gas company globally. Earlier this week, the company’s stock price fell below Rs 100 for the first time in 15 years. Currently, ONGC trades at 4.2 times its estimated one-year forward earnings. Most global oil and gas majors command a price-to-earnings (P/E) ratio of more than 15. Exxon Mobil and Saudi Arabian Oil Company (Saudi Aramco) have a P/E of 18.3 times and 17.3 times, respectively. While ONGC has always traded at a discount to its global peers, it has widened to record levels in recent months.

“Among the global upstream peer group, it is the cheapest stock. ONGC historically has traded at a discount versus global peer group, but over the past 12 months, the discount has widened materially, and in our view, the ‘on-tap’ government selldown is the key reason,” JP Morgan analysts Pinakin Parekh and Sanket Parab write in a note.

The brokerage has a buy rating on the stock, albeit it has cut the price target from Rs 190 to Rs 172 due to a cut in earnings estimates amid weak global oil prices. JP Morgan says the stock offers attractive yields of about 8 per cent. It has identified a few other triggers for ONGC to do well.

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