Buy Oil and Natural Gas Corporation; target of Rs 320: ICICI Securities

ICICI Securities's research report on Oil and Natural Gas Corporation

ONGC’s Q2FY26 adj. EBITDA/PAT (standalone) came in at INR 175bn/INR 98.5bn (-3%/-18% YoY) vs. I-Sec’s estimate of INR 179.7/INR 96.5bn. Slightly lower-than-estimated realisation and higher opex drove the underperformance. Consol. EBITDA/PAT stood at INR 274.2/INR 107.9bn (+28%/+5% YoY). Oil & gas output for Q2 was flattish YoY at 10.2mt. With KG basin to reach ~10mmscmd by FY27, along with Daman upside and DSF II production, the share of NWG could increase to 35% in 3-4 years from current 14%, improving gas realisation even as oil sees USD 64-66/bbl realisation vs. USD 68-74/bbl earlier. We cut FY26/27/28E EPS by 7.5%/7.8/11.4%, factoring in lower volume ramp-up and lower realisation. We revise TP to INR 320 (earlier INR 340); retain BUY.

Outlook

We downgrade our EPS by 7.5%/7.8/11.4% for FY26/27/28E, factoring in lower volume, lower long-term crude realisation and OVL’s weaker performance partly offset by stronger HPCL and MRPL earnings outlook. These downgrades drive our TP lower to INR 320 (from INR 340). However, even at this price, we see a material 29% upside from CMP. Valuations of just 5.7x FY28E PER, 2.6x EV/EBITDA and 0.7x P/BV are attractive and underplay the 6% CAGR in consolidated EPS over FY26–28E, dividend yield of 5–6% and RoE/ROCE of 12.8–13.2% in FY28E. Maintain BUY.