Buy Oil and Natural Gas Corporation; target of Rs 375: ICICI Securities

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26 Aug, 2025 12:21

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

Brent crude prices averaged USD 83.1/bbl in Q1 (vs USD82.8/bbl in Q4), with continuous supply cuts from Russia and Saudi Arabia, geopolitical issues and low inventories in the US offsetting the continuing demand concerns, specifically from China and western Europe. Q1FY25’s average realisation of USD 73.3/bbl (net windfall tax of USD 9.8/bbl) was down 1/1% YoY/QoQ (vs USD 74.1/bbl in Q4). Crude prices have remained at USD 84–85/bbl levels over Q2FY25 so far, but the adjustments in windfall taxes have been keeping pace to maintain net realisation at USD 74–76/bbl, well above its historical average over FY15–23. The only clear risk to realisation, therefore, remains an unforeseen bearish trend in crude prices dragging Brent prices to <USD 75/bbl for a sustainable period, which we believe is unlikely.

Outlook

ONGC reported adjusted EBITDA/PAT (standalone) of INR 178.6bn (-2/+7% YoY/QoQ)/INR 89.4bn (-11/-9% YoY/QoQ) vs I-Sec’s estimate of INR 174/INR 92.7bn in Q1FY25. QoQ growth in EBITDA was driven by lower opex while higher depreciation, tax rate and lower other income led to earnings (QoQ) decline and miss vs our estimates. Consolidated EBITDA/PAT of INR 226bn/ 99.3bn declined 26/30% YoY due to weaker performance by subsidiaries HPCL/MRPL’s earnings, partly offset by some strength seen in OVL earnings in Q1FY25. Going forward, ramp-up of the KG basin asset remains the key performance driver over FY25-26E – this remains the key to production growth and earnings strength. We also expect a recovery in HPCL/MRPL’s earnings prospects coupled with reducing leverage in ONGC’s consolidated balance sheet. Reiterate BUY.

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