Motilal Oswal terms ONGC as the top oil bet for 2023

The brokerage mentioned that while delay in project execution has hurt ONGC production, the floor price of domestic gas has come to its rescue

Brokerage Motilal Oswal Financial Services has retained its 'Buy' call on ONGC with a target price of Rs 198 per share, adding that 2023 will most likely be a defining year for the oil major with two prominent triggers.

These are: a) a rise in domestic oil & gas production, and b) possible floor on gas realization. "Considering the great conjunction in addition to the cushion provided by the high dividend yield of 13.6% in FY23, we retain our BUY rating on ONGC with a TP of Rs 198, making it the top idea for 2023 in the sector," the brokerage said in a note.

While stressing on delays in project execution, the brokerage sees an upside owing to the firm's floor price: For 10 quarters, domestic APM gas price was

below USD3/mmBtu (NCV), roughly the cost of gas production for ONGC. For another eight quarters, ONGC barely made any money on its gas production with domestic gas prices being below USD3.5/mmBtu (NCV). The floor of USD4.0/mmBtu recommended by Kirit Parikh, thus, provides a fillip to its profitability from the nominated fields as well as incentivizes ONGC to raise production that would garner a 20% premium over the prevailing APM gas price," the brokerage said.

The brokerage sees downside risk from capital misallocation, increase in windfall taxes or sharp decline in oil prices, and non-implementation of a floor for APM gas.

For the quarter ended 30-09-2022, the company has reported a consolidated income of Rs 170984.28 crore, down -7.15 % from last quarter. Company has reported net profit after tax of Rs 7291.30 crore in latest quarter.