Motilal Oswal terms ONGC as the top oil bet for 2023

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.