Buy Oil and Natural Gas Corporation; target of Rs 220: ICICI Securities

ICICI Securities research report on Oil and Natural Gas Corporation

ONGC has reported 28% YoY dip in standalone EBITDA and 34% dip in recurring PAT for Q1FY24 (EBITDA / PAT was INR 182.5bn / INR 100.1bn vs I-Sec estimate of INR 154.3bn / INR 66.8bn, respectively), with consolidated recurring EBITDA / PAT up 59% / 12% YoY led by stronger performance from subsidiaries HPCL and MRPL. We note even at a realisation of USD 75.5/bbl for oil and ~INR 21/scm for gas, our standalone and consolidated EPS estimates of INR 38.4/sh and INR 39.3/sh for FY24E are well above the average EPS for FY22/FY23, respectively. With stronger production from KG field likely available by FY25, our FY25E EPS estimate of INR 45.6 signifies stronger earnings prospects, even with capped realisations on oil and gas. We believe valuation at 3.9x FY24E consolidated EPS and 2.5x EV/EBITDA remains attractive. Reiterate BUY.

Outlook

We cut our FY24E and F25E EPS by 5.1% and 1.6%, respectively, to factor in lower gas production and marginally lower realisation. However, stronger long-term price assumptions and stronger cashflow drive a small 1% uptick in the target price to INR 220/sh, 24% upside from CMP. Maintain BUY.