Buy Oil and Natural Gas Corporation; target of Rs 273: Prabhudas Lilladher

Prabhudas Lilladher's research report on Oil and Natural Gas Corporation

Mixed sales profile of standalone oil (-3% QoQ) and gas (flat QoQ) combined with sharply lower oil price realization of USD66.1/bbl in Q1 vs USD73.7/bbl in Q4FY25 resulted in revenues of Rs320bn, -9% QoQ (Ple Rs322bn, BBGe Rs322bn). EBITDA of Rs186.6bn (-2% QoQ) was in-line with our estimate of 187.6bn & consensus of Rs182bn. Lower DDA/write-offs of Rs80bn vs Rs111bn in the previous quarter was partially countered by lower other income of Rs12.1bn (Ple Rs26.7bn) vs Rs20.7bn in Q4, but still resulted in PBT rising by 23% QoQ to Rs107.4bn (PLe Rs107bn). PAT stood at Rs80.2bn, +24% QoQ (PLe Rs95.9bn, consensus Rs82.9bn). Going ahead, we build in 4-5% volume growth in oil and gas production in FY26E. The stock is currently trading at 7.2x FY26 conso EPS.

Outlook

We upgrade the stock from ‘Accumulate’ to ‘Buy’ with a target price of Rs273 (earlier Rs284), valuing standalone segment at 9x FY27 adj EPS and adding the value of investments. Key risk to our recommendation is decline in oil prices. With every USD5/bbl change in oil price realization, conso EPS is impacted by 8-9%.