Buy ONGC; target of Rs 220: Motilal Oswal

Motilal Oswal is bullish on ONGC recommended buy rating on the stock with a target price of Rs 220 in its research report dated August 12, 2023.

Broker Research

August 23, 2023 / 11:41 IST

Buy

26 Aug, 2025 12:21

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Motilal Oswal's research report on ONGC

ONGC’s reported EBITDA stood at INR194.5b (-25% YoY, +19% QoQ), 8% above our estimate, due to slightly higher gas realization and lower profit petroleum. As per earlier guidance, management expects oil production from KG-DWN98/2 to commence by Aug’23 in an optimistic scenario and by Oct’23 in a worst-case scenario. The peak oil production is likely to be ~40-45kbopd. Although the levy of windfall tax by the Center with a fortnightly revision raised concerns on realizations of upstream companies, the government has adjusted windfall taxes in line with crude oil fluctuations. Our estimate suggests that the government is allowing a post-windfall realization of USD68-81/bbl and we expect it to remain at ~USD70/bbl from 2QFY24 onwards. The implementation of the Kirit Parikh Committee's recommendations from Apr'23 has provided the much-needed respite to the company, as it had to sell gas below the cost of production for quite a long time. We build in gas price assumptions of USD6.7/mmBtu for FY24-FY25E. Additionally, ~6-8% of APM gas production comes from new wells that will attract 20% premium as per the new pricing policy.

Outlook

We value the standalone business at 6x FY25E adj. EPS of INR30.8 and add the value of investments to arrive at our TP of INR220, implying 24% potential upside. We reiterate our BUY rating on the stock.

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