Buy ONGC; target of Rs 340: Motilal Oswal

Motilal Oswal's research report on ONGC

ONGC’s reported EBITDA stood at INR174b (+7% YoY) in 4QFY24, 3% below our estimate, mainly due to higher-than-expected other expenses. The sharp rise in other expenses was due to one-off charges of INR9b for tax-related matters. 4Q PAT was 13% higher than our estimate, mainly aided by lowerthan- expected depreciation and dry well write-offs.ONGC management expects total production (excl. JV) to rise to 47mmtoe in the next three years from 39mmtoe now, mainly driven by KG-98/2 and Daman upside development. Gas production from the KG-98/2 asset, which will begin in 3QFY25, is expected to ramp up to 10mmscmd by FY25 end, while oil production could ramp up to 45,000bopd by 4QFY25. FY24 capex stood at INR370b, attributed to one-off projects and the capitalization of some expenses. ONGC expects capex to normalize at INR330-350b in FY25.

Outlook

ONGC is trading at 2.8x FY26E EV/EBITDA (SA) and 7.1x FY26E P/E (SA). We value the company at 7x FY26E adj. EPS of INR34 and add the value of investments to arrive at our TP of INR340. We reiterate our BUY rating on the stock with a 21% upside potential.