Buy ONGC; target of Rs 535: KRChoksey

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26 Aug, 2025 12:21

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KRChoksey`s research report on ONGC"ONGC reported net profit of Rs 4,782 crs down 2.2% QoQ and up 19.1% YoY, the decrease is mainly on account of higher DDA expenditure of Rs 6,390 crs, on account of Rs 3,830 crs write-off of dry wells, comprising Rs 1800 crs of deepwater assets write offs. ONGC’s net crude price realization rose 17% YoY and 44% QoQ, the rise is mainly on account of lower subsidy discount of USD56/bbl combined with higher gross realization which increased to $109.5/bbl on better light crude realisations. Upstream contributed ~54.2% in Q1FY15, ONGC’s share of Rs 13,200 cr among upstream companies was at 85%. Other income was lower at Rs 1,000 crs. The company has paid a royalty of Rs 600 crs to the Gujarat government during the quarter, which is shown as a deposit and not as an expense. Total liability on account of royalty for previous periods is Rs 12,000 crs. The Centre is likely to file its response to the Gujarat royalty case in the Supreme Court. The company indicated that it would be capitalising interest cost on its Mozambique debt. Standalone cash currently stands at Rs 14000 crs. While the domestic production for 1QFY15 remained flat, OVL’s production increased 6.6% YoY and production from new projects (domestic) has begun and we believe management will achieve its FY15 production guidance.""We remain positive on the stock in the light of regular diesel price hikes, benefit of direct cash transfer for subsidy on LPG cylinders, benefit of gas price hike in FY15, increasing production from OVL, cheap valuations and weaker rupee. We expect some clarity to emerge on both subsidy sharing front and gas price hike front on account of the upcoming FPO which will be positive policy trigger for the stock. However, we believe that the net realizations for the company will continue to be on the lower side with higher subsidy burden imposed on the upstream companies. At CMP of Rs 402, the stock is trading at 9.5X of its estimated PE FY16E. We recommend a BUY on the stock with a Price Objective (PO) of Rs 535,” says KRChoksey research report.

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