Hold Oil and Natural Gas Corporation; target of Rs 130: ICICI Direct

ICICI Direct's research report on Oil and Natural Gas Corporation

ONGC declared its O2FY20 results, which were largely in line with our estimates on the operational profitability front. Revenues declined 7.8% QoQ at Rs 24492.6 crore on account of lower realisations as well as sales volume QoQ. oil & gas production was marginally below our estimates. As per expectations, the quarter saw nil subsidy burden and net realisations were at US$60.3/bbl due to a decline in crude oil prices. Subsequently, EBITDA during the quarter declined 12.1% QoQ and came in at Rs 13290 crore. However, reported PAT increased 6.1% QoQ to Rs 6263.1 crore (our estimate: Rs 5925.7 crore) on account of higher other income.

Outlook

The movement in oil prices and subsidy sharing are important for ONGC's performance, going ahead. We model oil prices of US$ 60/bbl for the rest of FY20E and FY21E, given the current oil market scenario. However, due to lower growth on a sustainable basis, in spite of lower valuation, we have a HOLD rating with a target price of Rs 130/share. We value the core business i.e. standalone & OVL at Rs 107/share (6x FY21E core earnings) & investments at Rs 23/share (50% discount to current MCap). Market driven domestic gas prices in future would be a key risk to our target price.

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