Hold Oil and Natural Gas Corporation; target of Rs 165: Sharekhan

Sharekhan's research report on Oil and Natural Gas Corporation

Q3FY2023 operating profit of Rs. 20,411 crore (up 8.5% q-o-q) was largely in-line as lower oil and gas sales volume and higher cost were offset by lower statutory levies. PAT of Rs. 11,045 crore (down 14% q-o-q) missed estimates due to higher DD&A. Oil/gas sales declined by 7.9%/2.6% y-o-y to 4.7mmt/4.2bcm; net crude oil realisation increased 6% q-o-q to $76.7/bbl (gross realisation of $87.1/bbl minus SAED impact of $10.4/bbl). OVL posted PAT of Rs. 549 crore (versus loss of Rs. 440 crore in Q2FY2023), while MRPL reported net loss of Rs. 188 crore due to subdued GRM of $3.9/bbl. Management has guided for production growth of 1%/4-5% for FY2023E/FY2024E with KG 98/2 to witness peak production in FY2025. In our view, earnings of upstream PSUs would peak in FY2023 and decline going forward due to likely capping of domestic gas price and normalisation a crude oil price. Likely withdrawal of windfall tax is key to improve investor sentiments.

Outlook

We maintain our Hold rating on ONGC with a revised PT of Rs. 165. The stock trades at 4.8x/0.7x its FY2025E EPS/BV and offers high dividend yield of ~8%.