Hold Oil and Natural Gas Corporation; target of Rs 170: Sharekhan

Sharekhan's research report on Oil and Natural Gas Corporation

Q4FY23 results were weak with a reported net loss of Rs. 248 crore due to large one-time provision of Rs. 9,235 crore related to a disputed service tax & GST on royalty. Adjusted PAT of Rs. 6,178 crore (down 44.1% q-o-q) lagged our estimate by 42% due to higher opex and exploration cost write-off (up 2.8x q-o-q). Volume growth was subdued with a miss of 3%/5% in oil/gas sales volume at 4.7 mmt (flat q-o-q) and 4.1 bcm (down 2% q-o-q) respectively; net oil realisation post SAED of $76.5/bbl was in-line. OVL posted PBT loss of Rs. 1099 crore (versus positive PBT of Rs. 1,076 crore in Q3FY23) while MRPL reported PAT of Rs. 1,908 crore (versus Rs. 188 crore net loss in Q3FY23). New APM gas price formula provides visibility on improvement in gas price and 20% premium on APM gas price cap of $6.5/mmBtu for gas production from new wells provides upside risk to our gas realisation. Having said that, earnings of upstream PSUs peaked in FY23 and would decline in FY24 due to APM gas price and normalization of crude oil price.

Outlook

We maintain our Hold rating on ONGC with a revised PT of Rs. 170. Stock trades at 4.8x/0.7x its FY2025E EPS/BV and offers healthy dividend yield of ~8%.