Hold Oil and Natural Gas Corporation; target of Rs 190: Sharekhan

Sharekhan's research report on Oil and Natural Gas Corporation

Q1 performance was strong with an 8% beat in standalone PAT at Rs. 10,015 crore (up 62% q-o-q) led by better-than-expected oil & gas realisations, significantly lower operating cost and higher other income. Net oil/gas realisation of $74/bbl and $7.1/mmBtu was above estimate while employee/ other expenses declined sharply by 7%/28% q-o-q. Volume performance was mixed with in-line oil sales volume of 4.7mmt (up 1% q-o-q) and 2% miss in gas sales volume at 4.1bcm (down 1.1% q-o-q). We increase our FY24/FY25 earnings estimate by 6%/9% to factor lower opex. The current pricing mechanism provides earnings visibility but capping of oil & gas realisation limits any earnings surprise over FY24-25 unless KG 98/2 block sees faster ramp-up. Any significant benefit from 20% premium on APM gas price cap of $6.5/ mmBtu for gas production from new wells needs to be watched before building any likely improvement in gas price going forward.

Outlook

We maintain a Hold rating on ONGC with a revised PT of Rs. 190. Stock trades at 5x/0.7x its FY2025E EPS/BV and offers healthy dividend yield of ~8%.

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