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Rising crude prices led to higher realizations

*  ONGC reported an in line EBITDA of INR259.3b (up 113% YoY and 39% QoQ), with an in line oil realization at USD108.5/bbl (up 65% YoY and 14% QoQ) and crude oil sales at 5mmt (flat YoY and QoQ).

* Although we expect crude oil prices to hover at USD60-70/bbl in the long run, the prevailing strength made us raise our FY23/FY24 realization estimate to USD79/USD90 per bbl after factoring in the impact of the windfall tax. In our base case, we have assumed a continuation of the windfall tax till Dec’22. Any continuation beyond that may result in EPS cuts. We build in domestic gas price realization of USD7.7/USD5.7 per mmBtu in FY23/FY24

* We expect a gas/oil production of 3% CAGR each over FY21-24. Factoring all this, we have largely left unchanged our standalone EBITDA estimate, but have reduced our consolidated EBITDA estimate by 17%/4% for FY23/FY24 due to a sharp cut in HPCL’s projections. We value the company at 3.5x FY24E adjusted EPS of INR41.1 and add value of investments to arrive at our TP of INR177. We maintain our Buy rating

EBITDA in line; rising crude oil prices led to higher realizations

* Crude oil sales stood flat YoY and QoQ at 5mmt. Gas sales too stood flat YoY and QoQ at 4.1bcm. VAP sales were muted at 671tmt, down 14% YoY and 13% QoQ.

* Net realization stood in line at USD108.5/bbl, up 65% YoY and 14% QoQ. Revenue stood marginally above our estimate at INR423b, up 84% YoY and 23% QoQ

* EBITDA increased by 113% YoY and 39% QoQ to INR259b. Reported PAT was marginally higher than our estimate at INR152.1b, up 251% YoY and 72% QoQ.

* OVL: PAT stood at INR1.3b v/s a loss of INR12.3b in 4QFY22 and a gain of INR9.1b in 1QFY22

Reiterate our Buy rating

* Although the ramp up in oil and gas production has been a sore issue for investors, the rise in the price of the same is likely to result in a 5.5x jump in its standalone FY24E adjusted PAT from FY21 levels.

* The stock is trading at 1.5x FY24E EV/EBITDA and 2.4x FY24E P/E. We value the stock at 3.5x FY24 adjusted EPS of INR41.1 and add the value of investments to arrive at our TP of INR177. We reiterate our Buy rating with a potential upside of 27%. The key risk to our rating will be a sharp decline in oil prices or the continuation of windfall taxes beyond Dec’22.

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