IGI Logo

Outlook intact amid steady performance

* ONGC’s reported EBITDA stood at INR194.5b (-25% YoY, +19% QoQ), 8% above our estimate, due to slightly higher gas realization and lower profit petroleum.

* As per earlier guidance, management expects oil production from KG-DWN98/2 to commence by Aug’23 in an optimistic scenario and by Oct’23 in a worst-case scenario. The peak oil production is likely to be ~40-45kbopd.

* Although the levy of windfall tax by the Center with a fortnightly revision raised concerns on realizations of upstream companies, the government has adjusted windfall taxes in line with crude oil fluctuations. Our estimate suggests that the government is allowing a post-windfall realization of USD68-81/bbl and we expect it to remain at ~USD70/bbl from 2QFY24 onwards.

* The implementation of the Kirit Parikh Committee's recommendations from Apr'23 has provided the much-needed respite to the company, as it had to sell gas below the cost of production for quite a long time. We build in gas price assumptions of USD6.7/mmBtu for FY24-FY25E. Additionally, ~6-8% of APM gas production comes from new wells that will attract 20% premium as per the new pricing policy.

* We value the standalone business at 6x FY25E adj. EPS of INR30.8 and add the value of investments to arrive at our TP of INR220, implying 24% potential upside. We reiterate our BUY rating on the stock.

Production and oil realization in-line

* Crude oil sales stood at 4.7mmt, gas sales stood at 4.1bcm (both in line).  VAP sales was also in line at 589tmt.

* Reported oil realization was in line with our est. at USD76.5/bbl.

* Net of windfall tax, realization stood at USD74/bbl.

* The company reported revenue 7% above our est. at INR338.1b, due to slightly higher gas realization and lower profit petroleum.

* Gas realization stood at INR6.71/mmBtu (vs. our est. of INR6.5mmBtu).

* The company reported a profit petroleum of INR3b (vs. our est. of INR7.2b).

* EBITDA came in 8% above our est. at INR194.5b (down 25% YoY, up 19% QoQ).

* PAT came in at 10% above our est. at INR100.2b (down 34% YoY).

Valuation and view

* The company intends to add more than 100,000 sq. km of exploratory area each year, while also spending INR100b each year on exploration.

* The capex guidance for FY24 stands at INR301b. The company had recently approved three new projects for a capex of INR58.8b. It is also looking at INR70-80b of petchem expenditure at MRPL and might also consider constructing a new petchem facility for a budget of INR300-400b.

* ONGC is trading at 2.8x FY24E EV/EBITDA and 4.1x FY24E P/E. We value the company at 6x FY25E adj. EPS of INR30.8 and add the value of investments to arrive at our TP of INR220. We reiterate our BUY rating on the stock with a 24% potential upside.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer