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EBITDA marginally better than our estimates; while production and PBT in line

Our View ONGC’s Q1FY25 earnings saw marginally higher-than-estimated EBITDA on better other value-added product sales while crude and gas production was in line. The crude net realization was lower than our estimated while PBT was in line. Crude production experienced YoY & QoQ declines and the same with natural gas, an increase in production from both oil & gas, especially from KG basin remains the key. Other expenses and other income were in line, there was no dividend income. OVL's topline performance improved in crude and gas but the volumes stood flat for crude and lagged in gas production. OVL’s profitability improved YoY on better realizations & QoQ with no exceptional like in Q4FY24. We maintain a BUY rating on ONGC, with a revised TP of Rs 391/sh (Rs 385 earlier).

Result Highlights

* Performance: EBITDA/Adj. PAT was at Rs 186.2/89.4bn was down 4.3/10.8% YoY and +7%/-9.4% QoQ. (note: Exploration write-off costs are taken below EBITDA). EBITDA was higher than our estimates on better product sales while production for oil & gas and PBT was in line.

* Crude production: was down 1.4% YoY and 2.3% QoQ to 5.24mmt (was lower than the company target). Natural gas production was down 4.1% YoY and 1.8% QoQ to 5.0bcm.

* Crude and Gas realization: Net crude realization was down 2.7% YoY and 0.7% QoQ to USD 74.4/bbl. The gas realization was at USD 6.3/mmbtu. Windfall taxes of USD 8.6/bbl vs USD5.6/bbl last qtr.

* Depreciation including exploratory write-off stood at Rs 75.4bn up 12.6% YoY and 4.8% QoQ.

* Finding cost: increased to 9.4/bbl, at last 3 years’ average. The statutory levies as a % of revenue stood at 27.7% (versus 26.1% YoY and 22% QoQ).

* Other expenses at Rs 53.1bn (was up 7% YoY but down 29% QoQ). The other income at Rs20.6bn, up 28% YoY and down 44% QoQ. There was no dividend income.

* OVL performance: production for crude at 1.79mmt (vs 1.78 YoY and 1.81 QoQ) and gas at 0.72bcm (vs 0.84bcm YoY and 0.83bcm QoQ) was weakest ever. The EBITDA at Rs 11.7bn was up 38% YoY and down 38% QoQ while PAT at Rs 4.7bn was up 2.7x YoY and 7.3x QoQ.

Valuation

We maintain a BUY rating on ONGC, with a revised TP of Rs 391/sh (Rs 385 earlier). Our TP of Rs 391/sh comprises of a) Rs 316/sh for the stand-alone domestic business, valued on 4.8x EV/EBITDA FY26e, b) Rs 8.4/sh for OVL on PER of 8x FY26e, c) Rs 66.6/sh for investment in listed equities, valued at 30% hold-co discount to market price.

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