Buy Oil & Natural Gas Corporation Ltd For Target Rs. 297 By Geojit Financial Services Ltd
High crude oil and gas prices boost revenue
Oil and Natural Gas Corporation Ltd (ONGC) specialises in the exploration and production of crude oil and gas. ONGC has joint ventures (JVs) in oil fields in Vietnam, Norway, Egypt, Tunisia, Iran and Australia
* In Q1FY27, standalone revenue from operations increased 45.2% YoY to Rs. 46,460cr, aided by significantly higher crude oil and gas realisations and an increasing contribution from premium-priced new-well gas.
* Offshore revenue was Rs. 33,337cr (+50.9% YoY), while onshore revenue was Rs. 13,123cr (+32.3% YoY)
* Crude oil realisation from nominated fields rose 50.4% YoY to $99.45/bbl, while JV crude oil realisation increased 52.3% YoY to $103.34/bbl.
* ONGC's standalone crude oil production declined 4.9% YoY to 4.45 MMT, while natural gas production stood at 4.76 BCM, down 1.9% YoY.
* EBITDA grew 65.0% YoY to Rs. 28,355cr and margin expanded 730bps YoY to 61.0%, aided by stable operating expenditure despite inflationary and adverse exchange-rate pressures. Profit after tax (PAT) increased 112.3% YoY to Rs. 17,034cr in Q1FY27.
Outlook and valuation
ONGC delivered a strong Q1FY27 aided by firm realisations and a richer gas mix. We raise FY27E/FY28E EPS by 34.8%/6.2% to Rs. 40.2/33.1, reflecting higher postHormuz crude-price assumptions and rising premium new-well gas. The upgrade is underpinned by the BP-led Western Offshore redevelopment lifting Mumbai High above baseline & ONGC Videsh's Sakhalin-driven revival. With the government notifying Samudra Manthan, a Rs. 84,084cr state-funded deepwater exploration mission, ONGC stands to benefit from largely reimbursed well costs and expanded offshore acreage, which further enhances the firm's reserve-accretion optionality at minimal financial risk. Therefore, we retain our BUY rating on the stock, with a revised target price of Rs. 297 based on SOTP valuation. Downside risks include a sharp crude correction, KG-98/2 reservoir complexity, HPCL under-recoveries, and the PMT arbitration liability.
Key concall highlights
* ONGC Green’s renewable portfolio reached 2.853 gigawatt (GW), supported by organic expansion and acquisitions, with a 250 megawatt (MW) wind project awarded in Q1FY27.
* The company is implementing a ~Rs. 40,000cr capital investment programme in Western Offshore across pipeline replacement, reservoir and pressure management, enhanced water injection, production system upgrades and field development initiatives
* Production was impacted by reservoir-related challenges at the KG-DWN-98/2 deepwater block, project commissioning activities in Western Offshore and lower gas offtake from certain isolated fields,
* The management expects benefits from major Western Offshore projects to materialise progressively from FY28 onwards.
* ONGC has commenced drilling of its first deepwater exploratory well in the Mahanadi Offshore Basin under the Samudra Manthan programme.
* Mumbai High Technical Service Provider delivered production at ~107% of contractual baseline oil production and 113% of contractual baseline gas production.
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