IGI Logo

ONGC reported Q2FY24 SA EBITDA of Rs171.2bn, a 5% beat, led by higher closing stock and lower opex and survey cost-dry well write-offs. PAT was a 2% beat at Rs102.2bn on lower other income. Oil/gas production was a marginal 1-2% miss (down 2/3% YoY) at 5.25mmt/5.2bcm due to a natural decline and temporary shut-down in Panna-Mukta field. OVL’s Q2 consolidated EBITDA improved 45% QoQ to Rs14.9bn, led by better realization. ONGC has officially stated its first KG-basin oil to start this month at ~10kbpd, with peak oil of ~45kbpd by FY25E. ONGC expects 4-5% YoY volume growth in FY25E mainly led by KG-basin. Capex for FY24 is expected at ~Rs300bn, while APM gas pricing premium modalities have been submitted by DGH to MOPNG. We trim FY24-25E SA EPS by 3-4% each on lower other income, while raising Sep-24E TP (rolled over) by 7% to Rs235/sh. We maintain our positive view and BUY rating.

ONGC: Financial Snapshot (Standalone)

Result Highlights

Nominated block crude realization discount to Brent was at USD1.9/bbl vs. USD1.7/bbl in Q1. Revenue was a marginal 1% miss on lower gas revenue, largely offset by higher LPG and naphtha income. Production cost in Q2 was 15% below our estimate at Rs60.1bn. Statutory levies came 13% above our estimate at Rs107.9bn mainly on higher windfall levy (due to inventory adjustments). Survey cost rose 78% YoY to Rs3.6bn vs. our estimate of Rs10bn, while dry-well write-offs were lower at Rs8.8bn vs. Rs15bn est. DD&A fell 6% QoQ to Rs47.2bn, 5% below our estimate, mainly due to lower depletion and impairment reversal. Finance cost rose 1% QoQ to Rs10.2bn (vs. our est: Rs11.1bn), while other income fell 41% YoY to Rs20.9bn (vs. our est: Rs32bn). H1 consolidated EPS rose 38% YoY to Rs22.2/share, led by HPCL’s earnings recovery. OVL’s core PAT stood at Rs2.2bn, as crude output rose 19% YoY but fell 2% QoQ, while gas output fell 12% YoY/3% QoQ with crude realization improving to USD23.4/bbl (vs. USD20.0/bbl in Q1). ONGC’s H1FY24 cash capex was Rs157bn vs. FY24 target of ~Rs301bn. The board has declared an interim dividend of Rs5.75/share, implying ~36% payout on H1 earnings.

Management KTAs

First oil from KG-98/2 is expected from the end of this month. The initial output would be ~10kbopd, which will ramp up to 45kbopd peak in FY25. The gas platform will be ready from Apr-24 and gas production will start from May-Jun 2024. Peak gas output of 10mmscmd will also be hit in FY25. Production outlook for ONGC SA is 1%/4-5% YoY growth in FY24/25E on the base of 40.21mmtoe in FY23. OVL output is expected at 10.68/11/11.22 mmtoe in FY24/25/26E. Communication w.r.t. to premium pricing for new APM gas wells is awaited as DGH committee has submitted a report to the MOPNG and final guidelines should be out soon. ONGC is exploring two petchem projects (excl. OPaL) amounting to Rs1trn investments by 2028-30 through the JV mode. Capex runrate ahead can be Rs330-350bn p.a., though dividend payout would be maintained.

Valuation

We value ONGC on DCF-based SOTP, comprising SA, KG 98/2, OVL and OPaL. Investments are valued at our TP/CMP, with a 30% holdco discount. Key risks: Adverse oil-gas prices, policy issues, local tensions, cost overruns, outages and dry holes.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf

& SEBI Registration number is INH000000354