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Earnings slightly below expectation; strong dividend play story continues

ONGC’s 2QFY24 standalone EBITDA was 6.7% below JMFe at INR 184bn (though only marginally below consensus of INR 186bn) due to slightly lower crude sales volume, a little lower-than-expected oil & gas realisation and higher cess (at INR 36.6bn vs. JMFe of INR 33.9bn). Consolidated 1HFY24 EPS was INR 22.2/share; the board approved an interim dividend of INR 5.75/share for 1HFY24. Net crude realisation adjusted for windfall tax was a little lower at USD 72.3/bbl (vs. JMFe of USD 74.0/bbl); overall gas realisation was also slightly lower at USD 7.1/mmbtu (vs. JMFe of USD 7.3/mmbtu). We maintain BUY (revised TP of INR 225) given the strong dividend play (of 6-8%) and because CMP is discounting only ~USD 55-60/bbl of net crude realisation while our TP is based on FY25 net crude realisation of USD65/bbl.

* ONGC 2QFY24 EBITDA below JMFe but in line with consensus; 1HFY24 consolidated EPS is INR 22.2/share and declared dividend is INR 5.75/share: ONGC’s 2QFY24 standalone EBITDA was 6.7% below JMFe at INR 184bn (though only marginally below consensus of INR 186bn) due to slightly lower crude sales volume, marginally lower-than-expected oil & gas realisation and higher cess (at INR 36.6bn vs. JMFe of INR 33.9bn). Hence, standalone PAT was also significantly lower at INR 102bn vs. JMFe of INR 119bn (though only marginally below consensus of INR 103bn) aided by lower other income (INR 20.9bn vs. JMFe of INR 35bn). Consolidated EBITDA 2QFY24 was INR 295bn and consolidated PAT was INR 137bn; hence, consolidated 1HFY24 EPS was INR 22.2/share. The board approved an interim dividend of INR 5.75/share for 1HFY24 (or ~26% payout of 1HFY24 consolidated EPS).

* Crude sales volume slightly lower; crude & gas realisation also a tad lower: In 2QFY24, domestic crude sales volume was 2.9% below JMFe at 4.67mmt (down 1.2% QoQ and down 2.2% YoY) while crude production was 2.4% below JMFe at 5.3mmt (down 1.2% QoQ and down 2.1% YoY). Computed gross crude realisation was lower at USD 83.9/bbl, and net crude realisation, adjusted for windfall tax of USD 11.6/bbl (or INR 33.5bn), was also slightly lower at USD 72.3/bbl (vs. JMFe of USD 74.0/bbl). However, gas sales volume was largely in line at 4.1bcm (down 0.9% QoQ and down 3% YoY) though overall gas realisation was slightly lower at USD 7.1/mmbtu (vs. JMFe of USD 7.3/mmbtu and vs. USD 7.3/mmbtu in 1QFY24).

* OVL crude production declined; however, PAT recovered QoQ: In 2QFY24, OVL’s crude output declined 2.1% QoQ to 1.78mmt (vs. quarterly run-rate of 2mmt in FY22); and gas output was also down 2.9% QoQ to 0.81bcm (vs. quarterly run rate of 1.1bcm in FY22). However, OVL’s reported PAT recovered QoQ at INR 3.3bn in 2QFY24 partly aided by reversal of impairment of INR 1.0bn (vs. PAT of INR 16-18bn p.a. over FY21-23).

* Maintain BUY on strong dividend play and as CMP is discounting ~USD 55-60/bbl of net crude realisation: We maintain our FY24/FY25 estimates; however, TP has gone up to INR 225 (from INR 220) due to an increase in the value of listed investments (which is valued at CMP less 20% holding discount). We maintain BUY given strong dividend play (of 6- 8%) and because CMP is discounting only ~USD 55-60/bbl of net crude realisation while our TP is based on FY25 net crude realisation of USD65/bbl. ONGC is also a major beneficiary of the high domestic APM gas price of USD 6.5/mmbtu. Every USD 5/bbl rise/fall in net crude realisation results in increase/decrease in our EPS and valuation by 8.5-10% — Exhibit 8-9. At CMP, ONGC trades at 5.6x FY25E EPS and 0.7x FY25E BV (3- year avg. of ~0.6x).

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