ONGC Q1 Results Review - Outlook Intact Amid Steady Performance: Motilal Oswal

Motilal Oswal Report

Oil and Natural Gas Corporation Ltd.’s reported Ebitda stood at Rs 194.5 billion (-25% YoY, +19% QoQ), 8% above our estimate, due to slightly higher gas realisation and lower profit petroleum.

As per earlier guidance, ONGC's management expects oil production from KG-DWN98/2 to commence by August 2023 in an optimistic scenario and by October 2023 in a worst-case scenario. The peak oil production is likely to be ~40-45k barrels of oil per day.

Although the levy of windfall tax by the Center with a fortnightly revision raised concerns on realisations 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 $68-81/barrel of oil and we expect it to remain at ~$70/bbl from Q2 FY24 onwards.

The implementation of the Kirit Parikh Committee's recommendations from April 2023 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 $6.7/metric million British thermal unit for FY24-FY25E. Additionally, ~6-8% of administered pricing mecahnism gas production comes from new wells that will attract 20% premium as per the new pricing policy.

We value the standalone business at six times FY25E adjusted earnings per share of Rs 30.8 and add the value of investments to arrive at our target price of Rs 220, implying 24% potential upside. We reiterate our 'Buy' rating on the stock.

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