ONGC Q1 Review: Motilal Oswal Downgrades To 'Neutral On Weak Volume Growth, Muted Oil Price Outlook

Motilal Oswal cut its stance on ONGC shares to ‘Neutral’ from ‘Buy’ and lowered the stock’s target price to Rs 230 (from current market price Rs 239), citing sector underperformance and weak forward earnings visibility.

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Motilal Oswal Report

In the past few quarters, Oil and Natural Gas Corporation Ltd. has struggled to raise production/sales, with no meaningful production/sales growth YoY of Q1.

Further, we like the increased exploration intensity (which is key to building a robust development pipeline), though we believe it will likely be accompanied by higher dry well write-offs, which will weigh on earnings. Also, the benefits of increased new well gas proportion for ONGC will be mostly offset by subdued gas realization amid a weaker crude oil price outlook.

Given continued weak volume growth, we cut our FY26/FY27 SA EPS estimates for ONGC by 6%/11%. On our revised estimates, ONGC will report SA PAT CAGR of -8% over FY25-27.

Given a sluggish earnings outlook, we cut FY27 PE multiple to six times. Owing to the above factors, we downgrade ONGC to Neutral.

We arrive at our SoTP-based target price of Rs 230 as we model a CAGR of 2%/4% in oil/gas production volume growth over FY25-27.

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