Macquarie has maintained its 'Outperform' rating on ONGC with a target price of Rs 290, implying an upside of 20% from current levels, even as the brokerage flagged weaker production volumes as the key overhang for the state-run explorer.
The brokerage said ONGC's June-quarter earnings beat both its estimates and the Visible Alpha consensus, aided by favourable crude oil realisations. While oil production declined 5.5% year-on-year to 5 million metric tonnes and gas production fell 2.3% to 4.9 bcm, stronger pricing more than offset the volume weakness.
Standalone EBITDA surged 65% year-on-year to Rs 284 billion, comfortably ahead of estimates, while net profit more than doubled on the back of higher crude realisations.
Macquarie continues to see ONGC as attractively valued, citing expectations of higher production volumes over time, stronger gas realisations and an 8% dividend yield supporting its positive stance.
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Volume Woes
Macquarie noted that volume inflection has now been pushed to FY28, making realisations the primary earnings driver in the near term. The brokerage believes the gas business will play a larger role going forward, with natural gas realisations rising to $13.3/mmbtu or Metric Million British Thermal Unit in the June quarter from $8.1/mmbtu in FY26. Natural gas now accounts for around 38% of ONGC's nomination gas portfolio.
The brokerage also highlighted ONGC's recently announced Rs 40,000 crore ($4.2 billion) investment programme in the Western Offshore basin, which is expected to progressively support production growth from FY28 onwards.
Macquarie said the key monitorables during the earnings call will be the volume ramp-up trajectory in the Western Offshore fields and natural gas business, capex phasing, and dividend guidance.
Management has guided for natural gas to contribute 25% of total gas production by FY27, a trend the brokerage believes could become a meaningful earnings lever if execution remains on track.
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