ONGC Is In A Sweet Spot, Brokerages Say

ONGC Ltd. reported quarterly profit that was below estimates weighed by lower other income, foreign exchange losses and taxes, according to analysts.

The biggest Indian oil and gas producer's profit rose Rs 6,140 crore in the quarter-ended June from Rs 3,880 crore a year ago, according to an exchange filing on Thursday. That compares with a Rs 6,700 crore estimate from 18 analysts polled by Bloomberg.

However, the operating income, or Ebitda, met most brokerage estimates as the state-run company reported its highest-ever net realisations in the last at least 11 years. Net realisation stood at $74.2 a barrel (inclusive of VAT and CST) helped by high crude oil and gas prices.

ONGC is expected to give the highest return among stocks in the S&P BSE Oil & Gas index, according to the analysts tracked by Bloomberg. The 12-month consensus price target for ONGC around Rs 226, which suggest a return potential of 36 percent.

Here's what the brokerages said post ONGC's Q1 performance

JPMorgan

• Net profit impacted by lower other income and higher tax
• Second-highest net realisation drives Ebitda beat
• Debt for acquisitions has declined and should fall further
• Expect sequential pickup in crude production and full benefit of rupee depreciation to flow
• Maintain ‘Overweight' with target price of Rs 265.

CLSA

• ONGC is now the cheapest among global large-cap exploration and production of hydrocarbons companies.
• Expect clarity on subsidy in three months, which could be a huge re-rating trigger
• Buy for attractive risk-reward
• Maintain ‘Buy' with target price of Rs 240

Antique

• Absence of subsidy burden ensures higher crude oil realisation.
• Higher crude oil realisation shores up profitability.
• Projects under implementation to ensure higher production.
• Revised earnings estimate to adjust for weaker rupee and stronger crude oil prices.
• Maintain ‘Buy'; Raise target price to Rs 225 from Rs 210.

Jefferies

• Solid strong start to the year.
• Expect earnings per share to rise in FY19 despite subsidies.
• Risk-reward favourable even with subsidy burden.
• Maintain ‘Buy' with target price of Rs 225

Motilal Oswal

• ONGC is on a strong footing.
• In-line Ebitda with estimates; no subsidy burden yet.
• Gas production and sales up; expect gas production to increase 10 percent annually.
• Expect lower opex and higher realisations in absence of subsidy burden.
• Maintain ‘Buy' with target price of Rs 219.

Nomura

• Adjusted Ebitda ahead of estimates.
• Expect EPS growth of 43 percent driven by higher oil prices in FY19.
• Maintain ‘Neutral' with target price of Rs 185.