ONGC Q1 Review: Higher Oil Prices, Realisations To Drive Profits, Say Brokerages

State-run Oil and Natural Gas Corporation's profitability is likely to be driven by higher crude oil and gas prices and better realisations on their sale, according to analysts.

The rise in prices will result in a 5.5 times jump in its estimated standalone adjusted profit after tax for FY24 from FY21 levels, brokerage Motilal Oswal said in a report.

ONGC's net profit in the first quarter rose 72% sequentially and 251% over last year to Rs 15,200 crore. Shares of ONGC were trading 1.3% lower on Tuesday compared with a 0.6% rise in the BSE S&P Sensex.

Of the 29 analysts tracking the company, 21 maintain 'buy' and four each suggest 'hold' and 'sell'. The overall consensus price of analysts tracked by Bloomberg implies an upside of 27.5%.

Here is what brokerages said about ONGC’s Q1 earnings:

Motilal Oswal

• ONGC reported an in-line Ebitda of Rs 25,930 crore (up 113% YoY and 39% QoQ), with an in-line oil realisation at $108.5 per barrel (up 65% YoY and 14% QoQ) and crude oil sales at 5 MMT (flat YoY and QoQ).

• While the brokerage expects crude oil prices to hover at $60-70/bbl in the long run, due to the prevailing strength, it raised its FY23/FY24 realisation estimate to $79-90 per bbl after factoring in the impact of the windfall tax.

• Although the ramp up in oil and gas production has been a sore issue for investors, the rise in the price of the same is likely to result in a 5.5x jump in its standalone FY24E adjusted PAT from FY21 levels.

• The stock is trading at 1.5x FY24E EV/Ebitda and 2.4x FY24E P/E. The brokerage value the stock at 3.5x FY24 adjusted EPS of Rs 41.1 and add the value of investments to arrive at target price of Rs 177.

Emkay Global Research

• ONGC reported the highest-ever standalone PAT, on higher prices. Output growth was also seen in the quarter.

• While crude cess would lower the earnings run-rate going ahead, we

• are reassured by the periodic review and believe earnings downsides to be protected.

• With gas prices more than double yoy currently, ONGC’s FY23 earnings outlook is strong, even if status quo is maintained with a dividend yield of 8-9%.

• Value ONGC on a DCF-based SOTP, comprising S/A, KG 98/2, OVL and

• Mozambique upsides. Investments are valued at target price or CMP, with a 30% holdco discount.

• Key risks: Adverse oil-gas prices, policy issues, cost overruns and dry holes.

HDFC Securities

• The estimates are based on increase in crude price realisation and improvement in domestic gas price realisation.

• Q1FY23 revenue/Ebitda/APAT stood at Rs 42,300 crore /Rs 25,900 crore /Rs 15200 crore, below its estimates, on account of higher other expenses, depreciation and interest cost.

• The earnings were partially offset by higher-than-expected other income.

• Crude oil and gas production were broadly in line, but total crude oil sales, including joint venture share, were below estimates.