Buy ONGC With A Target Price of Rs 208 As Suggested By HDFC Securities

The stock of Oil and Natural Gas Corporation Ltd (ONGC) has been recommended for buy by HDFC Securities Limited with a target price of Rs 208. The stock is trading at a market price of Rs 155 on the National Stock Exchange and the brokerage estimates an upside potential of around 34%. ONGC is Indias largest crude oil and natural gas company, accounting for over 71% of domestic output. According to the brokerage, ONGCs Revenue for Q2FY22 stood at INR 244bn (+44% YoY, +6% QoQ). EBITDA was at INR 132bn (+57% YoY, +9% QoQ) due to lower opex. APAT in Q2 was INR 129bn, up 5x YoY, 3x QoQ, mainly on account of lower tax regime adopted by the company. The companys Q2 crude oil realisation was USD 71.1/bbl (+72% YoY, +6% QoQ), while gas realisation was USD 1.9/mmbtu (-25% YoY, -1% QoQ). Oil sales volume was 4.3mmt (-3%YoY, -2%QoQ). Gas sales volume was 4bcm (-7% YoY, +4% QoQ) reported the brokerage. HDFC Securities has said in its research report that according to the takeaways of the managements conference call Capex guided at INR 290-320bn for FY22/FY23E. ONGCs FY22 targeted O+OEG production delayed by a year due to COVID-related supply chain issues, unplanned power shutdowns at Ratna R series fields due to monsoons, disruption at offshore and onshore projects due to cyclone Tauktae, and customer offtake issues. KG 98/2 production is currently at 0.7mmscmd and is expected to improve to 1.8mmscmd by Dec-21. Delay in sourcing equipment from Singapore/Malaysia, where supply chain operations remain affected by COVID, could impact the KG 98/2 output target.Advertisement The brokerage has claimed that We maintain BUY on ONGC with a target price of INR 208, based on an increase in crude price realisation and improvement in domestic gas price realisation (to USD 2.9/mmbtu). We expect oil price realisation to increase to USD 69/bbl in FY22E and USD 71/bbl in FY23E vs. USD 44/bbl in FY21, given the expected global economic rebound, post COVID. Q2FY22 revenue was 5% below our estimate, owing to a lower-than-expected crude oil price realisation of USD 71.1/bbl (HSIE USD 72.5/bbl) and below expectation crude oil sales. In its research report, HDFC Securities has clarified that Q2 EBITDA was 3% below our estimate, though APAT was 2x above estimate, owing to lower-than-expected exploration cost, lower-than-expected interest cost, higher-than-expected other income, and lower tax expenses. We value ONGCs standalone business at INR 173 and its investments at INR 35. The stock is currently trading at 4x FY23E EPS. The stock is picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.