4.13% Yield, 80% Dividend Payout Soon: 3 Brokerages Recommend BUY In Maharatna ONGC

ONGC is among the piping hot stocks to buy among Maharatnas. Currently, the PSU is moving towards its 52-week high of Rs 281.05 apiece on BSE. The outlook on ONGC is positive, while it has a robust dividend yield play. At the latest, brokerages like JM Financial, Emkay Global and Citi have recommended BUY on ONGC for a target price ranging from Rs 300 to Rs 305. A potential of up to 12% upside is seen in ONGC ahead.

On Friday, ONGC's share price ended at Rs 272 apiece, down by 1.04% on BSE with a market cap of Rs 3,42,183.59 crore. ONGC's monthly upside is 16%, while its six-monthly gains are nearly 56%. Year-to-date, ONGC's shares have rallied 32.5%.

ONGC shares turned ex-dividend on February 17th for a second interim dividend of up to 80% amounting to Rs 4 having a face value of Rs 5. The total payout on this account will be Rs 5,032 crore. This is in addition to 1st interim dividend of Rs 5.75 per share(115%) declared earlier in November 2023.

In Q3FY24, ONGC reported a net profit of Rs 10,748 crore, down by 7.9% YoY, while gross revenue of Rs 1,65,569 crore, lower by 2.2% YoY.

Should You Buy ONGC Share Price?

JM Financial:

While we marginally cut our FY24 EBITDA by 1% to align with 9MFY24 results, we have raised FY25 and FY26 EBITDA by 8-10% due to: a) increase in our Brent crude price assumption to USD 70/bbl from FY25 onwards (vs. our earlier conservative assumption of USD 65/bbl) due to OPEC+ strong pricing power and continued geopolitical concerns and; b) hike in FY25 and FY26 crude and gas output estimate by 2-5% due to commissioning of KG DW 98/2 block (which can potentially add 7-8% to ONGC's crude output and 15-18% to its gas output).

Hence, our TP has gone up to INR 300 (from INR 245) based on unchanged 6x FY26 PE, aided by an increase in the value of listed investments (which is valued at CMP less 20% holding discount). We maintain BUY as CMP is discounting ~USD 65/bbl of net crude realisation while our TP is based on net crude realisation of USD 70/bbl; the government allows ONGC/Oil India to make a net crude realisation of ~USD 72-73/bbl. Every USD 5/bbl rise/fall in net crude realisation results in an increase/decrease in our EPS and valuation by 7-9%. Further, ONGC is also a robust dividend play (4-6%).

ONGC is also a robust dividend play (4-6%). At CMP, it trades at 6.2x FY26E EPS and 0.9x FY26E BV.

Emkay Global:

ONGC stated largely in-line Q3FY24 SA revenue/EBITDA at Rs348/148bn; RPAT of Rs95bn came at a 13% beat, on higher Other Income. Production fell 3-4% YoY, while the expenditure profile was stable overall. Mgmt highlighted that output decline would reverse hereon, with KG-98/2 currently producing 12kbpd oil (3% of overall) with no SAED as of now; it guides to gas ramping-up from mid-CY24 onward.

The gas pricing outlook is positive, with premium 12% oil-linked realizations from new well interventions likely from FY25. We raise FY24-26E EPS by 7% each, on higher Other Income. We retain BUY on ONGC, on 10%/5%+ FCFF/dividend yield and reasonable valuations (~6.5x adj. P/E), despite the recent stock run-up. We hoist up Dec-24E TP by 20% to Rs300, raising the value of OVL (better outlook from Mozambique, Sakhalin) and of the listed investments.

Citi:

This global brokerage has recommended BUY on ONGC for a target price of Rs 305 per share. The outlook is given Positive.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.