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Buy This Large Cap Oil & Gas Sector Maharatna Stock For 27% Potential Gains: Prabhudas Lilladher
Leading brokerage firm Prabhudas Lilladher in its recent report has given a "buy" to Oil & Natural Gas Corporation Limited (ONGC) for a target price of Rs 180 per share. The brokerage sees potential gains of 27% with the given target price.
ONGC is a large cap Maharatna - CPSE. It is the largest crude oil and natural gas Company in India, contributing around 71% to Indian domestic production. Crude oil is the raw material used by downstream companies like BPCL, IOC, HPCL and MRPL (Last two are subsidiaries of ONGC) to produce petroleum products like Petrol, Diesel, Kerosene, Naphtha, and Cooking Gas LPG. It has a market cap of Rs 1,79,080 crore.
Stock Outlook & Returns
The shares of ONGC on NSE last traded at Rs 142.35 apiece, 2.23% up from its previous close. The stock in the past 1 week has surged 3.72%. In the past 1 and 3 months, it gave 11.56% and 2.26%, respectively. However, in a year, shares declined, giving a 9.79% negative return. In 3 years, it gave 5.02% positive returns, and in 5 years, it gave 19.83% negative returns.
The stock recorded its 52-week high at Rs 194.95 on 8 March 2022, and its 52-week low at Rs 119.85 on 6 July 2022, respectively.
Operating performance in line with estimates
ONGC reported Q2FY23 standalone EBITDA/PAT of Rs188.1bn (-27%Q/Q; PLe Rs201.7bn), while PAT of Rs128.3bn (-15.7%Q/Q PLe Rs107.5bn) was due to higher than expected other income of Rs35.2bn (PLe Rs8bn). Consolidated EBIDTA stood at Rs165.7bn (-17%Q/Q) and Rs68.4bn (-26%Q/Q) due to losses at HPCL.
Higher realizations tracking international prices
For Q2, operational profitability took a hit due to lower crude price realization of US$95.4/bbl (Q1 US$108.3/bbl). Adjusted for windfall taxes of Rs65.4bn (USD23.1/bbl), net realization was at USD72.4/bbl (Q1: USD108.5/bbl). Q2 blended gas realization was at USD6.85/mmbtu (flat QoQ). For H2, government has revised up gas prices to USD8.6/mmbtu which will drive profits.
Volumes remain muted
ONGC's Q2 crude oil production came to 5.36MMT (-2.4% QoQ), while gas volumes were flat at 5.35bcm. Crude oil sales were at 4.77MTPA (-5% QoQ) and gas sales maintained at 4.17bcm. However, going forward with KG98/2 field coming on stream oil and gas production will increase; FY25 oil and gas production target of 25.7MTPA and 27.5BCM (FY23 oil and gas target of 22.8MTPA and 22.1BCM).
ONGC Videsh's (OVL's) overall Q2 volumes were at 2.4MTOE (Q1: 2.55). While crude oil production was at 1.49MTPA (Q1: 1.55), gas volumes were at 0.91BCM (1.00 in Q1). Q2 PBT was at -Rs1.6bn vs Rs12.1bn in Q1 due to lower production volumes and realisation.
Sakhalin production was stopped due to imposition of force Majeure by the operator, however, the same has resumed.
MRPL, ONGC's subsidiary Q2 PAT was at -Rs17.9bn (Q1: Rs27bn) as refining thruput was at 3.9MTPA and GRM was at -$4.5/bbl.
Healthy realization, production growth augurs well, buy
"We increase our FY23-25E earnings by 6-43% to factor in higher crude oil realisation to USD81/73/bbl (USD73/70/bbl earlier). ONGC's Q2 standalone EBIDTA was lower than expected at Rs188.1bn (-27.5%Q/Q; PLe Rs201.7bn), while PAT of Rs128.3bn (-15.7%Q/Q PLe Rs107.5bn). EBIDTA was hit by lower than expected oil and gas volumes while PAT got a boost from higher other income and lower tax of 9% as company migrated to lower tax regime. Q2 consolidated EBIDTA/PAT stood at Rs165.7bn (-17%Q/Q) and Rs68.4bn (-26%Q/Q) due to losses at HPCL. Recent government decision to impose windfall taxes will mean ONGC's crude oil realization will be ~USD73/bbl, thereby not benefiting from high commodity prices but gas prices will remain healthy. We maintain 'BUY' rating with PT of Rs180 based on 3.5x EV/E FY24E (3.5x EV/EFY23 earlier; Rs160 earlier) as we roll over," the brokerage has said.
Disclaimer
The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.
