Buy This Maharatna Stock For A Target Price of Rs. 208 Says HDFC Securities

With a market capitalization of Rs 206,505.28 crore, Oil & Natural Gas Corporation Limited (ONGC) is one of the maharatna Public Sector Enterprises (PSEs). This large-cap company is India's largest crude oil and natural gas producer, accounting for over 71% of domestic output. This company's stock has climbed by 58.55 percent in the last year, 14.99 percent on a year-to-date (YTD) basis, and 42.42 percent in the previous six months. The company performed well in Q3FY22, prompting brokerage firm HDFC Securities to issue a buy call on the company's shares with a target price of INR 208.

Q3FY22 results of ONGC

The brokerage firm has said that the company's "Revenue for Q3FY22 was in line, at INR 285bn (+67% YoY, +17% QoQ). EBITDA was at INR 160bn (+91% YoY, +21% QoQ) due to lower OPEX. APAT was at INR 88bn, up +7x YoY, supported by lower OPEX and higher-than-expected other income. Q3 crude oil realisation was USD 77.6/bbl (+75% YoY, +9% QoQ), while gas realisation was USD 2.9/mmbtu (+50% YoY, +53% QoQ). Oil sales volume was 4.4mmt (-1%YoY, +3% QoQ). Gas sales volume was 4.1bcm (-5% YoY, +1% QoQ)."

According to HDFC Securities, ONGC's conference call takeaways are as follows:

• Capex guidance was maintained at ~INR 300bn for FY23/FY24E.
• Oil production for FY23/24 was guided at 20.98/24mmt, while gas production was guided at 24.28/32bcm.
• The company has chalked out an action plan for enhanced production target for oil and gas over FY24/25 to 60/63mmtoe.
• KG 98/2 production currently is at 1mmscmd and is expected to reach 10mmscmd by FY25; Capex incurred for KG 98/2 project is at INR 155bn with total Capex expected at INR 340bn.
• OVL's Capex has been around USD 1bn; it is expected to rise to USD 1.2bn over the next two years.

Buy for a target price of Rs. 208 per share

The brokerage has claimed that "We maintain our BUY recommendation on ONGC with a target price of INR 208, based on (1) increase in crude price realisation and (2) improvement in domestic gas price realisation (to USD 2.9/mmbtu). Average 9MFY22 oil price realisation improved to USD 74/bbl vs USD 44/bbl in FY21, given the expected global economic rebound, post-COVID. While Q3FY22 revenue was in line, EBITDA/APAT was 4/14% above our estimates, owing to lower-than expected employee cost, other expenses and exploration costs, and higher-than-expected other income."

Disclaimer

The stock has been 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.