Buy This Maharatna Stock For Target Price Of Rs 178, Gains Up To 28%: HDFC Securities

Stock Outlook & Returns

The current market price of the stock is Rs 139.20 apiece. The current market price is trading at Rs 30.7 above its 52-week low of Rs 108.50 apiece. On the other hand, the current market price is 55.75 below the 52-week high of Rs 194.95.

Over the week, the shares of the company gained 1.98%. Whereas, in the past 1 month, the stocks surged by 12.17%. In the past 1 year, the share price has given a positive return of 19.74%. In the past 3 and 5 years, the shares gave both positive and negative returns, respectively In 3 years, it gave a positive return of 6.3% and in 5 years, a negative return of 12.81%.

Standalone financial performance

Revenue for Q1FY23 stood at Rs 423bn (+84% YoY, +23% QoQ), 4% below our estimate. However, EBITDA stood at Rs 259bn (+2.1x YoY, +40% QoQ), 7% below estimate due to higher-than-expected other expenses. APAT, at Rs 152bn (+3.5x YoY, +72% QoQ, HSIE Rs 166bn), was impacted by higher depreciation of Rs 45.1bn and interest cost of Rs 6.4bn, partially offset by higher other income.

Standalone operational performance

Q1 crude oil realisation was USD 110.8/bbl (+65% YoY, +14% QoQ), while gas realisation was USD 5.8/mmbtu (+3.1x YoY, +2x QoQ). Total oil sales volume including JV were 5mmt (-1% YoY, -2% QoQ). Gas sales volume was 4.1bcm (+1% YoY, +2% QoQ).

Key highlights

1. Due to the announcement by Exxon Mobil to exit the Sakhalin-I project, the consortium is heading towards transition of operatorship, which is in progress. Additionally, temporary unavailability of insurance for crude oil tankers has created logistical constraints for evacuation of oil produced from Sakhalin-I, resulting in reduced production from May-22. ONGC expects the production from Sakhalin-I to recommence from Oct-22 onwards.
2. Imperial Energy's operations continue as planned; however, the oil produced from this asset is attracting lower realisations due to prevailing discounts.
3. OVL has taken impairment provision of Rs 2.2bn for Sakhalin-I asset.
4. It has taken an impairment loss of Rs 4.5bn on its investments in associate company, Tamba BV, due to its liquidation.

Brokerage's views and comments

HDFC Securities said, "We maintain our BUY recommendation on ONGC with a target price of Rs 178, based on (1) increase in crude price realisation and (2) improvement in domestic gas price realisation. Q1FY23 revenue/EBITDA/APAT stood at Rs 423/259/152bn, below our estimates, owing to higher other expenses, depreciation and interest cost, partially offset by higher-than-expected other income. Crude oil and gas production were broadly in line, but total crude oil sales, including JV share, came below estimates."

Brokerage suggests buy for a target price of Rs 178

"We cut FY23/24 estimates by 1.4/2.2% to Rs 51.7/41.5, to factor in higher costs, delivering a revised target price of Rs 178/share," the brokerage said.

The brokerage added, "We value ONGC's standalone business + OVL at 4.5x FY24 EPS at Rs 149 and investments at Rs 29. The stock is currently trading at 3.4x FY24E EPS.