“BUY” This Maharatna Stock With A Target Price of Rs. 193 Says Geojit

Geojit of the country's well-known and leading broking house has suggested buying the stock of Oil & Natural Gas Corporation Limited (ONGC). The brokerage has set a target price of Rs. 193 for the stock and estimates a gain of 25% in 12 months from the current market price of Rs 154. ONGC is India's largest crude oil and natural gas producer, accounting for over 71% of total production in the country.

Q2FY22 results of ONGC

According to the brokerage "ONGC's Q2FY22 standalone revenue increased 5.8% QoQ, and 44.0% YoY to Rs. 24,354cr mainly due to higher sales revenue from crude oil by Rs. 7,644cr and value-added products by Rs. 1,031cr. However, this was partially offset by lower revenue from natural gas by Rs. 665cr. Total crude oil production was down 3.8% YoY to 5.5MMT from 5.7MMT, while the average realized price rose 67.6% YoY to USD 69.4/bbl. Natural Gas production stood at 5.5BCM, (-7.0% YoY), with average realization reported at USD 1.8/MMBtu."

Geojit research desk has said in its research report that "The production of both crude oil and gas declined mainly due to cyclone Tauktae and the impact of the COVID-19 pandemic. ONGC's offshore and onshore revenue for the quarter stood at Rs. 15,636cr (+39.8% YoY) and Rs. 8,717cr (+52.2% YoY), respectively. In Q2FY22, EBITDA grew 69.9% YoY to Rs. 15,674cr, primarily on account of favorable changes in inventories, and decline in exploratory well costs and survey costs. A sequential decline in both depreciation (-5.3% QoQ) and net finance costs (-6.6% QoQ) positively impacted the net profit. It registered a significant rise, at Rs. 18,348cr vs Rs. 2,757cr in Q2FY21, indicating a 565.4% YoY/323.3% QoQ rise."

Key conference call highlights of ONGC according to Geojit

• The board approved an interim dividend of 110%, i.e., Rs. 5.50 per share, and the total payout will be Rs. 6,919cr.
• The company's current production for KG-98/2 cluster is close to around 0.65 MMSCMD from two wells and the production is expected to increase up to more than 1 MMSCMD over the forecast period.
• ONGC also decided to opt for a lower tax regime under Section 115-BBA of the Income Tax Act, with effect from FY21. The company recognized a provision for tax expenses and reassessed deferred tax liabilities. This has resulted in a decrease in deferred tax by Rs. 8,541cr and current tax by Rs. 1,304cr.

Buy ONGC with a target price of Rs. 193

In its research report, the brokerage has claimed that "ONGC's topline performance is expected to register growth over the forecast period mainly due to the recovery in crude volumes and increase in realization. Revenue from Natural gas and Value-Added products is expected to improve due to the minimization of supply chain disruptions globally. This along with a possible hike in natural gas prices could drive the performance further. Therefore, we reiterate our BUY rating on the stock with a revised target price of Rs. 193 based on SOTP valuation."

Disclaimer

The stock has been picked from the brokerage report of Geojit Financial Services Limited. 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.