ONGC Stock Has An Upside Potential Of 31%

Brokerage firm Motilal Oswal Institutional Equities has set a price target of Rs 105 on the stock of ONGC, which translates into almost 31 per cent gains from current levels.

"ONGC's first quarter FY21 oil and gas sales were in line with estimates along with net crude oil price realization, thus resulting in in-line revenues. However, lower other expenditure led to an EBITDA beat during the quarter. Off take of crude oil by refineries from ONGC was not affected. However, there was a reduction in gas production due to less off-take by some customers, which has now been restored to normal levels," an equity research report from Motilal Oswal has stated.

According to the broking firm, global demand is expected to reach 97% of pre-COVID levels in the next quarter (Oct-Dec'20).

"Although gas production has been delayed, we expect a significant jump over the next 3-4 years, led by the various projects that ONGC has been working on. Oil production is expected to remain flat. Factoring in the delay, we have revised down our gas production estimates for FY21/FY22E to 24.7bcm/30.2bcm (from earlier 26.7/35.2); our estimates for oil at 23.6mmt/24mmt remain unchanged.

In FY20, ONGC made total 12 discoveries (7 onshore, 5 offshore); of which, 7 are prospects (3 onshore, 4 offshore) and 5 are pools (4 onshore, 1 offshore). ONGC has notified 3 more discoveries (two pools and one prospect) in the last two months, taking the total discoveries to 6 (4 pools and 2 prospect) in FY21 so far. ONGC is trading at 3.0x FY22E EV/EBITDA and 3.8x FY22E P/E. We value the company at 10x FY22E adj. EPS of INR7.8 and add value of investments to arrive at a target price of INR105. Reiterate Buy," Motilal Oswal has stated in its report.

The stock price of ONGC last closed at Rs 78.15 on the National Stock Exchange.