Rs. 33,000 Cr To Rs. 35,000 Cr CAPEX Plan For FY25: Rs. 327 TP Revised For Maharatna PSU Stock; Buy?

The discovery and extraction of natural gas and crude oil are the areas of expertise for Oil and Natural Gas Corporation Ltd. (ONGC). In the oil fields of Vietnam, Norway, Egypt, Tunisia, Iran, and Australia, the corporation has joint partnerships. With a 71% participation in domestic production, Maharatna ONGC is the largest crude oil and natural gas company in India. ONGC's capex for FY24 was Rs. 37,000 crore, while for FY25, it anticipates a CAPEX between Rs. 33,000 and Rs. 35,000 crore. As a result, the brokerage Geojit Financial Services has maintained a buy call on ONGC and raised its target price to Rs. 327.

Investment Rationale For ONGC According To Geojit Financial Services

During Q4FY24, ONGC's net realisation for crude oil rose 4.8% YoY to $80.8 per barrel. Conversely, gas prices dropped 24.2% YoY to $6.5 per mmBtu, mainly owing to a reduction in statutory levies. Total crude production increased 2.4% YoY to 5.4 million metric tonne (mmt), driven by start of production at the KG 98/2 field. However, total gas production declined 3.0% YoY to 5.1 billion cubic metres (bcm) because of the maturing of the existing fields.

The company plans to increase production at its KG 98/2 field to 45,000 barrels by Q4FY25 from the current 12,000 barrels. It also expects to achieve a gas production rate of 10 million cubic meters per day by Q4FY25. Moreover, ONGC expects to raise its production from the current 39.45 mmtoe to ~47 mmtoe by FY27. It aims to take oil production to 22 mmt and gas production to about 25.5 bcm by FY27.

ONGC's capex for FY24 was Rs. 37,000cr. For FY25, it expects it to be between Rs. 33,000cr and Rs. 35,000cr.

The company made 11 field discoveries in FY24; reserve replacement was 1.15x.

ONGC Share Price Target

"The ramp-up of the KG 98/2 is expected to boost the company's oil and gas production in the coming years. Additionally, higher prices for its produce will support its performance as the windfall tax does not apply to KG 98/2. Furthermore, monetising new discoveries, securing premium gas prices for production from nomination field, and potential improvement in net realisations for crude oil are expected to enhance earnings. Moreover, the company's long term strong production guidance further assures better performance in the future. Hence, we upgrade our rating to BUY with a revised target price of Rs. 327 based on the SOTP valuation," said the brokerage in a note.

ONGC Key Financial Highlights

In FY'24, the company recorded its highest-ever consolidated net profit of Rs 57,101 crore and its highest-ever standalone net profit of Rs 40,526 crore. For FY'24, ONGC paid the highest-ever total dividend of Rs. 15,411 crore, while Q4 FY'24 saw 5.359 MMT of crude oil production, up 2.4% Q3FY24. With a total payout of Rs 15,411 crore, the total dividend for FY'24 was 245%, or Rs 12.25 per share with a face value of Rs 5. This comprises the final dividend of 50%, or Rs 2.50 per share as proposed by the Board, and the interim dividend of 195%, or Rs 9.75 per share already paid in the financial year.

Disclaimer

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