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Motilal Oswal
ONGC (Buy)
Target: ₹195
CMP: ₹157.15
ONGC has reported revenue 6 per cent below our estimate on lower realisation (-5 per cent est., at $69.4/bbl) and gas sales (-6 per cent est., 4.3bcm), although EBITDA was in line (at ₹13,200 crore). The company highlighted that oil and gas production declined in H1-FY22, primarily due to restrictive conditions created by cyclone Tauktae as well as the impact of Covid. Further delay in the mobilisation of MOPU to the WO-16 Cluster project impacted production from this field.
Gas production from the KG Basin (currently at 0.6–0.7 mmscmd) continues to get delayed as international travel restrictions continue to impact logistics. As a result, the management has revised down its oil and gas guidance for FY22 to 22mmt/22bcm (from 23mmt/25bcm earlier). Peak production at the KG Basin is expected at 14.5mmscmd/45kbopd for gas/oil. OPAL’s performance is steady, and ONGC is improving process efficiencies to keep its profits positive. Our estimates were already conservative and thus remain unchanged. Furthermore, we build in modest production estimates at 23mmt/24mmt for oil and 25.8bcm/27.8bcm for gas (v/s 27 bcm guided by the company for FY23) for FY23/FY24.
The upward revision in EPS comes amid the change in tax rate for the company (new tax regime).
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