Oil And Natural Gas Corporation Ltd. share price target

ONGC generates OCF yield of almost 28% and divided yield of 7.4% over FY20/21E. Despite realising market price for oil in the absence of any subsidy sharing, upstream companies have remained unfavourable. Stake sale from government to achieve its disinvestment targets remains a key overhang on the stock (in last 2 years GoI's shareholding shrunk from 68.02% to 62.98%). We maintain BUY with a TP of Rs 187/sh (8x Jun-21E standalone core EPS (adj. for dividend income) + OVL EPS and Rs 34 from other investments). Post an in line performance in Q2, we maintain BUY on ONGC. Adjusting for its investments (OVL+ other) the stock is trading at 5.8x Sep-21E standalone EPS. We believe that such pessimism is unwarranted.

ONGC's Q2FY20 earnings outperformed at Rs 62.6bn (24% YoY).

ONGC declared its O2FY20 results, which were largely in line with our estimates on the operational profitability front. Revenues declined 7.8% QoQ at | 24492.6 crore on account of lower realisations as well as sales volume QoQ. oil & gas production was marginally below our estimates. As per expectations, the quarter saw nil subsidy burden and net realisations were at US$60.3/bbl due to a decline in crude oil prices. Subsequently, EBITDA during the quarter declined 12.1% QoQ and came in at | 13290 crore. However, reported PAT increased 6.1% QoQ to | 6263.1 crore (our...

We tweak our estimates for FY20/21E and reiterate our positive stance on ONGC as we expect crude oil prices are likely to remain range bound at current levels, which will alleviate the need for subsidies. Also, outlook on...

Oil production targets ambitious

OPM fell 320 bps to 15.4% leading to 18% fall in operating profit to Rs 16887.4 crore. Cost of material consumed as a percentage of adjusted net sales was down to 18.1% compared to 20.9%. Employee benefit expense rose to 1.5% from 1.3%. Statutory levies decreased to 11.2% compared to 14% while exploration cost written increased to 2.2% from 1% and other...

Upstream companies were out of flavor despite realising market price for crude oil, mainly on account of the subsidy sharing with OMCs. We expect oil prices to remain muted owing to the robust supply from US Shale. This is despite production cuts from OPEC and non-OPEC countries. Thus, there is no concern over the subsidy sharing. ONGC will generate OCF yield of almost 28% and divided yield of ~6.3% over FY20/21E. The current valuations are contextually lower at 5.5x FY21 PER (ex-OVL and other investments). Our TP is Rs 184/sh (8x Jun-21E standalone core EPS (adj. for dividend income), + OVL EPS and Rs 32 from other investments) ONGCs 1Q performance was muted owing to (1) Low oil production, (2) Fall in oil realisation, and (3) Adverse impact of Ind AS116. However, we maintain our BUY as we expect re-rating of the stock given that falling oil prices have allayed fears of subsidy. Adjusting for its investments (OVL+ other), the stock is trading at 5.5x Jun-21E standalone EPS. This indicates strong pessimism.

ONGC declared its Q1FY20 results, which were largely in line with our estimates on the profitability front. However, production was marginally below our estimates. As per expectations, the quarter witnessed nil subsidy burden while net realisations were at US$66.3/bbl (our estimate: US$67/bbl). Revenues declined marginally by 0.8% QoQ at | 26554.7 crore (in line with our estimates) due to lower own oil as well as JV oil sales volume. EBITDA during the quarter came in at | 15112 crore, above our estimate of | 14033 crore on account of implementation of Ind-AS 166, which lowered other...

ONGC's Q1FY20 result was a beat to our forecast on EBITDA front whereas Net Profit was in-line to our forecast. Revenue was down 2.4% YoY to Rs265 bn on the back of lower crude oil realizations and lower oil sales volume. Oil sales volume declined by 9% YoY to 5.3mmt whereas gas sales volume grew marginally by 2.1% YoY to 5bcm. Further, EBITDA grew by 2.6% YoY to Rs151bn whereas PAT declined 4% YoY to Rs59 bn. We maintain our forecast for FY20 and FY21. We believe that the Capital allocation uncertainty and lower crude oil...

ONGC's Q1FY20 earnings outperformed at Rs 59bn (4% YoY).