Oil And Natural Gas Corporation Ltd. share price target

Continued weakness in crude oil impacts performance Standalone revenues declined 12.5% YoY to Rs. 24,493cr in Q2FY20, impacted by lower crude oil volumes and pricing. Crude oil prices fell 17.0% YoY to USD 60.3/bbl (-9.0% QoQ), while crude oil production volumes declined 3.9% YoY to 5.8t and sales volumes fell 1.2% YoY to 5.4mt. Overall revenue from offshore facilities dropped 15.8% YoY to Rs. 16,014cr, while onshore facilities revenue declined 5.5% YoY to Rs. 8,479cr. EBITDA was down 14.8% YoY to Rs. 14,377cr as EBITDA margin contracted ~160bps YoY to 58.7% due to higher material costs. PAT of Rs. 6,263cr (-24.2% YoY)...

Q1FY20, Profit met estimates even as crude oil prices fell. ONGC is the largest oil and gas exploration and production company in India in terms of production and reserves of oil and gas for the 2019 fiscal year. ONGC reported 36.21% fall in consolidated net profit to Rs 5,275.51 crore on 11.19% fall in total income to Rs 103,237.18 crore in Q2 September 2019 over in Q2 September 2018. The company's total crude oil production stood at 5.842 MMT in Q2 September 2019, down by 3.9% from 6.078 MMT in Q2 September 2018. ONGC's total gas production fell 1.6% to 6.265 BCM while the value added...

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...