Buy This Maharatna Stock For 45% Potential Gains, Announced Finale Dividend

Motilal Oswal Financial Services has given a 'buy' call to Oil & Natural Gas Corp Ltd (ONGC), a maharatna company. The brokerage firm in its report published on 31 May 2022 has also stated that the company has recently announced a final dividend of Rs 3.25/share.

Stock Overview - Target Price, CMP, Returns, 52 Week Low & High

The Current Market Price (CMP) of the stock is Rs 147.05/share. According to the target price of Rs 213 by the brokerage & the CMP, it has the potential to gain 45%. The 52 week low of the stock is Rs 108.50, and the 52 week high at Rs 194.95.

In-line revenue of Rs 345b in 4QFY22; declares DPS of Rs 3.25

ONGC reported an in-line revenue of Rs 345b in 4QFY22. Crude oil sold stood at 5.1mmt (in line) and gas sold was at 4.1bcm (below our estimate). VAP sold was at 772tmt (in line with our estimate, up 6% YoY and 7% QoQ). EBITDA stood at Rs 185.9b, up 84% YoY and 16% QoQ. Reported PAT came in at Rs 88.6b (28% lower than our estimate, up 32% YoY and flat QoQ). The company announced a final dividend of Rs 3.25/share. Performance in FY22: In FY22, revenue stood at Rs 1,103.5b (up 62% YoY), with EBITDA at Rs 599.4b (up 83%). Reported PAT grew 258% to Rs 403.1b. Crude oil sold stood at 20.3mmt (flat YoY), with 16.8bcm of gas sold (down 5% YoY). VAP sold stood at 3,057tmt (flat YoY) in FY22.

Stabilized gas production in FY23-24E would be a key monitorable

According to the brokerage, "ONGC Ltd missed our EBITDA estimate by 8% with EBITDA at Rs185.9b (+84% YoY, +16% QoQ), oil realization at USD95.0/bbl (+64% YoY, 25% QoQ) and gas sales at 4.1bcm (-7% YoY) in 4QFY22 Management has guided for healthy FY23E/24E gas production fueled by ramp-up in the KG basin production. Though our estimates were already conservative, we have further reduced our FY23/FY24 PAT estimates by 7%/ 6%, respectively, led by lower oil production. Further delay in KG basin ramp up would hamper the overall supply of the company. Although we expect crude prices to hover around USD60-70/bbl in the long run, the prevailing strength made our current crude estimates at USD80/ USD75 per bbl for FY23/FY24. We build in domestic gas prices at USD6.7/ USD6.4 per mmBtu for FY23E/FY24E, respectively."

"Management guided for a capex of Rs 300b for the enhanced production targets set by the company at 60mmtoe for FY24E and 63mmtoe (including JV) for FY25E, as the major thrust remains on the East Coast projects. The peak volumes at KG basin are expected in FY23, with incremental oil production at ~2.2mmt and gas production at ~10mmscmd. OVL's performance is steady though it incurred a loss (on the PAT level) in 4QFY22. Despite the modest assumptions, ONGC's gas production is likely to clock 7% CAGR over FY21-24E, with efforts to arrest the decline in oil production," brokerage added.

Buy for a target price of Rs 213

Although the ramp-up in oil and gas production has been a sore issue for the investors, the rise in oil and gas prices is likely to result in a 3x jump in FY24E adj. PAT v/s that of FY21 on a standalone basis. ONGC Ltd is trading at 1.7x FY24E EV/EBITDA and 2.4x FY24E P/E. "We value the company at 4.5x FY24E Adj. EPS of Rs 41.1 and add the value of investments to arrive at our Target Price of Rs 213," the brokerage has said.

About The Company - Oil & Natural Gas Corp Ltd (ONGC)

Maharatna ONGC Ltd with a market cap of Rs 185,936 crore is the largest crude oil and natural gas company in India, contributing around 71 per cent to Indian domestic production. Crude oil is the raw material used by downstream companies like IOC, BPCL, HPCL and MRPL (The last two are subsidiaries of ONGC) to produce petroleum products like Petrol, Diesel, Kerosene, Naphtha, and Cooking Gas LPG. ONGC Videsh Limited, a Miniratna Schedule "A" Central Public Sector Enterprise (CPSE) of the Government of India under the administrative control of the Ministry of Petroleum & Natural Gas, is the wholly-owned subsidiary and overseas arm of Oil and Natural Gas Corporation Limited (ONGC), the flagship national oil company (NOC) of India.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.