115% Dividend Payout: ONGC To Pay Rs 7,234 Crore Dividends, Share Nears 1-Year High; PL Suggests Buy

Oil and Natural Gas Corporation (ONGC) is the largest government-backed oil and gas explorer in India, and the company has declared Q2 results and dividend payout. ONGC shares traded volatile on Monday however performed near their 52-week high levels. Prabhudas Lilladher has recommended buying ONGC shares despite the CPSE missing estimates in Q2FY24. There are expectations of a rise in volumes owing to a ramp-up in production that has made PL optimistic for ONGC.

At the time of writing, ONGC shares were marginally down to Rs 195.80 apiece on BSE with a market cap of Rs 2,46,321.87 crore. However, the shares have also touched an intraday high and low of Rs 197.20 to Rs 194.20 respectively. These levels will be near its 52-week high of Rs 199.70 apiece.

As per the regulatory filing, the company declared an interim dividend of Rs 5.75 per equity share of the face value of Rs 5/- each i.e. @ 115 % for the Financial Year 2023-24. It fixed November 21 as the record date " for determining the eligibility of shareholders for payment of Interim Dividend.

The dividend payout is expected on or before December 10, 2023. The total payout will be Rs 7,234 Crore.

Apart from this, in Q2FY24, ONGC posted a consolidated net profit of Rs 13,734 crore, up by 142.4 % from Rs 6,830 crore in Q2FY23. However, consolidated revenue declined by 12.9% to Rs 1,46,874 crore in Q2FY24 as against Rs 1,68,656 crore in Q2FY23.

The performance was impacted due to a drop in production. Total crude oil production dipped 2.1% YoY to 5.249 MMT, while gas production declined 2.8% YoY to 5.200 BCM. ONGC said the reduction in production output can primarily be attributed to a decline in some of the matured fields and marginal fields.

To counter this decline, ONGC is taking proactive steps by implementing well interventions and advancing new well-drilling activities within these fields, it said.

After the Q2 results, Prabhudas Lilladher in its research note said, "Oil and Natural Gas Corporation's (ONGC) result was below estimates with EBITDA/PAT of Rs 183.6 bn (-6% Q/Q, PLe: Rs 199 bn) and Rs 102.2 bn (+2%Q/Q, PLe: Rs 107.4 bn) respectively on a standalone basis. On a QoQ basis, oil and gas production fell 1% and 0.6%, respectively. Total volume is expected to increase with the commencement of the rest of production from KG Basin and we have estimated a 4% CAGR and 6% CAGR in oil and gas production, respectively over FY23-FY26E."

PL's note further said, "On the realization front, net oil realization post windfall tax is likely to be maintained at ~US$70-75/bbl while gas prices have been capped at US$6.5/mmBtu. This provides comfort on the realization front. On the production front, the decline in oil and gas production is likely to be compensated post-commissioning of production from the KG Basin in the coming quarters. We build in a volume CAGR of 4% and 6% for oil and gas over FY23-26E to reach 23.9 mmt of oil and 25.4bcm of gas in FY26E."

On the valuation, PL added, " We maintain our 'Buy' rating with a TP of Rs 237, valuing the standalone business at 7x FY26 adj EPS of Rs 28.2 and add the value of investments of Rs 39."

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