Motilal Oswal is bullish on ONGC recommended buy rating on the stock with a target price of Rs 105 in its research report dated September 02, 2020.
Motilal Oswal 's research report on ONGC
ONGC’s 1QFY21 oil and gas sales were in line with estimates along with net crude oil price realization, thus resulting in in-line revenues. However, lower other expenditure led to an EBITDA beat during the quarter. Offtake of crude oil by refineries from ONGC was not affected. However, there was a reduction in gas production due to less off-take by some customers, which has now been restored to normal levels. Production guidance in FY21 for oil stood at ~22.7mmt and for gas at ~24.9bcm. -OPEC+ managed production cuts well (in line with demand), as various economies globally came out of the lockdowns. Thus, crude oil prices hovered around ~USD45/bbl over the last two months. Starting Aug’20, OPEC+ also eased production cuts by 2mnbopd (to 7.7mnbopd). Global demand is expected to reach ~97% of pre-COVID levels in the next quarter (Oct-Dec’20). We have built in crude oil price forecast of ~USD45/bbl for 2HFY21 and we expect prices to remain stable around current levels in the medium term. ONGC has guided that KG basin will see some delay in production as many vendors have enforced force majeure. Despite domestic gas price ceiling declining, KG basin's production would not be impacted. Despite the delay, ONGC is expected to grow its gas production in FY22E, with efforts to arrest the decline in oil production from age-old fields (accounting for 60-70% of the total oil production). Maintain Buy.
Outlook
ONGC is trading at 3.0x FY22E EV/EBITDA and 3.8x FY22E P/E. We value the company at 10x FY22E adj. EPS of INR7.8 and add value of investments to arrive at a target price of INR105. Reiterate Buy.
For all recommendations report, click here
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Read More