Reduce ONGC; target of Rs 70: HDFC Securities

HDFC Securities' research report on ONGC

Despite production cuts from OPEC and non-OPEC countries, we expect oil prices to remain at USD 36/41 per barrel in FY21/22E vs. USD 59/bbl in FY20, given the weak global macro. Lower oil and gas realisations will drag profitability down for ONGC. In 2QFY21, revenue was ~4% below our expectations, owing to a lower-than-anticipated crude oil price realisation of USD 41.4/bbl (vs estimate USD 42.7/bbl). EBITDA in 2Q was in line with our estimates. APAT rose by ~55%, courtesy substantially higherthan-anticipated other income, and lower-than-anticipated interest cost.

Outlook

Our REDUCE recommendation on ONGC with a price target of INR 70 is premised on (1) muted crude oil and gas realisations and (2) lack of production growth for oil.

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