ONGC reported a reported 30% fall in net profit for September quarter after the government levied windfall tax to take away gains arising from spurt in international oil and gas prices. Net profit of Rs 12,825.99 crore, ahead of I-sec estimate of Rs 8,110 crore (driven by the Ebitda beat and stronger other income), were lower y-o-y (-30% y-o-y) due to a tax-related boost of Rs 8,200 croreto PAT in Q2FY22.
H1FY23 Ebitda of Rs 43,780 crore was up 78% and PAT at Rs 28,030 crore was up 23.6% y-o-y thanks to a stronger pricing environment for both oil and gas. Despite the strong earnings, stock remains subdued due to: (i) concerns about production growth, (ii) weak results of subsidiaries HPCL and OVL, and (iii) windfall tax. We note, however, even at a realisation of $75/bbl for oil and Rs 20-21/scm for gas, standalone and consolidated EPS for FY23e of Rs 40.5/sh and Rs 43.3/sh, respectively, are well above historical averages. Also, the government’s proactive adjustment of the new tax in line with fall in international crude prices provides comfort on a minimum floor of oil realisations. We believe valuations of 2.7x FY24 estimates consolidated EPS and 2.2x EV/Ebitda remain attractive. Reiterate BUY.
Brent remains strong despite recent reverses: Brent crude prices have moderated to $95/bbl levels, driven by concerns of a recession due to inflation and the impact of Russia-Ukraine conflict on the global economy. Q2FY23 average realisation of $72.9/bbl (net of windfall tax of $22.6/bbl) was up 5% y-o-y and H1 net average price of $90.7/bbl was up 34.5% y-o-y. At our FY23 estimates and FY24 estimates of Brent crude @$95/ 90 per barrel, we see ONGC’s net realisation remaining at ~$75/ bbl – well above historical averages.
Gas price surge to sustain: Average gas price realisation of Rs 19.3/scm was up 3.1x y-o-y and 5% q-o-q in Q2FY23. H1FY23 blended gas price of Rs 18.9/scm was up 2.8x y-o-y. While the Kirit Parikh Committee is expected to lower domestic gas prices to some extent, management believes there would be some element of marketing and pricing freedom in the new formula.
