ONGC Rating: Overweight — Prices to impact near-term earnings
Q3 saw a miss; stock the cheapest among upstream stocks globally; FY20-21e EPS cut by ~11% with TP down to Rs 172
ONGC reported a miss in Q3. While production has stabilised, lower crude and gas prices should impact near-term earnings. The stock is trading at 4.2x P/E (consensus) and is the cheapest stock globally among upstream energy stocks. Continued government stake sale down remains the key near term overhang. We expect a large dividend for Q4.
Earnings miss on sharply lower Dividend income, but production stabilising: ONGC missed estimates with standalone PAT at Rs 41 bn vs. consensus at Rs 54 bn. Most of the miss was driven by sharply lower other income which declined by 48% q-o-q with Ebitda at Rs 123 bn vs. consensus at Rs 127 bn. Dividend income tends to be lumpy and we would expect large Q4 Other Income (ONGC’s big stakes are in GAIL and IOCL).
