ONGC stock: Retain ‘buy’ with lowest target price of Rs 170
ONGC’s Q2FY20 standalone earnings rose 6% q-o-q to Rs 6,300 crore, missing JEFe by 13% on higher taxes, forex losses and DD&A. Ebitda was 3% lighter too, though, on lower product sales but we are more disappointed by the soft consolidated earnings that were 16% lower than standalone. The downstream ventures (HPCL, MRPL, OPAL, OMPL) were expectedly weak but so was OVL. We cut FY20-22E EPS by 8-12%, largely driven by arms & JVs, but keep our ‘buy’ noting ~7.5x P/E & ~5.5% yield. ONGC’s standalone Q2FY20 net inline with consensus but 13% lower than JEFe despite higher other income. Higher tax rates (37% excluding dividend) hurt as did higher dry-well writeoffs (Rs 1,420 crore), a Rs 450 crore impairment and Rs 400 crore in forex losses with the AS-116 impact also wider at Rs 200 crore.
Yet, Ebitda (Rs 13,300 crore) was also 3% lighter falling 9% q-o-q despite lower than estimated operating expenses (flat y-o-y, $9.3/boe) driven largely lower LPG and C2/C3 volumes with oil & gas revenue inline. Indeed, the gap between oil sales and production narrowed to 5.4% with gas sales a tad better too as were oil realisations for its own assets.
