Higher crude realisations have analysts upbeat on ONGC, Oil India

Oil India (OIL) and Oil and Natural Gas Corporation (ONGC) had similar performances in the July-September quarter (Q2). Both oil producing companies benefited from higher crude realisations. Both had their upside capped by the windfall tax. Both suffered due to weak gross refining margins (GRMs) affecting their subsidiaries, The Numaligarh Refinery (NRL) and Hindustan Petroleum Corporation (HPCL). International crude prices to which ONGC and OIL’s realisations are linked, remained high through Q2, although they moderated a little compared to Q1. The Indian crude basket averaged $97.87 per barrel through Q2, versus $109 per barrel in Q1. (The Q3 average is $91.84 per barrel for Oct1-Nov 15).

ONGC reported standalone earnings before interest, taxes, depreciation, and amortisation (EBITDA) of Rs 18,810 crore (down 27 per cent quarter-on-quarter or QoQ), and profit after tax (PAT) of Rs 12,830 crore (down 15.7 per cent QoQ) was boosted by higher other income of Rs 3,520 crore. Consolidated EBITDA stood at Rs 16,570 crore (down 17 per cent QoQ) and Rs 6,840 crore (down 26 per cent QoQ) due to losses at HPCL. Subsidiary ONGC Videsh (OVL) reported net loss of Rs 460 crore in Q2FY23 versus PAT of Rs 110 crore in Q1FY23. OVL has been badly hit by its Russia exposures. Crude oil and gas sales were at 4.8 mmt (million metric tonnes) and 4.2 bcm (billion cubic meters), respectively. Net crude realisation, adjusted for windfall tax of $21.7 per barrel, was at $74.1 barrel. The rise in domestic gas prices has helped to compensate to a small extent.

OIL reported standalone results with EBITDA of Rs 1,850 crore (down 30 per cent QoQ) and PAT of Rs 1,720 crore (up 11 per cent QoQ). The windfall tax impact was Rs 1,130 crore (at $23.8 per barrel). The PAT boost came from NRL dividend of Rs 500 crore, other income of Rs 900 crore and lower tax rate of 14 per cent. The Q2 consolidated EBITDA dropped to Rs 2,700 crore (down 45 per cent QoQ) and PAT dropped to Rs 2,120 crore (down 34 per cent QoQ). The NRL Q2 EBITDA was at Rs 1,070 crore down versus Rs 1,970 crore EBITDA in Q1, due to drop in GRMs to $13.8 per barrel (Q2) vs $32.4 per barrel in Q1. Oil India holds a stake of 70 per cent in NRL. OIL’s oil and gas production was at 0.79 MTPA (+1 per cent QoQ) and 823 mscm (+7 per cent QoQ). The Q2 net crude oil realisation was at $76.8 per barrel adjusted for windfall tax impact. OIL is looking to expand refining capacity to 9 MTPA by FY25 spending capex of Rs 29,000 crore. The capex target is Rs 4,500 crore for Oil India and Rs 8,000 crore for NRL.

The debt will remain the same (excluding currency rate changes for overseas debt). The loans taken for NRL acquisition have been 95 per cent repaid.

Analysts have ‘buy’ recommendations on both stocks, which have risen 17-19 per cent from September lows. The target prices for ONGC stock are in range of Rs 180, Rs 192, and Rs 205 from three different analysts. OIL has target prices of Rs 250, Rs 265, and Rs 300.