ONGC to see great conjunction in 2023, can rally up to 32%: Motilal Oswal

Based on a rise in domestic oil & gas production and possible floor on gas realization, domestic brokerage firm Motilal Oswal reiterated its buy rating on ONGC with a target price of Rs 198, implying an upside potential of 32% from the current market price of Rs 150 per share.

"The year 2023 is likely to be a defining year for ONGC with two prominent triggers. These are a) a rise in domestic oil & gas production, and b) a possible floor on gas realization. Both are likely to play out in favour of the company, an outcome that makes us pitch ONGC as the top idea for 2023 in the sector," Motilal Oswal said.

“For the past 10 years, the company has spent Rs 2,874 billion on its exploration projects. Hence, ONGC’s RRR (2P) – an indicator of sustainable production – has remained above 1x continuously,” the brokerage firm said.

Motilal further said that the much-awaited KG-DWN-98/2 is forecasted to reverse the trend from May '23 by adding peak oil production of 40-45kbopd and peak gas production of about 10-12mmscmd (both by FY25). At the peak, this field would add around 10% to ONGC’s domestic oil production and about 20% to its current domestic gas production, it said.

At 12.10 pm, the scrip was trading 2% higher at Rs 149.65 per share. The stock has also risen 19% in the last six months.

Over the past three years, the dividend payout of ONGC has stood at around 33% of its consolidated PAT. In addition to the great conjunction of production growth and better gas segment profitability, this implies a strong dividend yield of 13.6% for FY23.

“ONGC trades at 3.3x FY24E consolidated EPS of Rs 44.2 and 2.2x consolidated EV/EBITDA. Considering the great conjunction in addition to the cushion provided by the high dividend yield of 13.6% in FY23, we retain our buy rating on ONGC,” Motilal Oswal said while setting the target price of Rs 198 per share.

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