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Oil & Natural Gas Corporation Q1FY23 - Profits surge amid better oil & gas realisation

ICICIdirect Research 17 Aug 2022 DISCLAIMER

What’s Buzzing:

ONGC's profitability was driven by better oil & gas realisation in Q1FY23.

Context:

Standalone revenue increased 22.7% QoQ (83.8% YoY) to Rs 42320.7 crore on account of higher realisation. Net oil realisation increased 14.3% QoQ to US$108.5/bbl following the rise in global oil prices. Gas realisation increased 110% to US$6.1/mmbtu (on a GCV basis) as domestic gas prices were revised upwards from April 1. Oil production was up 1.9% QoQ and was at 5.5 MMT whereas gas production increased 0.8% QoQ to 5.4 BCM. EBITDA during the quarter increased 39.5% QoQ (113.4% YoY) to Rs 25930.3 crore. Subsequently, reported PAT was at Rs 15205.9 crore, up 71.6% QoQ (and 250.8% YoY).

Our Perspective:

Concerns over supply disruption resulted in oil prices sustaining at elevated level in Q1FY23. In the current quarter (Q2FY223E-TD), Brent oil prices trending near US$93/bbl amid potential global recession that may lead to drop in oil demand. Although oil prices have corrected, realisation remained above pre-Covid level. On the domestic front, APM gas prices were revised upwards in semi-annual price revision in April and are likely to increase further in October 2022. Current trend in global oil & gas prices augurs well for ONGC. However, the government has imposed windfall taxes on domestic oil production. Windfall taxes are being reviewed every fortnight and currently domestic oil production is taxed at Rs 17750/tonne. This is likely to limit the upside to earnings from higher oil realisation. Additionally, continued low volume growth remains a key concern for the company and faster ramp-up in production from KG basin will be a key monitorable.

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