CLSA upgrades ONGC shares

Last updated: 16 Feb, 2021 | 11:08 am

CLSA upgrades ONGC shares

ONGC shares closed 5% higher on Tuesday, after global brokerage firm CLSA upgraded its share price target following Q3 results.

ONGC upgraded to 'Outperform'

  • CLSA has upgraded ONGC to 'outperform' from 'sell' and raised the target price to Rs 105 from Rs 90 earlier.
  • The global brokerage has raised its FY21 EPS estimates by 10-18% on expectations of stronger crude oil prices in Q4 and FY22-23.
  • According to CLSA, ONGC's standalone Q3 EBITDA was 13% ahead of its estimates.
  • Production ramp-up at KG-98/2 (Krishna Godavari block) could also be a trigger for the stock over the next 12-18 months other than any positive changes in the gas pricing formula, noted the firm.

Highlights from ONGC's Q3 results

  • Profit hit due to higher expenses: ONGC's net profit dropped 52.1% on-quarter to \u20b91,378 crore, impacted by higher expenses in the quarter. Analysts had estimated a profit of about \u20b92,292 crore. ONGC's total expenditure rose 11% QoQ, due to a rise in statutory levies, exploration and finance costs. Further, total tax expense increased 30% QoQ to Rs 1,443.01 crore, impacting the bottomline.  
  • Revenue rises: The company's topline grew 0.6% sequentially to \u20b917,024 crore, in-line with street expectations. 
  • Operational performance: Operating profit of ONGC dropped 6.9% QoQ to Rs 6,507.6 crore. Operating margin contracted to 38.2% from 41.3%. An increase in crude oil prices in the third quarter aided ONGC's realisation. But that was partly offset by a 25% drop in domestic prices of natural gas from Oct. 1.
  • Lower production: ONGC's crude oil production in December was 4.74% lower than the 1,785.15-thousand-metric-tonnes target. The company said that the shortfall in Gas production is primarily due to less offtake by customers due to COVID-19 pandemic.
  • Dividend: ONGC's board has declared an interim dividend of Rs 1.75 per share. The Record date for distribution of dividend has been fixed for 20th February, 2021.

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