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Mixed signals after ONGC Q1 nos; what's the best move for investors now?
Profit growth despite revenue dip
For the June quarter, ONGC's consolidated net profit rose 18.2 per cent year-on-year (Y-o-Y) to ₹11,554 crore, aided by lower expenses, even as consolidated gross revenue fell 3.5 per cent to ₹1,63,108 crore from ₹1,68,968 crore in Q1FY25. Net profit attributable to owners came in at ₹9,804 crore, up 13.7 per cent from ₹8,617 crore a year earlier.
On a standalone basis, gross revenue dropped 9.3 per cent Y-o-Y to ₹32,003 crore, while net profit fell 10.2 per cent to ₹8,024 crore from ₹8,938 crore last year. Sequentially, however, the standalone net profit jumped 24.4 per cent, while Ebitda margins improved to 58.3 per cent from 54.3 per cent in the previous quarter.
Crude oil production saw a modest uptick, with standalone output up 1.2 per cent Y-o-Y at 4.683 million metric tonnes (MMT), and total production including joint ventures (JVs) at 4.933 MMT versus 4.878 MMT last year. Condensate production rose to 0.250 MMT from 0.225 MMT. Natural gas output was broadly flat at 4.846 billion cubic metres (BCM) on a standalone basis, while total gas output, including JVs, slipped marginally to 4.971 BCM from 4.989 BCM.
Realisation from crude oil under the nominated category dropped to$66.13/bbl from $83.05/bbl a year ago, reflecting softer global prices. Gas prices improved slightly to ₹6.64/mmbtu for nomination gas and stood at ₹8.26/mmbtu for higher-priced New Well Gas (NWG), which contributed ₹1,703 crore in revenue, including a ₹333 crore premium over the domestic administered price.
The company announced two offshore discoveries in the quarter. 'ONGC declared a total 2 discoveries (both offshore) during Q1FY26 in its operated acreages. Out of these, one is prospect and one is pool discovery,' the company said, in a statement. ALSO READ | Apollo Hospitals Q1: Analysts up targets, share outlook; buy, sell or hold?
Brokerages take varied stance
Motilal Oswal said ONGC's Q1 revenue came in 5 per cent above estimates at ₹32,000 crore, with oil and gas sales volumes broadly in-line. Ebitda was 12 per cent ahead of forecasts, though profitability was impacted by higher depreciation, dry well write-offs, and lower other income. The brokerage, however, remains cautious.
'Upstream has remained our least preferred sector since June 2024 amid record-high OPEC+ spare capacity and weak crude price outlook,' it said, noting ONGC's struggle to boost production. Citing muted earnings growth and aggressive volume guidance, it cut FY26/FY27 standalone earnings estimates by 6 per cent/11 per cent and downgraded the stock to 'Neutral' with a ₹230 target price.
Nuvama Institutional Equities also flagged concerns after ONGC trimmed its production guidance to 4-7 per cent for FY26E and 2-4 per cent for FY27E, citing delays in the KG-DWN-98/2 block. 'Gas realisation is set to improve as the share of higher-priced New Well Gas increases,' Nuvama said, but maintained a 'Reduce' rating with a ₹225 target, pointing to a bearish crude outlook and muted output growth.
JM Financial struck a more upbeat tone, highlighting that standalone Ebitda of ₹1.87 trillion was considerably above its estimate due to lower operating expenses and slightly better volumes and realisations. PAT of ₹8,024 crore was well ahead of its forecast, despite lower other income.
The brokerage reiterated a 'Buy' with an unchanged target of ₹285, based on Brent crude assumptions of US$70/bbl and expectations of 8-10 per cent cumulative output growth over FY26-28 from KG DWN-98/2 and Western offshore projects. It also pointed to ONGC's robust dividend yield of 4-5 per cent and attractive valuations at 5.6x FY27E consolidated EPS. ALSO READ |
While ONGC continues to benefit from cost discipline and incremental gas realisation gains from new wells, the path ahead hinges on crude price trends and execution of its production growth plans.
With brokerages split between cautious and bullish calls, investors are likely to watch both commodity markets and ONGC's operational delivery closely in the coming quarters.
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