Motilal Oswal Takes Bullish View On ONGC, GAIL Ahead Of Earnings

Motilal Oswal released its estimates for the oil and gas sector on Monday.

What Happened: The brokerage delivered an upbeat forecast for oil and gas majors GAIL and ONGC. Motilal Oswal sees GAIL's growth to be driven by hikes in gas tariffs, improving volume growth outlook and completion of transmission and petrochemical projects.

Meanwhile, it expects the development of production pipelines could contribute to near to medium-term growth for ONGC. In addition, subsidiary HPCL's strengthening balance sheet is also expected to boost the oil and gas major, according to the research firm.

Estimates For GAIL: Motilal Oswal maintained its "buy" call for GAIL with a target price of ₹260. The domestic brokerage said the firm could potentially benefit from a 10-12% tariff increase. The brokerage estimates this could boost the company's profit after tax for FY25 by 5%. Moreover, the completion of the transmission and petrochemical projects worth ₹294 billion will boost its return on equity (ROE) and return on capital employed (ROCE).

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"We expect GAIL's RoE to improve to about 14.6% in FY26 from 9.5% in FY23, with a healthy FCF (Free Cash Flow) generation of ₹40.4 billion in FY26," the company said.

The brokerage expects sales of ₹1.33 lakh crore and ₹1.36 lakh crore billion in FY25 and FY26, respectively, with an adjusted net profit of ₹8,690 crore and ₹10,560 crore, respectively.

Estimates For ONGC: The brokerage also reiterated its "buy" call on ONGC with a target price of ₹330. The brokerage anticipates KG 98/2 and Daman's upside development to drive production growth in the near to medium term. Furthermore, significant revaluation of HPCL, a 55% subsidiary of ONGC, and other listed investments could further boost growth, it added. Motilal Oswal forecast an ROE of 17.2% for FY26.

ONGC is expected to clock in sales of ₹6.6 lakh crore and ₹6.9 lakh crore in FY25 and FY26, respectively, with an adjusted net profit of ₹63,330 crore and ₹70,480 crore, respectively.

Price Action: Shares of GAIL were down 0.39% at ₹229.59 and ONGC was trading 1.07% down at ₹295.95 on Tuesday.

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