- Q3 standalone EBITDA fell 9% YoY, but consolidated EBITDA rose 3% and PAT surged 16%.
- Oil output is flat, while gas production is set to climb to >35% of total output by FY27.
- ICICI cuts FY26 EPS forecast 5.8% but lifts FY27/FY28 EPS by 5%‑5.6% on higher gas realizations.
- Target price nudged up to INR 332, maintaining a BUY recommendation.
- Sector peers like Reliance Industries and Cairn are also boosting gas caps, intensifying competition.
Most investors skimmed ONGC’s Q3 numbers and missed the gas‑fuelled catalyst brewing.
Why ONGC’s Q3 EBITDA Miss Signals a Shift Toward Gas
In the March quarter, ONGC reported adjusted EBITDA of INR 168 billion, 9% lower than a year ago and missing the research house’s estimate of INR 174 billion. The shortfall stems primarily from stagnant oil output – 10.2 million tonnes (mt) versus a flat 9‑month cumulative 30.6 mt. Yet, the company’s consolidated EBITDA rose 3% to INR 268.6 billion, and net profit (PAT) jumped 16% to INR 99.8 billion, indicating that non‑oil assets are picking up the slack.
Gas‑Centric Production Outlook: The Numbers Behind the Narrative
ONGC’s management disclosed that the KG‑D6 basin will reach roughly 8 million standard cubic metres per day (mmscmd) by FY27. Adding the Daman field’s upside of 4‑5 mmscmd and the upcoming DSF‑II development could push natural‑gas share of total output above 35% within three to four years – a sharp rise from today’s 18‑20%.
In practical terms, a higher gas mix means two things for investors: (1) revenue stability, because domestic gas pricing is increasingly linked to long‑term contracts and less volatile than crude oil; and (2) margin expansion, as gas‑to‑liquids conversion and petro‑chemical feedstock demand are on the rise.
Sector Trends: India’s Gas Push and What It Means for ONGC
India’s energy policy is pivoting toward natural gas to meet climate targets and reduce import dependence. The government’s push for city‑gas pipelines, LNG terminal expansions, and a target of 15% gas in the overall fuel basket by 2030 creates a tailwind for upstream players. ONGC, with its vast on‑shore and offshore reserves, is uniquely positioned to capture a larger slice of this growth.
Meanwhile, rivals such as Reliance Industries are accelerating gas‑linked projects like the KG‑B gas‑to‑liquids plant, and private players like Cairn (now part of Vedanta) have announced new drilling campaigns in the same basins. The competitive race is sharpening, making ONGC’s ability to scale production quickly a decisive factor.
Historical Context: Past Production Ramps and Market Reaction
When ONGC first launched the KG‑D6 field in 2014, output rose from 2 mmscmd to 5 mmscmd within two years, sending its share price up 12% on the back of higher gas realizations. A similar pattern repeated in 2018 after the Daman field came online, with earnings per share (EPS) climbing 8% YoY. The current cycle mirrors those past inflection points, albeit with a higher baseline of gas pricing and a more favorable regulatory environment.
Technical Corner: Decoding EBITDA, PAT, and mmscmd
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures operating profitability before non‑cash and financing items. A rise in consolidated EBITDA despite a standalone decline suggests that joint‑venture or subsidiary performance is offsetting core challenges.
PAT (Profit After Tax) reflects the bottom line after all expenses, including tax. A 16% PAT increase signals effective cost control and perhaps better tax efficiency.
mmscmd stands for million standard cubic metres per day, the industry’s standard unit for gas volume. Reaching 8 mmscmd would place ONGC among the top gas producers in the sub‑continent.
Investor Playbook: Bull vs. Bear Scenarios
Bull Case: If ONGC delivers on its gas‑production roadmap, earnings could see a compound annual growth rate (CAGR) of 10‑12% through FY28. Higher gas pricing, lower capital intensity than oil, and a supportive policy backdrop would justify the revised target price of INR 332. Momentum traders might look for a breakout above INR 350 as the market re‑prices the gas upside.
Bear Case: Delays in DSF‑II commissioning, or a prolonged dip in crude oil prices below USD 60 per barrel, could suppress cash flows. Moreover, if regulatory tariffs on gas fall, the anticipated margin boost could evaporate, pulling the stock back toward its FY26 consensus estimate of INR 300.
Overall, the recommendation stays at BUY, but investors should monitor quarterly production reports, gas‑price revisions, and policy announcements for early signals.
For a deeper dive into the numbers, download the full research note.