CMP: INR158 TP: INR195 (+24%) Buy Lowering crude oil price estimates

BSE SENSEX S&P CNX 30,858 9,504 Stock Info Bloomberg ONGC IN Equity Shares (m) 12,833 52-Week Range (INR) 212 / 141 1, 6, 12 Rel. Per (%) -9/-33/-5 M.Cap. (INR b) 2,335.7 M.Cap. (USD b) 34.4 Avg Val, INRm 1453 Free float (%) 31.9 Financials Snapshot (INR b) Y/E Mar FY17 FY18E FY19E Sales 1421 1561 1771 EBITDA 471 606 703 NP 211 230 259 EPS (Rs) 16.4 17.9 20.1 EPS Gr. (%) 20.8 8.9 12.6 BV/Sh. (Rs) 172 179 186 RoE (%) 10.4 10.2 11.1 RoCE (%) 8.5 8.9 9.5 P/E (x) 9.6 8.8 7.8 P/BV (x) 0.9 0.9 0.8 EV/EBITDA (x) 4.8 3.8 3.3 Div. Yield (%) 3.8 6.3 7.1 Shareholding pattern (%) As On Mar-17 Dec-16 Mar-16 Promoter 68.1 68.9 68.9 DII 12.0 11.7 11.9 FII 6.3 5.8 5.6 Others 13.7 13.6 13.6 Note: FII Includes depository receipts Stock Performance (1-year) O N G C Sensex - Rebased 210 190 170 150 130 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 30 June 2017 Update Sector: Oil & Gas ONGC CMP: INR158 TP: INR195 (+24%) Buy Lowering crude oil price estimates Stock price correction provides an opportunity to buy Crude oil prices decline despite production cut extension On 25 May 2017, OPEC and non-opec countries agreed to extend oil production cut until March 2018 in a bid to boost oil prices. Despite this, oil prices have declined due to rising production from Nigeria and Libya the two OPEC members exempt from the cut. In May 2017, oil production in Libya increased by more than 240kbpd to 780kbpd and in Nigeria by 140kbpd to 1.52mbpd. The increased shale drilling and the revival in oil production from Libya/Nigeria are expected to lead to higher-than-expected slowdown in inventory draws in 2017. It presents a risk of inventory normalization not being achieved by the time the OPEC cut ends in March next year. We expect crude oil prices to hover near USD50/bbl until there is evidence of a decline in the US rig count, an increase in inventory draws or additional OPEC production cut. Thus, we reduce our crude oil price estimates to USD50/55/bbl for FY18/19 v/s USD55/60/bbl earlier. ONGC is well placed Management s conscious efforts on cost efficiencies through lower workover and water injection have resulted in opex coming down from USD7.4/boe in FY16 to USD6.3/boe in FY17. We expect this cost efficiency to sustain. ONGC is expected to witness gas production growth of 10-15% annually for the next five years, led by the Daman, C26, S1, Vashishta and Bassein fields. Also, oil production is expected to increase from the nominated fields like WO16, Vasai East and Ratna & R-series. We do not expect any subsidy burden to be levied on ONGC as long as oil prices are below USD65/bbl. However, realization may be capped if oil prices move above that level. Crude oil prices have declined sharply due to short-term imbalance in the global oil market. We expect crude oil prices to increase as the market rebalances, and note that ONGC is a direct play on crude oil price. Stock price correction provides an opportunity to buy With OPEC and non-opec agreeing to extend oil production cut until March 2018, we expect stability in crude oil prices and also in the company s realizations. For FY18/19, we model Brent of USD50/55/bbl and expect EPS of INR17.9/20.1. ONGC s stock price has declined ~11% in June, led by a fall in crude price and INR appreciation. This correction is an opportunity to buy, in our view. We value the stock at INR195 using SOTP valuation. The stock trading at 7.8x FY19E EPS of INR20.1 and at EV of 3.3x FY19E EBITDA. Maintain Buy. Swarnendu Bhushan (Swarnendu.Bhushan@MotilalOswal.com); +91 22 6129 1529 Abhinil Dahiwale (Abhinil.Dahiwale@MotilalOswal.com); +91 22 6129 1566 Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/institutional-equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Crude oil price to hover around USD50/bbl Exhibit 1: Crude oil production from OPEC was flat YoY (up MoM) at 32.1mbpd in May 2017 Crude Oil Production, OPEC Total (mbpd) YoY (%) 7% 32.3 6% 32.6 32.7 32.6 32.6 3% 3% 2% 2% 2% 2% 2% 31.9 32.0 32.2 32.2 32.9 3% 33.3 4% 33.1 4% 32.2 0% 32.0 0% 31.6 31.7-1% -1% 32.1 0% Exhibit 2: Libyan oil production increased by more than 240kbpd to 780kbpd in May v/s 540kbpd in April 2017 Crude Oil Production, Libya (mbpd) YoY (%) 169% 0.4 0.4 0% 0% 0.3 0.3 0.3 0.3 0.3-33% -35% -33% -20% -23% 0.3 0.3-31% -18% 53% 68% 31% 0.6 0.6 0.6 84% 92% 84% 64% 0.7 0.7 0.6 0.5 0.8 Exhibit 3: Nigerian oil production increased by more than 140kbpd to 1.52mbpd in May 2017 Crude Oil Production, Nigeria (mbpd) YoY (%) 16% 2% -1% -9% -10% -24% -12% -25% -31% -28% -18% -18% -22% -24% -19% -18% -12% 1.8 1.8 1.6 1.6 1.3 1.4 1.4 1.2 1.3 1.5 1.5 1.4 1.4 1.5 1.3 1.4 1.5 30 June 2017 2

Exhibit 4: US crude oil production increased consecutively in April and May 2017 after declining in previous months 9.2 9.2 9.2 U.S. Crude Oil Production (mbpd) YoY (%) 2% 4% -2% -4% -4% 9.0-7% 8.9 8.7 8.7-6% -7% -8% 8.8-7% 8.6-9% 8.8-6% -1% -1% -4% -5% -5% 8.9 9.1 9.1 8.8 8.9 9.0 9.2 Exhibit 5: US shale basin rig count has been increasing; rig count increased by ~200 in 2017 YTD v/s 35 in 2016 US Shale - Rig count YoY (%) 574 541 498 454 419 401 352 333 352 367 54% 307 281 300 262 274 19% 87% -4% -63% -62% -60% -58% -57% -53% -48% -43% -38% -29% -20% 619 120% 653 149% Valuation and view Reducing our crude oil estimates for FY18/19 ONGC is set to increase its gas production by 10-15% annually for the next five years, according to management. Continued improved oil recovery (IOR) and contribution of new projects to production would also help reverse the decadal trend of negative-to-flat growth. We expect oil prices to remain in the USD50-55/bbl range, which should provide stability to its earnings. For FY18/19, we model Brent of USD50/55/bbl and expect EPS of INR17.9/20.1. ONGC s stock price has declined by ~11% in June, led by a fall in crude price and INR appreciation. This correction is an opportunity to buy, in our view. We value the stock at INR195 using SOTP valuation. The stock trading at 7.8x FY19E EPS of INR20.1 and at EV of 3.3x FY19E EBITDA. Maintain Buy. 30 June 2017 3

Exhibit 7: ONGC: Key assumptions Exhibit 6: SOTP for ONGC Valuation of ONGC Consol. FY19 EPS 20.1 FY19 Other income (INR b) 57.4 Other income (INR/share) 2.9 FY19 EPS excluding other income (INR) 17.3 PE (x) 10.0 Valuation of ONGC consol. (INR/share) 173 Listed investments Indian Oil Corporation 12 Petronet LNG 3 GAIL 1 MRPL 11 Total valuation 200 Valuation of Mozambique Recoverable reserves (tcf) 75 Valuation of block (USD b) 31 ONGC's stake (%) 16 Discount rate (%) 50 Valuation for ONGC (USD b) 3 Value paid (USD b) 3 Valuation for ONGC (INR/share) (4) Valuation of ONGC (INR/share) 195 Source: MOSL, Company Year End: March 31 (INRm) FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E Exchange Rate (INR/USD) 47.8 54.4 60.6 61.4 65.5 67.1 65.6 67.0 APM Gas Price (USD/mmbtu) 4.2 4.2 4.2 4.9 4.7 3.1 2.9 3.2 Brent crude price (USD/bbl) 114.5 110.6 107.8 86.0 47.6 49.0 50.0 55.0 Production Details (mmtoe) Domestic Oil Prodn (mmt) 26.9 26.1 26.0 25.9 25.9 26.4 26.2 26.2 Domestic Gas Prodn (bcm) 25.7 25.3 24.9 23.5 22.5 23.5 25.6 29.5 Domestic Prodn (mmtoe) 52.6 51.5 50.9 49.5 48.5 50.0 51.8 55.7 OVL Production (mmtoe) 8.8 7.3 8.4 8.9 8.9 12.8 15.0 15.0 Group Production (mmtoe) 61.4 58.7 59.3 58.3 57.4 62.8 66.8 70.7 Subsidy Sharing (INRb) ONGC Subsidy 445 494 564 363 17 0 0 0 Oil Price Realization (USD/bbl) Gross 117.4 110.5 106.7 86.0 48.6 50.2 51.0 56.1 Upstream Discount 62.4 62.9 65.8 40.9 1.8 0.0 0.0 0.0 Net 55.0 47.6 40.9 45.1 46.8 50.2 51.0 56.1 30 June 2017 4

ONGC: Story in charts Exhibit 8: Expect domestic production uptick in coming years (mmt) Domestic Oil Prodn (mmt) Domestic Gas Prodn (bcm) 55.7 52.6 51.5 50.9 49.5 48.5 50.0 51.8 Exhibit 9: JV production to decline JVs (mmtoe) 25.7 25.3 24.9 23.5 22.5 23.5 25.6 29.5 4.3 5.1 5.4 5.4 5.3 5.2 4.9 4.9 4.4 3.8 26.9 26.1 26.0 25.9 25.9 26.4 26.2 26.2 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E Exhibit 10: OVL production to increase in FY18/19 Domestic Prodn (mmtoe) OVL Production (mmtoe) 66.8 70.7 61.4 62.8 58.7 59.3 58.3 57.4 15.0 8.8 7.3 8.4 8.9 12.8 15.0 8.9 52.6 51.5 50.9 49.5 48.5 50.0 51.8 55.7 Exhibit 11: leading to increase in net realization (USD/bbl) Net Upstream Discount Gross 117 111 107 86 62 63 66 41 49 50 51 56 2 0 0 0 55 48 41 45 47 50 51 56 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E Exhibit 12: ONGC: 1-year forward P/E (x) PE (x) Peak(x) Avg(x) Min(x) 24 20.7 18 12 11.1 6 7.2 8.0 Jun-07 Sep-08 Dec-09 Mar-11 Jun-12 Sep-13 Dec-14 Mar-16 Jun-17 30 June 2017 5

Financials and Valuations Consolidated - Income Statement (INR Million) Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E Total Income from Operations 1,624,032 1,744,771 1,608,897 1,356,642 1,421,490 1,560,537 1,770,575 Change (%) 11.0 7.4-7.8-15.7 4.8 9.8 13.5 Government Levies 256,886 261,893 255,065 0 0 0 0 Other Operating Costs 818,387 892,607 807,294 904,510 950,925 954,176 1,067,792 Total Expenditure 1,075,274 1,154,500 1,062,360 904,510 950,925 954,176 1,067,792 % of Sales 66.2 66.2 66.0 66.7 66.9 61.1 60.3 EBITDA 548,758 590,270 546,538 452,132 470,565 606,362 702,783 Margin (%) 33.8 33.8 34.0 33.3 33.1 38.9 39.7 Depreciation 231,399 250,690 289,844 224,626 226,394 261,372 303,613 EBIT 317,359 339,580 256,694 227,506 244,171 344,989 399,169 Int. and Finance Charges 4,838 6,243 28,624 37,656 29,534 38,905 46,200 Other Income 54,900 68,937 59,644 81,448 79,153 56,130 57,369 PBT bef. EO Exp. 367,422 402,274 287,715 271,298 293,789 362,215 410,339 EO Items 0 2,423-14,011-79,433 5,910 0 0 PBT after EO Exp. 367,422 404,697 273,704 191,865 299,699 362,215 410,339 Total Tax 127,519 127,604 96,974 69,507 95,617 128,117 145,139 Tax Rate (%) 34.7 31.5 35.4 36.2 31.9 35.4 35.4 Minority Interest -2,294 1,465-6,606-8,657-10,702 4,555 6,675 Reported PAT 242,196 275,628 183,335 131,016 214,783 229,543 258,525 Adjusted PAT 242,234 262,235 183,638 174,478 210,759 229,543 258,525 Change (%) -6.9 8.3-30.0-5.0 20.8 8.9 12.6 Margin (%) 14.9 15.0 11.4 12.9 14.8 14.7 14.6 Consolidated - Balance Sheet (INR Million) Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E Equity Share Capital 42,778 42,778 42,778 42,778 64,166 64,166 64,166 Total Reserves 1,482,502 1,678,732 1,761,766 1,804,666 2,147,729 2,228,211 2,318,855 Net Worth 1,525,280 1,721,510 1,804,544 1,847,443 2,211,895 2,292,377 2,383,021 Minority Interest 19,466 29,125 24,731 25,067 41,243 45,798 52,472 Total Loans 204,508 455,881 518,713 535,926 556,819 740,000 800,000 Deferred Tax Liabilities 142,251 178,635 181,759 203,553 290,991 290,991 290,991 Capital Employed 1,891,506 2,385,152 2,529,748 2,611,989 3,100,948 3,369,166 3,526,485 Gross Block 1,234,978 1,408,679 1,712,933 1,701,114 2,881,281 2,174,615 2,303,302 Less: Accum. Deprn. 827,192 945,671 1,025,052 1,205,496 1,281,423 1,421,569 1,570,833 Net Fixed Assets 407,786 463,008 687,881 495,619 1,599,858 753,046 732,470 Goodwill on Consolidation 83,255 183,545 201,399 176,432 141,737 141,737 141,737 Capital WIP 397,397 538,270 422,115 685,950 195,730 240,711 283,499 Pre & Producing Properties 841,867 1,094,748 1,122,017 1,183,722 375,963 1,346,421 1,450,597 Total Investments 21,282 47,459 47,491 87,822 697,096 697,096 697,096 Curr. Assets, Loans&Adv. 776,748 915,192 890,070 920,649 671,644 847,702 921,786 Inventory 127,804 148,015 106,062 100,897 113,641 121,857 133,035 Account Receivables 153,956 160,284 187,970 96,865 116,926 110,105 124,924 Cash and Bank Balance 302,540 365,631 297,393 405,588 312,422 475,492 510,888 Loans and Advances 192,449 241,263 298,644 317,299 128,654 140,249 152,939 Curr. Liability & Prov. 636,828 857,070 841,225 938,206 581,079 657,548 700,699 Account Payables 373,384 543,502 490,837 528,837 555,163 574,043 610,494 Provisions 263,445 313,568 350,388 409,369 25,916 83,505 90,206 Net Current Assets 139,920 58,122 48,845-17,557 90,564 190,155 221,087 Appl. of Funds 1,891,506 2,385,152 2,529,748 2,611,989 3,100,948 3,369,166 3,526,485 E: MOSL Estimates 30 June 2017 6

Financials and Valuations Ratios Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E Basic (INR) EPS 18.9 20.4 14.3 13.6 16.4 17.9 20.1 Cash EPS 36.9 40.0 36.9 31.1 34.1 38.3 43.8 BV/Share 118.9 134.1 140.6 144.0 172.4 178.6 185.7 DPS 6.3 6.3 6.3 5.7 6.0 9.9 11.2 Payout (%) 38.9 34.5 53.2 66.8 43.5 64.9 64.9 Valuation (x) P/E 11.0 11.6 9.6 8.8 7.8 Cash P/E 4.3 5.1 4.6 4.1 3.6 P/BV 1.1 1.1 0.9 0.9 0.8 EV/Sales 1.4 1.6 1.6 1.5 1.3 EV/EBITDA 4.1 4.8 4.8 3.8 3.3 Dividend Yield (%) 4.0 4.0 4.0 3.6 3.8 6.3 7.1 FCF per share 1.9-6.5-0.8 21.2 3.2 9.3 10.4 Return Ratios (%) RoE 16.8 16.2 10.4 9.6 10.4 10.2 11.1 RoCE 15.0 14.3 9.1 8.4 8.5 8.9 9.5 RoIC 20.2 17.9 10.4 9.1 10.0 11.6 12.9 Working Capital Ratios Fixed Asset Turnover (x) 1.3 1.2 0.9 0.8 0.5 0.7 0.8 Asset Turnover (x) 0.9 0.7 0.6 0.5 0.5 0.5 0.5 Inventory (Days) 29 31 24 27 29 29 27 Debtor (Days) 35 34 43 26 30 26 26 Creditor (Days) 84 114 111 142 143 134 126 Leverage Ratio (x) Current Ratio 1.2 1.1 1.1 1.0 1.2 1.3 1.3 Interest Cover Ratio 65.6 54.4 9.0 6.0 8.3 8.9 8.6 Net Debt/Equity -0.1 0.0 0.1 0.0-0.2-0.2-0.2 Consolidated - Cash Flow Statement (INR Million) Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E OP/(Loss) before Tax 367,422 394,134 273,704 273,897 299,699 362,215 410,339 Depreciation 120,942 233,219 269,009 307,994 174,355 261,372 303,613 Direct Taxes Paid -124,257-105,667-90,292-68,207-95,617-128,117-145,139 (Inc)/Dec in WC -11,710 42,031-115,768 174,596-148,900 53,521-5,493 CF from Operations 352,397 563,718 336,653 688,280 229,536 548,991 563,320 Others 94,606-31,014 3,433 0 71,778 0 0 CF from Operating incl EO 447,003 532,704 340,086 688,280 301,314 548,991 563,320 (Inc)/Dec in FA -422,802-615,655-350,957-416,305-259,754-430,000-430,000 Free Cash Flow 24,201-82,951-10,871 271,975 41,560 118,991 133,320 (Pur)/Sale of Investments 10,698-20,671 0-40,331-290,427 0 0 Others 11,524 14,467 47,997-13,220 8,106 0 0 CF from Investments -400,580-621,859-302,960-469,856-542,074-430,000-430,000 Issue of Shares 2,038 1,782-23 0 0 0 0 Inc/(Dec) in Debt -2,678 247,223 1,603 17,213 111,342 183,181 60,000 Dividend Paid -110,021-97,624-94,953-127,442-93,450-149,060-167,881 CF from Fin. Activity -117,532 152,246-105,364-110,229 147,595 44,078-97,924 Inc/Dec of Cash -71,109 63,091-68,238 108,195-93,165 163,069 35,396 Opening Balance 373,649 302,539 365,631 297,393 405,587 312,423 475,492 Closing Balance 302,539 365,631 297,393 405,587 312,423 475,492 510,888 30 June 2017 7

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This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited: Varun Kumar Varun.kumar@motilaloswal.com Contact : (+65) 68189232 Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931 Motilal Oswal Securities Ltd Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025 Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com 30 June 2017 8