Oil & Natural Gas Corp. (ONGC.NS): The US$5bn Cash Machine

Near-term volume concerns persist, however we believe execution risk is gradually reducing. The ongoing Western Offshore investment cycle, BP's expanded technical partnership and ramp-up of key projects provide better visibility on production recovery over the next 18-24 months. Further, ONGC's earnings profile is structurally changing, with higher-priced new-well gas increasingly offsetting its historical dependence on crude oil. We continue to view ONGC as one of the best ways to play India's energy security theme, with improving reserve monetisation, stronger free cash flow generation and a structurally higher earnings trajectory over the medium term. ONGC is generating a fifth of its market cap in annual cashflows with US$10bn in operating cashflows and US$5bn in FCF. Interim dividend raise adds to upside. ONGC's earnings beat Street/MSe with higher crude (US$92.4/bbl) and natural gas (US$8.15/mmbtu) realizations and benefits of royalty reduction. Domestic production was flat QoQ,