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ONGC Q2FY13 Result Update




IndiaNivesh Securities Pvt Ltd


08 Nov 2012





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Result Updates ONGC Q2FY13 Result Update | Net profit hit by higher subsidy burden and increase in operating expenditure ONGC showed muted performance in Q2FY13 dragged by lower production, higher operating expenses and lower net realization. Net profit decreased by 31.8% y-o-y and 3% q-o-q to Rs 58.96 bn (below street expectation of Rs 61.44 bn) hit by increase in share of oil subsidy burden of upstream companies (from 31.5% in Q1FY13 to 40% in Q2FY13) and higher operating expenses. ONGC shared higher than expected subsidy burden in Q2 FY13 to Rs 123.30 bn (81.60% of total up stream’s sharing burden). Revenue slid by 12.5% y-o-y (down 1.5 % q-o-q) at Rs 197.88 bn (lower than street expectation of Rs 209.89 bn) due to lower crude oil production and lower net realization. EBITDA margin slid 300 bps Q-o-Q and 1097 bps y-o-y to 52.1% due to higher statutory levies, other expenditure and staff cost. However, higher other income supported bottom line to some extent increased by 67% YoY and 83% QoQ to Rs. 19 bn due to higher interest on deposits, forex gain (Rs. 5.15 bn) and dividend received from subsidiaries. On operational front, crude oil production de-grew by 4.5% y-o-y (down 0.21% q-o-q) to 6.52 MMT while natural gas production slipped marginally by 0.5% y-o-y to 6.35 BCM. Net realization stood at USD 46.8/bbl vs. USD 83.7 in Q2FY12 and USD 45.97 in Q1FY13. Valuation: In the near term, ONGC is expected to register growth in production volumes driven by innovative re-development projects in its domestic operations and acquisition of some overseas producing assets. We are positive on ONGC from the long-term perspective due to potential reserve accretion from its large E&P acreage. Recent fuel price hike, duty cuts and weakness in crude prices has improved prospect of lower under-recoveries from second half of FY13. ONGC trades at a ~50% discount to its global peers on EV/BOE (5x EV/BOE of 2P reserves vs. global average of above 10x. At CMP of Rs 265 ONGC is trading 8.70x FY13E and 8x FY14E EPS and 3.78x FY13E and 3.49x FY14E EV/EBITDA. We maintain our Buy rating on the stock with target price of Rs. 358.

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