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ONGC (ONGC) - Qtr. Update - Dated - February 11, 2013




Axis Capital Limited


12 Feb 2013





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ONGC’s Q3FY13 PAT of Rs 55.6 bn was lower than our estimate of Rs 57.7 bn (better than Street estimate at Rs 53 bn) as benefits from increased oil production were offset by higher dry-well write-offs. Higher oil production from Vasai East field supported 1.2% QoQ growth in standalone production. This led to higher subsidy burden at Rs 124 bn (subsidy kept at US$ 62/bl). Maintain BUY with SoTP-based TP of Rs 380 (23% upside); multiple triggers exist: Diesel deregulation along with direct cash subsidy for cooking fuels may eliminate under-recoveries over the next few years. Elimination of subsidies for ONGC could improve its fair value to Rs 515, which implies 67% upside from CMP. Hike in domestic gas prices, higher production growth (driven by new projects), and increased contribution from OVL are additional upside triggers. At CMP of Rs 308, the stock trades at 8.0x FY14E EPS of Rs 39 and 8x FY15E EPS of Rs 38.5. Conference call highlights  ONGC’s Tripura power project will have a total gas demand of 5 mmscmd over next 2-3 years  Acquisition of ACG fields is expected to be finished by Mar ‘13  ONGC has undertaken Rs 200 bn capex in 9MFY13 (vs. FY13 capex guidance at Rs 337 bn)  Dry well write-offs were mainly in shallow water NELP blocks Key Assumptions: Crude at USD 110/ bbl for FY14 and USD 90/ bbl for FY15. INR/USD at 53 for FY14 and 51.4 for FY15. Regards, Amit Mishra, CFA (Sr VP – Energy) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1142 Prashant Tarwadi (AVP – Energy) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1113

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