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Oil and Natural Gas Corp Ltd. (ONGC) | Q1FY14 Result Update




IndiaNivesh Securities Pvt Ltd


13 Aug 2013





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Oil and Natural Gas Corporation Ltd. (ONGC) | Q1FY14 Result Update Profitability hit by higher subsidy payout | ONGC showed poor performance in Q1FY14 due to higher subsidy sharing by upstream companies (~60% of total OMC’s losses). Net sales decreased by 4.3% y-o-y and 10% q-o-q to Rs 193.08 bn (slightly lower than our expectation of Rs 194.20 bn) led by lower volume along with lower net realization. Net realization stood at USD 40.17/bbl v/s USD 46.6/ bbl in Q1FY13 and USD50.9/bbl in Q4FY13. ONGC shared subsidy burden of Rs 126.2 bn in Q1Fy14 vs. Rs. 123.1 bn in Q4FY13. On operational front, crude oil production declined 0.76% y-o-y to 6.49 MMT and natural gas production slipped by 3.62% to y-o-y 6.18 BCM. EBITDA margin stood at 44% vs. our expectation of 49% due to higher other expenditure and statutory levies. Other expenditure increased due to one-time payment of Rs. 16.11 bn towards post retirement benefit scheme. Statutory levies increased due to higher royalty expenses led by Rupee depreciation. Reported net profit decreased by 34% y-o-y (up 18.5% QoQ) to Rs. 40.15 bn (below our expectation of Rs 43.70 bn) on account of lower EBITDA and other income. Valuation: Though the Indian govt. continued on its promised path of increasing diesel retail prices and also proposed to increase in natural gas prices as expected, announcement of higher subsidy sharing by upstream companies in Q1FY14 is a concern for investors. However, we believe that the recent reforms undertaken by the Indian government in pricing of petroleum products is expected to be positive for ONGC and significant material benefits accrue in FY15. ONGC trades at a ~45% discount to its global peers on EV/BOE (6.5x EV/BOE of 1P reserves vs. global average of above 12x). At CMP of Rs 278 ONGC is trading 7.25x FY15E EPS. We maintain our Buy rating on the stock with target price of Rs. 390.

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