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ONGC | Q2FY14 Result Update




IndiaNivesh Securities Pvt Ltd


13 Nov 2013





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Oil and Natural Gas Corporation Ltd. (ONGC) | Q2FY14 Result Update | Above our expectation ONGC reported Q2FY14 numbers (Standalone) above our expectation on the back of better than estimated crude oil production and net realization coupled with significant Rupee depreciation. Net sales increased by 12.8% y-o-y and 16% q-o-q to Rs 223.12 bn ( higher than our expectation of Rs 217 bn) led by higher net realization along with Rupee depreciation. Net realization stood at USD 44.8/bbl v/s USD 46.8/ bbl in Q2FY13 and USD 40.2/bbl in Q2FY14. However, net realization in Rupee terms increased by 7.8% YoY to Rs. was Rs 2785 per barrel. ONGC share subsidy burden of Rs. 137.96 bn vs. Rs. 126.2 bn in Q1FY14. Upstream share stood at 47% to Rs167 bn, and within upstream ONGC share stood at 82% to Rs.137 bn. On operational front, crude oil production declined marginally 0.64% y-o-y to 6.48 MMT and natural gas production slipped by 2.31% y-o-y 6.21 BCM. EBITDA margin expanded 307 bps YoY to 44.8% led by higher top line and lower employee and other expenditure. Reported net profit increased by 3% y-o- and 51% QoQ to Rs. 60.63 bn (above our expectation of Rs 56.36 bn) on account of higher top line. Management expects increase in domestic oil and gas production from H2FY14 on the back of starting production from the various marginal fields like D-1, GS-15, B-193, B-22, Custer-7 and WO-16 cluster fields that would add 4-5 mn MT of oil and 12-13 mmscmd of gas production in FY15. Valuation: Though the Indian govt. continued on its promised path of increasing diesel retail prices and also increased natural gas prices as expected, announcement of higher subsidy sharing by upstream companies in H1FY14 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 significantly value-accretive 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 268 ONGC is trading 7.1x FY15E EPS. We maintain our Buy rating on the stock with target price of Rs. 390.

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