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UBS Investment Research
Oil & Natural Gas Corporation: Maintain Buy on strong Q3 results
3QFY11 net profit up 31% QoQ
Key highlights of the results are: 1) Higher net realisation on crude oil, 2) Higher
other operating income due to Rs 19bn received from the Gas Pool account and 3)
Decrease in dry well expenses due to accounting for some October dry wells in the
previous quarter of 2QFY11. Net income of Rs 70.8bn was partially boosted by
other operating income of Rs 22bn (2.1bn in 2Q11).
Subsidy burden up 40% QoQ
Subsidy contribution for the quarter was Rs 42.2bn against Rs 30.2bn in the last
quarter, on the back of higher oil prices. Gross realisation in the quarter was
US$89.13/bbl and net realisation was US$64.79/bbl vs US$79.2/bbl and
US$ 62.75/bbl resp. in the previous quarter. Though the net realisation was
impacted by a stronger rupee (Rs 44.86/US$ in 3QFY11 vs. Rs 46.5/US$ in
2QFY11). Higher subsidy burden adversely impacted ONGC’s net profit. Delay in
diesel price hike added to the burden and remains the primary risk to our TP.
Current stock price discounts negative news
We believe the stock has support from current valuations as the market has already
discounted the negatives. Therefore, any positive news on deregulation or diesel
price hike should impact the stock positively.
Valuation: maintain Buy rating and sum-of-the-parts PT of Rs 1,600/share
The stock is attractive at 10.2x FY12e EPS & 4.6x EV/FY12e EBITDA. Key risks
to our TP are 1)no diesel price hike and 2) no resolution of Rajasthan royalty issue
which could reduce our TP by Rs 125/sh.
3QFY11 net profit up 31% QoQ
ONGC reported net sales of Rs 208bn in the current quarter (+34% YoY, 13%
QoQ), in line with UBS estimate of Rs 203bn. Key highlights of the results are:
1) Higher net realisation on crude oil, 2) Higher other operating income due to
Rs 19bn received from the Gas Pool account and 3) Decrease in dry well
expenses. Net income of Rs 70.8bn rose 132% YoY and 31% QoQ, partially
boosted by other operating income of Rs 22bn (2.1bn in 2Q11). Dry well
expenses at 13.6bn fell 45% YoY, 44% QoQ. EBITDA margin improved
360bps QoQ.
Subsidy contribution for the quarter was Rs 42.2bn against Rs 30.2bn in the last
quarter, on the back of higher oil prices (WTI average for the quarter was
$86.9/bbl in Q311 vs, $76.4/bbl in Q211).
Oil & Natural Gas Corporation
ONGC is the largest oil exploration and production companies in India. It has
reserves of approximately 1.0bn tonnes of oil and oil equivalent gas. ONGC has
one of the lowest finding, development, and lifting costs, and reasonably high
reserve/production ratios. ONGC is 74% owned by the government of India. It
operates in a regulated market whereby the government controls crude and gas
pricing. Its FY09 revenue was US$23.78bn.
Statement of Risk
Subsidy burden is the main risk for ONGC. The company subsidises crude oil to
the OMCs (Oil marketing companies) which sell petrol, diesel, kerosene and
LPG at lower than market regulated prices. E&P business in general is risky by
nature as the success of exploration is probabilistic.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Oil & Natural Gas Corporation: Maintain Buy on strong Q3 results
3QFY11 net profit up 31% QoQ
Key highlights of the results are: 1) Higher net realisation on crude oil, 2) Higher
other operating income due to Rs 19bn received from the Gas Pool account and 3)
Decrease in dry well expenses due to accounting for some October dry wells in the
previous quarter of 2QFY11. Net income of Rs 70.8bn was partially boosted by
other operating income of Rs 22bn (2.1bn in 2Q11).
Subsidy burden up 40% QoQ
Subsidy contribution for the quarter was Rs 42.2bn against Rs 30.2bn in the last
quarter, on the back of higher oil prices. Gross realisation in the quarter was
US$89.13/bbl and net realisation was US$64.79/bbl vs US$79.2/bbl and
US$ 62.75/bbl resp. in the previous quarter. Though the net realisation was
impacted by a stronger rupee (Rs 44.86/US$ in 3QFY11 vs. Rs 46.5/US$ in
2QFY11). Higher subsidy burden adversely impacted ONGC’s net profit. Delay in
diesel price hike added to the burden and remains the primary risk to our TP.
Current stock price discounts negative news
We believe the stock has support from current valuations as the market has already
discounted the negatives. Therefore, any positive news on deregulation or diesel
price hike should impact the stock positively.
Valuation: maintain Buy rating and sum-of-the-parts PT of Rs 1,600/share
The stock is attractive at 10.2x FY12e EPS & 4.6x EV/FY12e EBITDA. Key risks
to our TP are 1)no diesel price hike and 2) no resolution of Rajasthan royalty issue
which could reduce our TP by Rs 125/sh.
3QFY11 net profit up 31% QoQ
ONGC reported net sales of Rs 208bn in the current quarter (+34% YoY, 13%
QoQ), in line with UBS estimate of Rs 203bn. Key highlights of the results are:
1) Higher net realisation on crude oil, 2) Higher other operating income due to
Rs 19bn received from the Gas Pool account and 3) Decrease in dry well
expenses. Net income of Rs 70.8bn rose 132% YoY and 31% QoQ, partially
boosted by other operating income of Rs 22bn (2.1bn in 2Q11). Dry well
expenses at 13.6bn fell 45% YoY, 44% QoQ. EBITDA margin improved
360bps QoQ.
Subsidy contribution for the quarter was Rs 42.2bn against Rs 30.2bn in the last
quarter, on the back of higher oil prices (WTI average for the quarter was
$86.9/bbl in Q311 vs, $76.4/bbl in Q211).
Oil & Natural Gas Corporation
ONGC is the largest oil exploration and production companies in India. It has
reserves of approximately 1.0bn tonnes of oil and oil equivalent gas. ONGC has
one of the lowest finding, development, and lifting costs, and reasonably high
reserve/production ratios. ONGC is 74% owned by the government of India. It
operates in a regulated market whereby the government controls crude and gas
pricing. Its FY09 revenue was US$23.78bn.
Statement of Risk
Subsidy burden is the main risk for ONGC. The company subsidises crude oil to
the OMCs (Oil marketing companies) which sell petrol, diesel, kerosene and
LPG at lower than market regulated prices. E&P business in general is risky by
nature as the success of exploration is probabilistic.
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