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ONGC still inexpensive on an EV/proved reserves basis; Buy (CL)
What's changed
The Financial Express reported today that an independent audit by DeGolyer
and MacNaughton (D&M) has estimated OVL’s (ONGC’s overseas
subsidiary) proved reserves (1P) at 130mtoe as of April 1, 2011 as against
an estimate of 201mtoe by the company. It further added that D&M has
estimated ONGC’s domestic proved reserves at 598mtoe as of April 1,
2011 as against an estimate of 625mtoe by the company. Although the
company has not yet officially declared the audit findings, it did release the
estimates from an earlier, similar audit conducted by D&M of its reserves
as of October 1, 2010. These audit estimates for OVL at that time were also
about one-third lower than the company’s estimate, which ONGC’s reserve
estimation committee did not accept.
Implications
Despite this not being incrementally significant new information, the
market has reacted negatively, with the shares falling. However, we note
that even if we include the reported conservative D&M estimates in our
total reserve estimate calculation for ONGC Group, the lowered 1P reserves
at 863mtoe would mean an FY12E EV/1P of US$7.6/boe. This compares
favorably against the Asian peer group FY12E EV/1P median of US$15.8/boe
as well as against US$14.3/boe for state-owned PetroChina. Thus, even
incorporating the revised 1P estimates, we think ONGC would continue to
be one of the most inexpensive stocks on an EV/1P basis (Exhibit 1).
Valuation
We reiterate our Buy rating (on Conviction List) on ONGC owing to stableto-improving oil realization, improving volume growth and attractive
valuation. Our 12-m Director’s Cut-based target price of Rs340 implies 26%
upside potential.
Key risks
Key risks include: (1) delay in fuel price increases; (2) high subsidy burden
from rising oil price; and (3) lower production from legacy E&P fields.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage View: Neutra
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ONGC still inexpensive on an EV/proved reserves basis; Buy (CL)
What's changed
The Financial Express reported today that an independent audit by DeGolyer
and MacNaughton (D&M) has estimated OVL’s (ONGC’s overseas
subsidiary) proved reserves (1P) at 130mtoe as of April 1, 2011 as against
an estimate of 201mtoe by the company. It further added that D&M has
estimated ONGC’s domestic proved reserves at 598mtoe as of April 1,
2011 as against an estimate of 625mtoe by the company. Although the
company has not yet officially declared the audit findings, it did release the
estimates from an earlier, similar audit conducted by D&M of its reserves
as of October 1, 2010. These audit estimates for OVL at that time were also
about one-third lower than the company’s estimate, which ONGC’s reserve
estimation committee did not accept.
Implications
Despite this not being incrementally significant new information, the
market has reacted negatively, with the shares falling. However, we note
that even if we include the reported conservative D&M estimates in our
total reserve estimate calculation for ONGC Group, the lowered 1P reserves
at 863mtoe would mean an FY12E EV/1P of US$7.6/boe. This compares
favorably against the Asian peer group FY12E EV/1P median of US$15.8/boe
as well as against US$14.3/boe for state-owned PetroChina. Thus, even
incorporating the revised 1P estimates, we think ONGC would continue to
be one of the most inexpensive stocks on an EV/1P basis (Exhibit 1).
Valuation
We reiterate our Buy rating (on Conviction List) on ONGC owing to stableto-improving oil realization, improving volume growth and attractive
valuation. Our 12-m Director’s Cut-based target price of Rs340 implies 26%
upside potential.
Key risks
Key risks include: (1) delay in fuel price increases; (2) high subsidy burden
from rising oil price; and (3) lower production from legacy E&P fields.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage View: Neutra
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