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India Equity Research Reports, IPO and Stock News
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- ONGC
Headwinds easing
Policy tailwinds should help overcome 1Q11 production woes.
ONGC’s 1QFY11 net profit was 2% below our estimates given lower crude
joint-venture sales and petroleum profits. Sharply lower Sakhalin output is
also likely to weigh on subsidiary OVL’s profitability. The decline in
domestic crude and gas production remains a concern. ONGC’s poor
production outlook precludes a secular investment case but it should
benefit from newsflow that clarifies the upstream sharing formula ahead of
the US$2.5bn FPO, a potential cap on subsidised LPG availability and a
change in contract terms at Cairn’s Rajasthan block. Maintain BUY.
Marginally lower 1QFY12 results. ONGC’s (ONGC IB - Rs276.6 - BUY)
1QFY12 PAT rose 12% YoY /47% QoQ to Rs41bn but was 2% below
estimate. Lower than expected JV crude sales volumes, larger than
modelled profit petroleum deduction and admin expenses led to a 2% miss
on reported Ebitda (Rs93.5bn, +15% YoY). Despite larger than expected
dry well write offs due to writeoffs in ONGC’s Andaman blocks, overall
DD&A came lower than our anticipation. Benefit of this and higher other
income was negated by no recovery from gas pool in 1Q, which we were
building in. While upstream subsidy sharing reverted to one-third in 1Q,
inventory build up pulled down ONGC’s net crude price realisations to
US$48.8/bbl (Gross = US$121/bbl).
Marginally lower 1QFY12 results. ONGC’s (ONGC IB - Rs276.6 - BUY)
1QFY12 PAT rose 12% YoY /47% QoQ to Rs41bn but was 2% below
estimate. Lower than expected JV crude sales volumes, larger than
modelled profit petroleum deduction and admin expenses led to a 2% miss
on reported Ebitda (Rs93.5bn, +15% YoY). Despite larger than expected
dry well write offs due to writeoffs in ONGC’s Andaman blocks, overall
DD&A came lower than our anticipation. Benefit of this and higher other
income was negated by no recovery from gas pool in 1Q, which we were
building in. While upstream subsidy sharing reverted to one-third in 1Q,
inventory build up pulled down ONGC’s net crude price realisations to
US$48.8/bbl (Gross = US$121/bbl).
Surprising decline in Sakhalin output. While the 8% and 3% QoQ drop
in crude production of Sakhalin and Sudan (natural decline) respectively
was fully offset by an increase in Imperial (+9%QoQ) and Venezuela
(+14%QoQ), these new barrels would be less profitable. A 33% QoQ fall in
Sakhalin (possibly a shutdown) drove an overall decline of 5% QoQ decline
in OVL’s gas production. Nonetheless, these factors should have weighed
on OVL’s 1QFY12 profits.
Policy tailwinds; maintain BUY. ONGC’s poor production trajectory
precludes a secular investment case for the stock, but we expect it to
benefit from newsflow tailwinds from a formalisation of the upstream
sharing formula ahead of the US$2.5bn FPO in 2HFY12 (we model onethird), a potential cap on subsidised LPG availability (+4-5% on EPS) and
a change in the contract terms at Cairn’s Rajasthan block (+6-10% if
royalty is cost recoverable). Valuations at 3.5x Mar12 EV/Ebitda and 8x PE
are also supportive. Maintain BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
- ONGC
Headwinds easing
Policy tailwinds should help overcome 1Q11 production woes.
ONGC’s 1QFY11 net profit was 2% below our estimates given lower crude
joint-venture sales and petroleum profits. Sharply lower Sakhalin output is
also likely to weigh on subsidiary OVL’s profitability. The decline in
domestic crude and gas production remains a concern. ONGC’s poor
production outlook precludes a secular investment case but it should
benefit from newsflow that clarifies the upstream sharing formula ahead of
the US$2.5bn FPO, a potential cap on subsidised LPG availability and a
change in contract terms at Cairn’s Rajasthan block. Maintain BUY.
Marginally lower 1QFY12 results. ONGC’s (ONGC IB - Rs276.6 - BUY)
1QFY12 PAT rose 12% YoY /47% QoQ to Rs41bn but was 2% below
estimate. Lower than expected JV crude sales volumes, larger than
modelled profit petroleum deduction and admin expenses led to a 2% miss
on reported Ebitda (Rs93.5bn, +15% YoY). Despite larger than expected
dry well write offs due to writeoffs in ONGC’s Andaman blocks, overall
DD&A came lower than our anticipation. Benefit of this and higher other
income was negated by no recovery from gas pool in 1Q, which we were
building in. While upstream subsidy sharing reverted to one-third in 1Q,
inventory build up pulled down ONGC’s net crude price realisations to
US$48.8/bbl (Gross = US$121/bbl).
Marginally lower 1QFY12 results. ONGC’s (ONGC IB - Rs276.6 - BUY)
1QFY12 PAT rose 12% YoY /47% QoQ to Rs41bn but was 2% below
estimate. Lower than expected JV crude sales volumes, larger than
modelled profit petroleum deduction and admin expenses led to a 2% miss
on reported Ebitda (Rs93.5bn, +15% YoY). Despite larger than expected
dry well write offs due to writeoffs in ONGC’s Andaman blocks, overall
DD&A came lower than our anticipation. Benefit of this and higher other
income was negated by no recovery from gas pool in 1Q, which we were
building in. While upstream subsidy sharing reverted to one-third in 1Q,
inventory build up pulled down ONGC’s net crude price realisations to
US$48.8/bbl (Gross = US$121/bbl).
Surprising decline in Sakhalin output. While the 8% and 3% QoQ drop
in crude production of Sakhalin and Sudan (natural decline) respectively
was fully offset by an increase in Imperial (+9%QoQ) and Venezuela
(+14%QoQ), these new barrels would be less profitable. A 33% QoQ fall in
Sakhalin (possibly a shutdown) drove an overall decline of 5% QoQ decline
in OVL’s gas production. Nonetheless, these factors should have weighed
on OVL’s 1QFY12 profits.
Policy tailwinds; maintain BUY. ONGC’s poor production trajectory
precludes a secular investment case for the stock, but we expect it to
benefit from newsflow tailwinds from a formalisation of the upstream
sharing formula ahead of the US$2.5bn FPO in 2HFY12 (we model onethird), a potential cap on subsidised LPG availability (+4-5% on EPS) and
a change in the contract terms at Cairn’s Rajasthan block (+6-10% if
royalty is cost recoverable). Valuations at 3.5x Mar12 EV/Ebitda and 8x PE
are also supportive. Maintain BUY.
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