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India Equity Research Reports, IPO and Stock News
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Key Takeaways
Upstream subsidy share to be limited at 1/3rd
Though FY11 upstream sharing at 38.7% was a negative surprise, the ONGC
management expects FY12 sharing to be capped at 33% (1QFY12 at 33%).
The management has a positive view on government policy changes, which it believes
are primarily driven by increased awareness of the negative impact of ad-hoc subsidy
burden. It believes these changes will be favorable for the sector and the company,
The company indicated that the decision on the timing of the proposed FPO (followon
public offer), where the government plans to sell 5% stake in ONGC (current
stake at ~74%), will be taken by the Department of Divestment (DoD).
Post royalty issue resolution, Cairn's Rajasthan production to ramp up
Once the royalty and cess issue resolution, ONGC expects that the focus will once
again be on operational issues and expects production to ramp up soon after.
The management expects a one-time gain post resolution of royalty issue with
Cairn India, on account of royalty that ONGC has already paid.
E&P capex intensity to continue
ONGC is the largest hoder of domestic E&P acreage, garnered through nomination
as well as NELP rounds. It controls 51% of the PEL area and 67% of the mining
lease area in India.
ONGC's capex has increased at 21% CAGR in the last four years to INR283b in FY11
and is likely to grow 6% in FY12 to INR300b.
Led by its continuous IOR/EOR investments, ONGC has been able to maintain
production at its mature fields v/s 9% decline in the non-OPEC mature fields.
Production ramp-up from marginal fields likely
Led by development of marginal fields, the management expects a meaningful increase
in 2013 oil production rate to ~28mmt (currently at ~25mmt) and gas production to
72mmscmd (currently at ~65mmscmd).
ONGC expects increase in oil production from the development of its East coast
offshore blocks that are likely to commence production in FY12. Increase in gas
production will be driven by: (1) Daman offshore development, and (2) Tripura
(estimated requirement of ~3.5mmscmd for new gas power plant).
Valuation and view
The stock trades at 9.9x FY12E EPS of INR29.1. Our SOTP-based target price is
INR346. Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Upstream subsidy share to be limited at 1/3rd
Though FY11 upstream sharing at 38.7% was a negative surprise, the ONGC
management expects FY12 sharing to be capped at 33% (1QFY12 at 33%).
The management has a positive view on government policy changes, which it believes
are primarily driven by increased awareness of the negative impact of ad-hoc subsidy
burden. It believes these changes will be favorable for the sector and the company,
The company indicated that the decision on the timing of the proposed FPO (followon
public offer), where the government plans to sell 5% stake in ONGC (current
stake at ~74%), will be taken by the Department of Divestment (DoD).
Post royalty issue resolution, Cairn's Rajasthan production to ramp up
Once the royalty and cess issue resolution, ONGC expects that the focus will once
again be on operational issues and expects production to ramp up soon after.
The management expects a one-time gain post resolution of royalty issue with
Cairn India, on account of royalty that ONGC has already paid.
E&P capex intensity to continue
ONGC is the largest hoder of domestic E&P acreage, garnered through nomination
as well as NELP rounds. It controls 51% of the PEL area and 67% of the mining
lease area in India.
ONGC's capex has increased at 21% CAGR in the last four years to INR283b in FY11
and is likely to grow 6% in FY12 to INR300b.
Led by its continuous IOR/EOR investments, ONGC has been able to maintain
production at its mature fields v/s 9% decline in the non-OPEC mature fields.
Production ramp-up from marginal fields likely
Led by development of marginal fields, the management expects a meaningful increase
in 2013 oil production rate to ~28mmt (currently at ~25mmt) and gas production to
72mmscmd (currently at ~65mmscmd).
ONGC expects increase in oil production from the development of its East coast
offshore blocks that are likely to commence production in FY12. Increase in gas
production will be driven by: (1) Daman offshore development, and (2) Tripura
(estimated requirement of ~3.5mmscmd for new gas power plant).
Valuation and view
The stock trades at 9.9x FY12E EPS of INR29.1. Our SOTP-based target price is
INR346. Buy.
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