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Oil & Natural Gas Corporation (ONGC)
Energy
Splendid results; up to the Government now. ONGC reported bumper 2QFY12 net
income (standalone) at `86.4 bn (+111% qoq, +60% yoy) versus our estimate of `83.2
bn. The positive variance despite higher-than-expected statutory levies reflects (1) lower
DD&A cost `32.8 bn (-20.5% qoq, -25.5% yoy) and (2) higher other income at `11.3
bn (+56% qoq, +25% yoy). We maintain our BUY rating noting 28% potential upside
to our revised target price of `355 (`380 previously). ONGC stock price is currently
discounting net crude realization of US$45/bbl versus US$53.8/bbl in FY2011
A splendid quarter
ONGC reported bumper 2QFY12 net income (standalone) at `86.4 bn (+111% qoq, +60.4% yoy)
versus our estimate of `83.2 bn. The sharp increase in net income reflects (1) higher net crude
price realization at US$83.7/bbl versus US$48.8/bbl in 1QFY12 and US$62.8/bbl in 2QFY11, (2)
sharply lower DD&A expenses at `32.8 bn (-20.5% qoq, -25.5% yoy) and (3) higher other income
at `11.3 bn (+56% qoq, +25% yoy). ONGC’s 2QFY12 EBITDA was `144.7 bn (+52.8% qoq,
+27.8% yoy) versus our estimate of `156.5 bn.
No clarity on subsidy burden for FY2012E; 33.3% burden on upstream companies in 1HFY12
We highlight that the share of upstream companies has been kept at 33.3% in 1HFY12. We admit
that there is no clarity on the subsidy share of upstream companies for FY2012E and expect the
Government to increase the subsidy burden on upstream companies in 2HFY12E given its fiscal
constraints. We, accordingly, assume upstream companies to bear 45% of gross under-recoveries
in FY2012E and 40% in FY2013-14E to reflect the same.
Stock price discounting a fairly bleak scenario for net crude price realization for ONGC
We believe the current stock price is discounting a bleak scenario in terms of subsidy burden to be
borne by upstream companies. Our reverse computation exercise reflects the stock is discounting
net crude price realization at US$45/bbl, which is significantly lower versus US$53.8/bbl in FY2011
and US$55.9/bbl in FY2010. For the purpose of this exercise, we assume (1) crude oil (Dated Brent)
price of US$95/bbl and (2) exchange rate of `49/US$.
Revised earnings; maintain BUY with a target price of `355 (`380 previously)
We have revised our FY2012-14E EPS to `34.4 (-7.5%), `37.9 (-7%) and `38.2 (-9.8%) to reflect
(1) higher subsidy sharing by upstream companies, (2) weaker exchange rate assumption, (3) lower
crude oil production volumes for OVL and (4) other minor changes. We maintain BUY rating on
the stock with a revised target price of `355 (`380 previously) based on 9X FY2013E EPS of `38
plus value of investments.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oil & Natural Gas Corporation (ONGC)
Energy
Splendid results; up to the Government now. ONGC reported bumper 2QFY12 net
income (standalone) at `86.4 bn (+111% qoq, +60% yoy) versus our estimate of `83.2
bn. The positive variance despite higher-than-expected statutory levies reflects (1) lower
DD&A cost `32.8 bn (-20.5% qoq, -25.5% yoy) and (2) higher other income at `11.3
bn (+56% qoq, +25% yoy). We maintain our BUY rating noting 28% potential upside
to our revised target price of `355 (`380 previously). ONGC stock price is currently
discounting net crude realization of US$45/bbl versus US$53.8/bbl in FY2011
A splendid quarter
ONGC reported bumper 2QFY12 net income (standalone) at `86.4 bn (+111% qoq, +60.4% yoy)
versus our estimate of `83.2 bn. The sharp increase in net income reflects (1) higher net crude
price realization at US$83.7/bbl versus US$48.8/bbl in 1QFY12 and US$62.8/bbl in 2QFY11, (2)
sharply lower DD&A expenses at `32.8 bn (-20.5% qoq, -25.5% yoy) and (3) higher other income
at `11.3 bn (+56% qoq, +25% yoy). ONGC’s 2QFY12 EBITDA was `144.7 bn (+52.8% qoq,
+27.8% yoy) versus our estimate of `156.5 bn.
No clarity on subsidy burden for FY2012E; 33.3% burden on upstream companies in 1HFY12
We highlight that the share of upstream companies has been kept at 33.3% in 1HFY12. We admit
that there is no clarity on the subsidy share of upstream companies for FY2012E and expect the
Government to increase the subsidy burden on upstream companies in 2HFY12E given its fiscal
constraints. We, accordingly, assume upstream companies to bear 45% of gross under-recoveries
in FY2012E and 40% in FY2013-14E to reflect the same.
Stock price discounting a fairly bleak scenario for net crude price realization for ONGC
We believe the current stock price is discounting a bleak scenario in terms of subsidy burden to be
borne by upstream companies. Our reverse computation exercise reflects the stock is discounting
net crude price realization at US$45/bbl, which is significantly lower versus US$53.8/bbl in FY2011
and US$55.9/bbl in FY2010. For the purpose of this exercise, we assume (1) crude oil (Dated Brent)
price of US$95/bbl and (2) exchange rate of `49/US$.
Revised earnings; maintain BUY with a target price of `355 (`380 previously)
We have revised our FY2012-14E EPS to `34.4 (-7.5%), `37.9 (-7%) and `38.2 (-9.8%) to reflect
(1) higher subsidy sharing by upstream companies, (2) weaker exchange rate assumption, (3) lower
crude oil production volumes for OVL and (4) other minor changes. We maintain BUY rating on
the stock with a revised target price of `355 (`380 previously) based on 9X FY2013E EPS of `38
plus value of investments.
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