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http://content.icicidirect.com/mailimages/ICICIdirect_ONGC_InitiatingCoverage.pdf
O i l g i a n t p u s h i n g t h r o u g h o b s t a c l e s …
Oil & Natural Gas Corporation (ONGC), India’s largest national oil & gas
company, is primarily engaged in exploration, development and
production of crude oil and natural gas in both India and abroad. ONGC’s
core strength lies in its strong resource base and increasing production
resulting from aggressive capex. We expect ONGC to grow at a CAGR of
10.2% in revenues over FY11-14E on the back of steady growth in
revenues from oil & gas sales and growth in MRPL’s revenues. ONGC is
expected to report net profit of | 22,903.3 crore in FY14E. The
government reforms in pricing of petroleum products/price hikes would
add significantly to the earnings and valuation of the company. We are
initiating coverage on ONGC with a HOLD rating and target price of | 287.
Large resource base; JVs + marginal fields to spearhead volume growth
The ONGC group has large 1P, 2P and 3P crude oil and natural gas
reserves base of 961 mmtoe, 1,426 mmtoe and 1,688 mmtoe,
respectively. The company has managed to maintain a diversified
portfolio of yielding assets through its wholly owned subsidiary ONGC
Videsh Ltd (OVL). We expect ONGC group’s oil & gas production at 63.5
mmtoe and 67.7 mmtoe in FY13E and FY14E, respectively, implying
growth at a CAGR of 2.9% over FY11-14E. The production growth would
mainly be attributable to the JVs and new and marginal fields.
Government reforms in pricing of petroleum product inevitable
We believe price hikes and government reforms have become inevitable
in the backdrop of high crude oil prices and gross under-recoveries.
ONGC would be a major beneficiary of government reforms in the pricing
of petroleum products. Any reforms and price hikes in petroleum
products like diesel, LPG and kerosene would add significantly to its
earnings. ONGC’s EPS would increase by ~| 2.3 for | 10,000 crore
reduction in under-recoveries (38.7% upstream sharing).
Valuations
We believe ONGC’s large reserves base, increasing production due to
aggressive capital expenditure and price hikes/reforms on part of the
Indian government would create value for investors, going forward.
ONGC is trading at 9.7x FY13E and 10.2x FY14E EPS of | 27.5 and | 26.4,
respectively. We are initiating coverage on the stock with a HOLD rating
and a price target of | 287 (valuation based on average of P/BV multiple:
| 301 per share and P/E multiple: | 272 per share).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://content.icicidirect.com/mailimages/ICICIdirect_ONGC_InitiatingCoverage.pdf
O i l g i a n t p u s h i n g t h r o u g h o b s t a c l e s …
Oil & Natural Gas Corporation (ONGC), India’s largest national oil & gas
company, is primarily engaged in exploration, development and
production of crude oil and natural gas in both India and abroad. ONGC’s
core strength lies in its strong resource base and increasing production
resulting from aggressive capex. We expect ONGC to grow at a CAGR of
10.2% in revenues over FY11-14E on the back of steady growth in
revenues from oil & gas sales and growth in MRPL’s revenues. ONGC is
expected to report net profit of | 22,903.3 crore in FY14E. The
government reforms in pricing of petroleum products/price hikes would
add significantly to the earnings and valuation of the company. We are
initiating coverage on ONGC with a HOLD rating and target price of | 287.
Large resource base; JVs + marginal fields to spearhead volume growth
The ONGC group has large 1P, 2P and 3P crude oil and natural gas
reserves base of 961 mmtoe, 1,426 mmtoe and 1,688 mmtoe,
respectively. The company has managed to maintain a diversified
portfolio of yielding assets through its wholly owned subsidiary ONGC
Videsh Ltd (OVL). We expect ONGC group’s oil & gas production at 63.5
mmtoe and 67.7 mmtoe in FY13E and FY14E, respectively, implying
growth at a CAGR of 2.9% over FY11-14E. The production growth would
mainly be attributable to the JVs and new and marginal fields.
Government reforms in pricing of petroleum product inevitable
We believe price hikes and government reforms have become inevitable
in the backdrop of high crude oil prices and gross under-recoveries.
ONGC would be a major beneficiary of government reforms in the pricing
of petroleum products. Any reforms and price hikes in petroleum
products like diesel, LPG and kerosene would add significantly to its
earnings. ONGC’s EPS would increase by ~| 2.3 for | 10,000 crore
reduction in under-recoveries (38.7% upstream sharing).
Valuations
We believe ONGC’s large reserves base, increasing production due to
aggressive capital expenditure and price hikes/reforms on part of the
Indian government would create value for investors, going forward.
ONGC is trading at 9.7x FY13E and 10.2x FY14E EPS of | 27.5 and | 26.4,
respectively. We are initiating coverage on the stock with a HOLD rating
and a price target of | 287 (valuation based on average of P/BV multiple:
| 301 per share and P/E multiple: | 272 per share).
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