ONGC - Q1FY14 Result Update :: LKP Research

ONGC - Q1FY14 Result Update

Pension provision affects Q1 performance

ONGC’s Q1FY14 net profit of Rs40.2bn was lower than our estimate of Rs47.5bn on account of employee pension provision during the quarter. Adjusting for employee pension provision (Rs12bn effect in P&L) and Rs2.4bn accounting gains due to revised ICAI norms, adjusted PAT of Rs47.6bn was in line with our estimate. Net revenues for the quarter stood at Rs192bn (yoy -4.3% qoq -10.1%). ONGC’s subsidy burden for the quarter was Rs126.2bn resulting in fall in its net realization to $40.17/bbl (yoy -13.8% qoq -21%). Crude oil sales volume grew sequentially by 0.9% while on an annual basis the growth was 0.4%. Gas sales witnessed annual decline of 3.6% as against a decline of 0.5% on a sequential basis. Operating profit for the quarter of Rs84bn was lower than our estimate of Rs90.8bn while operating profit margin was 43.7%. DDA cost decreased by 45.3% sequentially to Rs39bn (yoy +22%) on account of higher exploration cost write off during the preceding quarter.

For FY15e, we have increased our domestic gas price assumption from $4.2/mmbtu to $8.4/mmbtu and the share of upstream oil PSUs in the overall under recoveries to 65%. We have valued ONGC’s core business at 9.5x its FY15e earnings. We have given higher P/E multiple to ONGC on account of higher growth visibility on account of OVL’s direct correlation to crude price and production from marginal fields at higher crude prices and relatively lower vulnerability of ONGC to falling crude oil prices (lower subsidy burden). We value ONGC’s investments at 25% discount to CMP. We maintain our BUY rating on ONGC with a revised price target of R372. At the CMP, the stock is trading at 7.1x and 3.0x FY15e EPS and EBITDA respectively.

Actual v/s Estimates

Y/E, Mar (Rs. m)	Q1FY14	Q4FY13	qoq (%)	Q1FY13	yoy (%)	LKP Estimates	Deviation (%/bps)
Revenue	192,183	213,887	-10.1%	200,843	-4.3%	189,220	1.6%
EBITDA	83,978	102,927	-18.4%	110,370	-23.9%	90,880	-7.6%
EBITDA (%)	43.7%	48.1%	-443 bps	55.0%	-1126 bps	48.0%	-433 bps
PAT	40,160	33,887	18.5%	60,777	-33.9%	47,500	-15.5%

LKP Research

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