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ONGC
1H profit down 9% YoY but
FY11E may be up 21% or more
�� 2Q profit up 6% YoY but on track for FY11E rise of 21% YoY
ONGC’s 2Q EBITDA is up 28% YoY due to higher oil price and more than
doubling of APM gas price. However 2Q profit is up just 6% YoY due to steep
jump in DD&A and decline in other income. ONGC’s 1H profit is 9% YoY lower.
However, we still expect FY11E profit to rise by 21% YoY. That is possible if 3Q
and 4Q FY11E profit is line with 2Q given the low base of 2H FY10 (31% lower
than 1H). Even upside potential to FY11 profit is not ruled out. We retain Buy on
ONGC.
Upside risk to FY11 EPS not ruled out; dole out before FPO
Even upside potential to ONGC’s FY11E profit is not ruled out. If diesel is
deregulated in 3Q, 4Q profit would be Rs6.8bn higher than 2Q, all else equal.
FY11E profit of 100% subsidiary ONGC Videsh if same as 1Q annualized would
mean 4% upside potential to ONGC’s FY11E EPS. Upsides are also likely if
government delivers on promise made on Rajasthan royalty (Rs11bn) and gas
pool surplus (Rs15bn).
2Q EBITDA up 28% YoY but PAT rise modest as DD&A surged
ONGC’s 2Q EBITDA is up 28% YoY driven by 11% YoY (up 13% in rupee terms)
rise in oil price net of subsidy and 118% YoY rise in APM gas price. However net
profit is up just 6% YoY. This is due to 87% YoY jump in DD&A to Rs44bn on high
dry wells write off (Rs24bn) and 20% YoY lower other income. 1H DD&A is
Rs75bn while we estimate FY11E DD&A at Rs153bn.
2Q net oil price up 31% QoQ at US$62.8/bbl
ONGC’s 2Q oil price net of subsidy at US$62.8/bbl is 31% QoQ higher than
US$48.1/bbl in 1Q FY11. This rise was driven by 45% QoQ decline in subsidy
following fuel price hike in end-June 2010. If diesel is deregulated in 3Q, ONGC’s
net oil price in 4Q would rise to US$68.3/bbl assuming gross price is same as 2Q.
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