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EARNINGS REVIEW
Oil & Natural Gas Corp. (ONGC.BO)
Buy Equity Research
Below expectations: High subsidy burden hits headline numbers
What surprised us
ONGC’s 1QFY12 net profit of Rs41 bn, up 47% qoq, was slightly below our
estimate of Rs42bn and B’berg consensus of Rs43bn. Net oil realization at
US$48.8/bbl came in below our estimate of US$50/bbl. Domestic oil
production volumes were up 2% yoy, mainly from Cairn India’s Rajasthan
volume, while oil volumes from the nominated blocks were down only 2%
yoy, indicating good control on the natural decline. We note OVL’s oil
production volumes were up 3.3% yoy. Cash profit was up 7% yoy.
Though oil and gas production volumes were largely in line with our
expectations, sales volumes were 4% lower than estimated, which coupled
with high subsidy burden for the qtr of Rs120bn dented net realizations.
What to do with the stock
Post the fuel price hikes and duty cuts on crude and products in end-June,
we expect the total under-recoveries on petroleum products to be
relatively lower in the rest of the quarters of FY12E. In addition, if
upstream companies have to bear only one-third of the subsidy burden as
in 1QFY12, our full year FY12E net realization of US$53/bbl would have
significant upside risk. We also believe ONGC’s overseas assets have oil
price leverage and should be ONGC’s focus going forward to drive the
next level of growth. ONGC is trading at FY12E EV/DACF of 5.5X vs. an 8-
yr historical range of 4.0x-9.5X. We reiterate our Conviction Buy on ONGC;
our EV/GCI vs. CROCI/WACC-based 12-m TP of Rs340 implies 24% upside.
Key risks: 1) high subsidy burden; 2) lower volume from legacy fields, and;
3) overpaying for acquisitions.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Oil & Natural Gas Corp. (ONGC.BO)
Buy Equity Research
Below expectations: High subsidy burden hits headline numbers
What surprised us
ONGC’s 1QFY12 net profit of Rs41 bn, up 47% qoq, was slightly below our
estimate of Rs42bn and B’berg consensus of Rs43bn. Net oil realization at
US$48.8/bbl came in below our estimate of US$50/bbl. Domestic oil
production volumes were up 2% yoy, mainly from Cairn India’s Rajasthan
volume, while oil volumes from the nominated blocks were down only 2%
yoy, indicating good control on the natural decline. We note OVL’s oil
production volumes were up 3.3% yoy. Cash profit was up 7% yoy.
Though oil and gas production volumes were largely in line with our
expectations, sales volumes were 4% lower than estimated, which coupled
with high subsidy burden for the qtr of Rs120bn dented net realizations.
What to do with the stock
Post the fuel price hikes and duty cuts on crude and products in end-June,
we expect the total under-recoveries on petroleum products to be
relatively lower in the rest of the quarters of FY12E. In addition, if
upstream companies have to bear only one-third of the subsidy burden as
in 1QFY12, our full year FY12E net realization of US$53/bbl would have
significant upside risk. We also believe ONGC’s overseas assets have oil
price leverage and should be ONGC’s focus going forward to drive the
next level of growth. ONGC is trading at FY12E EV/DACF of 5.5X vs. an 8-
yr historical range of 4.0x-9.5X. We reiterate our Conviction Buy on ONGC;
our EV/GCI vs. CROCI/WACC-based 12-m TP of Rs340 implies 24% upside.
Key risks: 1) high subsidy burden; 2) lower volume from legacy fields, and;
3) overpaying for acquisitions.
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