ONGC (Q1 FY13)

India Infoline News Service | Mumbai |

Net sales rise 24% yoy driven by 1) higher JV crude oil sales, 2) higher nominated blocks gas sales, 3) higher rupee net realizations for crude oil and 4) higher realizations for gas

  • Net sales rise 24% yoy driven by 1) higher JV crude oil sales, 2) higher nominated blocks gas sales, 3) higher rupee net realizations for crude oil and 4) higher realizations for gas
  • Steep 21% rupee depreciation on yoy basis more than offsets net crude oil realization decline of 4.3% yoy to US$46.6/bbl
  • Natural gas realization was at Rs8,141/tscm as compared to Rs6,859/tscm in Q1 FY12
  • For Q1 FY13 upstream contribution towards under recoveries is at 31.5% and ONGC share among upstream companies is at 82%
  • We maintain our BUY recommendation with a 9-month target price of Rs320   
Result table
(Rs m) Q1 FY13 Q1 FY12 % yoy Q4 FY12 % qoq
Net sales 201,778 162,894 23.9 193,399 4.3
Purchases (Trading) (9) (6) 39.1 (8) 17.1
Raw material (2,693) (783) 244.0 (2,222) 21.2
Personnel costs (3,304) (3,098) 6.7 (3,347) (1.3)
Statutory levies (52,679) (37,306) 41.2 (43,641) 20.7
Other overheads (31,787) (28,127) 13.0 (28,410) 11.9
Operating profit 111,305 93,574 18.9 115,771 (3.9)
OPM (%) 55.2 57.4 (228) bps 59.9 (470) bps
Depreciation (31,981) (41,225) (22.4) (49,064) (34.8)
Interest (293) (40) 630.9 (224) 30.7
Other income 10,385 8,395 23.7 9,930 4.6
PBT 89,415 60,704 47.3 76,412 17.0
Tax (28,638) (19,755) 45.0 (19,953) 43.5
Effective tax rate (%) 32.0 32.5
26.1
Adjusted PAT 60,777 40,949 48.4 56,459 7.6
Adj. PAT margin (%) 30.1 25.1 498 bps 29.2 93 bps
Extra ordinary items - - - (15) -
Reported PAT 60,777 40,949 48.4 56,444 7.7
Ann. EPS (Rs) 28.4 19.1   48.4 26.4   7.6
Source: Company, India Infoline Research

Net sales rise 23% slightly lower than expectations

Oil and Natural Corporation Ltd (ONGC) reported 23.9% yoy growth in net to Rs202bn (including income from operations). Crude oil revenues were higher by 19.4% yoy driven by sharp increase in revenues from the JV field especially the Rajasthan block. While the net realizations on nominated blocks sales volumes of crude oil reduced owing to increased subsidy burden, higher contribution from JV field (non subsidized oil) helped offset the impact to some extent. Net crude oil realizations were at US$46.6/bbl as compared to US$48.7/bbl in Q1 FY12. 21.3% yoy depreciation in rupee against the US Dollar also helped reduce the impact of net realizations decline. Gas segment revenues were higher by 24.5% yoy on the back of 5% higher sales volumes and 18.7% jump in realizations. Revenues in VAP segment also rose as realizations were higher in line with crude oil prices.


Subsidy burden increases 2.5% yoy

Subsidy incidence at Rs124bn was higher than our estimates. As per the government notification for Q1 FY13 subsidy sharing pattern, the total upstream contribution was at Rs150bn, which contributes to about 31.5% of the gross under recoveries. ONGC’s contribution to the upstream subsidy share was at 82% higher than 80.9% average in FY12.


OPM falls 228bps yoy and 470bps qoq

During Q1 FY13, ONGC reported 19% yoy rise in operating profit but a 228bps yoy fall in OPM to 55.2%. The primary reason for the fall in profitability was the increase in cess on crude oil production. On a qoq basis apart from higher impact of cess substantial jump in overheads caused 470bps fall in OPM.


Cost Analysis
As a % of net sales Q1 FY13 Q1 FY12 bps yoy Q4 FY12 bps qoq
Raw materials 1.3 0.5 85 1.1 19
Personnel Costs 1.6 1.9 (26) 1.7 (9)
Statutory levies 26.1 22.9 321 22.6 354
Other overheads 15.8 17.3 (151) 14.7 106
Total costs 44.8 42.6 228 40.1 470
Source: Company, India Infoline Research

PAT better than expectations at Rs63bn

Other income was higher by 18% yoy owing to jump in interest income on bond deposits and 65% surge in miscellaneous income. Depreciation and depletion was lower by 22.4% mainly on account of 36% fall in dry wells and survey charges. This led to higher than expected PAT of Rs62.7bn up 53.2% yoy.


Maintain BUY, considering steep valuation discount to global peers

ONGC trades at steep discount to global peers on the basis of EV/boe of proved reserves. Considering the subsidy overhang, we believe that a discount is warranted. However, we do not expect any further increase in contribution from upstream as they have been already burdened with higher cess. Furthermore, higher gas price has turned around the loss making natural gas business leading to improved cash flows. We maintain our BUY recommendation with a 9-month price target of Rs320.


Financial summary
Y/e 31 Mar (Rs m) FY11 FY12E FY13E FY14E
Revenues 1,176,151 1,473,068 1,837,467 1,905,999
yoy growth (%) 15.6 25.2 24.7 3.7
Operating profit 484,512 587,064 612,014 641,872
OPM (%) 41.2 39.9 33.3 33.7
Pre-exceptional PAT 224,529 250,031 278,109 290,581
Reported PAT 224,559 281,436 278,109 290,581
yoy growth (%) 15.7 25.3 (1.2) 4.5





EPS (Rs) 26.2 29.2 32.5 34.0
P/E (x) 10.6 9.5 8.6 8.2
Price/Book (x) 2.1 1.7
BSE 182.95 4.05 (2.26%)
NSE 183.30 4.40 (2.46%)

***Note: This is a NSE Chart

 

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