- Net sales rise 16% yoy driven by 1) higher net realizations for crude oil, 2) higher realizations for value added products along with higher volumes for SKO
- 6% rupee depreciation on yoy basis along with 6.9% fall in discount leads to 16.5% jump in net crude oil revenues
- Natural gas realization was at Rs8,353/tscm as compared to Rs7,562/tscm in Q3 FY12
- For Q3 FY13 upstream contribution towards under recoveries is at 38.5% and ONGC share among upstream companies is at 82.4%
- We upgrade our rating from MP to BUY with a revised 9-month target price of Rs350 mainly to factor in upsides from recently implemented reforms on diesel price de-regulation and expectations of gas price hike
|(Rs m)||Q3 FY13||Q3 FY12||% yoy||Q2 FY13||% qoq|
|OPM (%)||53.8||59.0||(525) bps||52.1||163 bps|
|Effective tax rate (%)||32.2||51.8||30.9|
|Adj. PAT margin (%)||26.4||19.8||662 bps||29.7||(328) bps|
|Extra ordinary items||-||31,421||-||-||-|
|Ann. EPS (Rs)||26.0||16.8||54.5||27.6||(5.7)|
Net sales in line with expectations, up 16% yoy
Oil and Natural Corporation Ltd (ONGC) reported 15.8% yoy increase in net sales to Rs211bn (including income from operations). Crude oil production was down 2.3% yoy as 15.5% yoy increase in JV production was more than offset by 4.7% decline in production from nominated blocks. Gas production was down by 0.9% mainly on account of 18.3% yoy fall in JV production. Crude oil revenues increased 16.5% yoy and 7.6% qoq driven by 1) higher net realizations and 2) higher contribution from non-discount crude oil. Crude oil revenues from JV fields increased 21.9% yoy driven by higher production at the Rajasthan block. Net realizations on sales volumes of crude oil from nominated blocks increased to US$47.97/bbl as compared to US$44.71/bbl in Q3 FY12 as the discount reduced from US$66.77/bbl to US$62.19/bbl. 6.1% yoy depreciation in rupee against the US Dollar also helped revenue growth for crude oil segment.
Gas segment revenues were higher by 10.5% yoy mainly on the back of 10.5% jump in rupee realizations driven by rupee depreciation. Revenues for the VAP segment jumped by 27.9% yoy as 1) sales volumes of SKO jumped 80% yoy and 2) realizations for all products were up substantially offsetting the impact of lower volumes of LPG, Naphtha and C2-C3.
Subsidy burden remains at Rs124bn
Subsidy incidence at Rs124bn was higher than our estimates. As per the government notification for Q3 FY13 subsidy sharing pattern, the total upstream contribution was at Rs151bn, which contributes to about 38.5% of the gross under recoveries. ONGCâ€™s contribution to the upstream subsidy share was at 82.4% as compared to 82.1% in Q3 FY12 and 81.6% in Q2 FY13.
OPM falls 525bps yoy but improves 163bps qoq
During Q3 FY13, ONGC reported only 5.4% yoy rise in operating profit vis-Ã -vis 15.8% increase in net sales leading to a fall of 525bps yoy in OPM to 53.8%. The key reason for the fall was 583bps yoy increase in statutory levies as percentage of net sales on the back of higher cess on crude oil production. 21bps yoy fall in staff costs and 54bps yoy fall in overheads as percentage of net helped offset the impact to some extent.
|As a % of net sales||Q3 FY13||Q3 FY12||bps yoy||Q2 FY13||bps qoq|
PAT ahead of expectations at Rs55.6bn
Other income was higher by 2.3% yoy owing to better yields on bank deposits but was partly offset by lower interest and dividend income from subsidiaries. Depreciation and depletion was lower by 2.7% yoy primarily on account of lower survey charges. Nevertheless, PAT at Rs55.6bn was up 54.5% yoy and was better than expectations.
Key takeaways from the conference call
- While Sudan is expected to take another quarter before it can start producing, the situation in Syria remains bad wherein the operator has left the production site and the fields are in control of rebel groups. At the imperial block while it is producing 9,500bopd, it continues to scout for new technology for developing the tight reservoir and clarity will emerge only by mid FY14.
- On the Carabobo block, management informed that one well is already producing and the second well is almost ready. The company has guided for a production rate of 12,000bopd in FY14. On the Azerbaijan block, the acquisition likely to be completed in mid march.
- For FY14, the oil production target is 25.78mtpa from nominated fields and 3.31mtpa from the JV fields. On the gas production while 24.61bcm is targeted in nominated blocks, 1.84bcm is aimed from JV fields. Majority of the increase in production is expected to arise from the marginal fields, which are on course to commence production over the next 3 years. During this period, company expects to add about 9mn tons of oil equivalent hydrocarbon production from these fields.
- Company says the current cost of gas production is ~US$3.7/mmbtu and in case of a gas price hike, many isolated gas fields may become viable which will help in increasing the gas production.
- On the capex, till end of January the company has spent a cumulative amount of ~Rs230bn.
ONGC has traded at a steep discount to its global peers over the past few years on the back of issues such as 1) subsidy burden and 2) government controlled gas prices (which are much lower than industry levels). However, of late government is trying to set right these issues by taking measures such as 1) partial de-regulation of diesel prices, 2) capping of sale of subsidised LPG cylinders and 3) showing intent to raise gas prices to about US$8/mmbtu as compared to current price of US$4.2/mmbtu. These steps, we believe, will lead to re-rating of ONGC towards its global peers. Hence we upgrade our rating to BUY with a revised 9-month price target of Rs350.
Financial summary (Consolidated)
|Y/e 31 Mar (Rs m)||
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