ONGC (Q4 FY13)

India Infoline News Service | Mumbai |

ONGC reported 12.9% yoy increase in net sales to Rs218bn .

ONGC (Q4 FY13) – BUY
CMP Rs. 334, Target Rs. 370, Upside 10.8%

  • Net sales rise 12.9% yoy driven by higher net realizations for crude oil
  • 7% rupee depreciation on yoy basis along with 18% fall in discount leads to 18.9% jump in net crude oil revenues
  • Natural gas realization was at Rs. 8,365/tscm as compared to Rs. 7,817/tscm in Q4 FY12
  • For Q3 FY13 upstream contribution towards under recoveries is at 38.5% and ONGC share among upstream companies is at 82.8%
  • We maintain our BUY rating with a revised 9-month target price of Rs. 370 mainly to factor in upsides from recently implemented reforms on diesel price de-regulation and expectations of gas price hike   
Result table
( Rs.  m) Q4 FY13 Q4 FY12 % yoy Q3 FY13 % qoq
Net sales 218,299 193,399 12.9 210,932 3.5
Purchases (Trading) (8) (8) 2.6 (7) 6.8
Raw material (1,359) (2,222) (38.8) (1,780) (23.6)
Personnel costs (7,360) (3,347) 119.9 (3,461) 112.7
Statutory levies (54,874) (43,641) 25.7 (57,108) (3.9)
Other overheads (47,359) (28,410) 66.7 (35,157) 34.7
Operating profit 107,338 115,771 (7.3) 113,419 (5.4)
OPM (%) 49.2 59.9 (1,069) bps 53.8 (460) bps
Depreciation (71,264) (49,064) 45.2 (44,113) 61.5
Interest (1) (224) (99.8) (12) (95.9)
Other income 12,455 9,930 25.4 12,812 (2.8)
PBT 48,529 76,412 (36.5) 82,105 (40.9)
Tax (14,642) (19,953) (26.6) (26,478) (44.7)
Effective tax rate (%) 30.2 26.1
32.2
Adjusted PAT 33,887 56,459 (40.0) 55,627 (39.1)
Adj. PAT margin (%) 15.5 29.2 (1,367) bps 26.4 (1,085) bps
Extra ordinary items - (15) (100.0) - -
Reported PAT 33,887 56,444 (40.0) 55,627 (39.1)
Ann. EPS ( Rs. ) 15.8 26.4   (40.0) 26.0   (39.1)
Source: Company, India Infoline Research

Net sales better than expectations, up 12.9% yoy
Oil and Natural Corporation Ltd (ONGC) reported 12.9% yoy increase in net sales to Rs. 218bn (including income from operations). Crude oil production was up 3.4% yoy on the back of 3% increase in crude oil and condensate production of ONGC and 5.7% yoy increase in JV production (mainly Cairn’s Rajasthan field). Gas production was down by 5.2% mainly on account of 26.9% yoy fall in JV production. Crude oil revenues increased 19.3% yoy and 3.8% qoq driven by 1) higher net realizations and 2) higher contribution from non-discount crude oil. Crude oil revenues from JV fields increased 18.1% yoy driven by higher production at the Rajasthan block. Net realizations on sales volumes of crude oil from nominated blocks increased to US$50.85/bbl as compared to US$44.32/bbl in Q4 FY12 as the discount reduced from US$77.32/bbl to US$63.12/bbl. 7.8% yoy depreciation in rupee against the US Dollar also helped revenue growth for crude oil segment.

Gas segment revenues were higher by 1.4% yoy mainly on the back of 7% jump in rupee realizations driven by rupee depreciation. Revenues for the VAP segment rose only by 1.1% as higher revenues of the LPG segment were offset by decline in revenues of Naphtha and C2-C3 products.

Subsidy burden remains at Rs. 123bn
Subsidy incidence at Rs. 123bn was higher than our estimates. As per the government notification for Q4 FY13 subsidy sharing pattern, the total upstream contribution was at Rs. 148bn, which contributes to about 38.5% of the gross under recoveries. ONGC’s contribution to the upstream subsidy share was at 82.8% as compared to 78.3% in Q4 FY12.

OPM falls 1069bps yoy and 460bps qoq
During Q4 FY13, ONGC reported 7.3% yoy fall in operating profit leading to a fall of 1069bps yoy in OPM to 49.2%. The key reason for the fall was 700bps yoy increase in other expenditure, 257bps increase in statutory levies as percentage of net sales on the back of higher cess on crude oil production and 164bps yoy increase in staff costs as a percentage of net sales.

Cost Analysis
As a % of net sales Q4 FY13 Q4 FY12 bps yoy Q3 FY13 bps qoq
Raw materials 0.6 1.1 (53) 0.8 (22)
Personnel Costs 3.4 1.7 164 1.6 173
Statutory levies 25.1 22.6 257 27.1 (194)
Other overheads 21.7 14.7 700 16.7 503
Total costs 50.8 40.1 1,069 46.2 460

PAT lower than expectations at Rs. 33.9bn
Other income was higher by 25% yoy owing to better yields on bank deposits and higher interest income from loan to subsidiaries. Dry well expense was way ahead of estimates and was the key reason for below estimated performance at the PAT level. Depreciation and depletion was also higher by 26% and 63% yoy respectively. PAT was at Rs. 33.9bn was down 40% yoy and was lower than expectations.

Continued rise in reserves entails better picture for production
MTOE Ultimate reserve accretion Production Reserve replacement ratio (x)
FY08 63.8 48.3 1.3
FY09 68.9 47.9 1.4
FY10 83.0 47.8 1.7
FY11 83.6 47.5 1.8
FY12 84.1 47.0 1.8
FY13 84.8 46.1 1.8
Source: Company, India Infoline Research

Breakup of reserves
MTOE ONGC JV OVL Total
1P 741.0 41.9 196.41 979.3
2P 1,021.2 34.2 395.61 1,451.0
3P 1,290.5 36.0 432.92 1,759.4
Source: Company, India Infoline Research

Maintain BUY
ONGC has traded at a steep discount to its global peers over the past few years on the back of issue
BSE 193.60 [0.45] ([0.23]%)
NSE 193.70 [0.40] ([0.21]%)

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