Net sales fall 2.4% yoy owing to 1) 3% yoy fall in hydrocarbon production, 2) 35.5% yoy fall in net realizations which was offset by rupee depreciation and higher gas realizations
Discount on crude oil jumped 17% yoy and 18.8% qoq to US$73.87/bbl
Natural gas realization was at Rs10,358/tscm v/s Rs8,365/tscm in Q4 FY13
For FY14 upstream contribution towards under recoveries is at 48% and ONGC share among upstream companies is at 84.1%
We maintain our BUY rating with a 9-month target price of Rs435 as we see additional re-rating room as reforms are yet to play out completely
|(Rs m)||Q4 FY14||Q4 FY13||% yoy||Q3 FY14||% qoq|
|OPM (%)||54.3||49.2||516 bps||59.1||(479) bps|
|Effective tax rate (%)||29.9||30.2||32.6|
|Adj. PAT margin (%)||22.9||15.5||742 bps||34.2||(1,128) bps|
|Ann. EPS (Rs)||22.9||15.8||44.3||33.4||(31.5)|
Net sales lower than expectations, down 2.4% yoy
Oil and Natural Corporation Ltd (ONGC) reported 2.4% yoy fall in net sales to Rs213bn (including income from operations). Crude oil production was down 5% yoy on the back of 7.2% yoy decrease in crude oil and condensate production from nominated blocks of ONGC. Production from JV fields was up 10.1% yoy (mainly Cairn’s Rajasthan field). Gas production was down by 0.7% yoy mainly on account of 0.3% yoy fall in production from nominated blocks and 7% yoy fall in JV production. Crude oil revenues fell 6.8% yoy and 16.2% qoq driven by fall in net realizations. Net realizations on sales volumes of crude oil from nominated blocks fell to US$32.78/bbl as compared to US$50.85/bbl in Q4 FY13 as crude prices were lower while discounts jumped in absolute terms. Gas segment revenues surged 21.6% yoy as 1.8% yoy fall in sales volumes were more than offset by 23.8% yoy surge in rupee realizations. Revenues for the VAP segment decreased by 10.2% as volumes declined 1.7% yoy while realizations of LPG and SKO plummeted 43.5% and 52.5% yoy respectively owing to high subsidy burden. This was partially offset by jump in realizations of Naphtha and C2-C3.
Subsidy burden at Rs162bn
Subsidy incidence at Rs162bn was significantly higher than our estimates. As per the government notification for Q4 FY14 subsidy sharing pattern, the total upstream contribution was at Rs190bn. For FY14 upstream contribution to total under recoveries was at 48%. During Q4 FY14, ONGC’s contribution to the upstream subsidy share was at 85.1% as compared to 82.8% in Q4 FY13.
OPM increases 516bps yoy
During Q4 FY14, ONGC saw 7.9% yoy rise in operating profit leading to a rise of 516bps yoy in OPM to 54.3%. The key reason for the surge was 610bps yoy fall in overheads. Statutory levies however rose by 75bps yoy as crude revenues dropped while cess remained fixed in absolute terms. Other income was higher by 10.1% yoy owing to rise in interest income from site restoration deposit fund and loans to subsidiaries. Depreciation and depletion was lower by 16.2% yoy owing to fall in dry well write offs.
|As a % of net sales||Q4 FY14||Q4 FY13||bps yoy||Q3 FY14||bps qoq|
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. We maintain our BUY rating with a 9-month price target of Rs435.
Financial summary (Consolidated)
|Y/e 31 Mar (Rs m)||FY13||FY14||FY15E||FY16E|
|yoy growth (%)||10.2||7.4||17.5||2.5|
|yoy growth (%)||(13.9)||9.4||26.0||0.5|