ONGC - Q4FY12 Result update - Centrum

Superior operating performance; Q4 PAT surprises

ONGC surprised us and the street owing to lower subsidy sharing which led to higher net crude realisations at US$44.3/bbl. Among upstream, ONGC's share slid down to 78.3% in Q4 against 82.1% in Q3 (normally above 80%) which led to lower than expected subsidies at Rs141.7bn. Overall subsidy sharing for FY12 stood at Rs444.6bn. Operationally, the performance was superior with both crude and natural gas sales jumping by 15.1% and 4.1% QoQ respectively during Q4.

Revenue jump due to higher sales: ONGC's revenues jumped by 4.4% QoQ to Rs193.4bn primarily on the back of higher crude and natural gas sales while net crude realisations remained largely stable.

Crude production down QoQ, gas production jumps: ONGC's own crude production declined from 5.96mmt in Q3 to 5.78mmt in Q4 while JV production jumped from 0.78mmt to 0.81mmt owing to higher production by Cairn. On the contrary, natural gas production jumped from 5.86bcm to 6.03bcm during Q4. Natural gas production jump can be attributed to rising production from marginal fields. Gross crude realisations for Q4 were at US$121.6/bbl while after subsidy discounts the net realisation was US$44.3/bbl.

DDA jumps due to higher dry wells write offs: Dry wells write offs jumped sequentially from Rs20.5bn to Rs29.8bn while depletion decreased from Rs18.3bn to Rs13.1bn. Other income was higher 69.6% YoY owing to higher cash balances. ONGC's subsidy burden for Q4 stood at Rs141.7bn and the bottom line came in at Rs56.4bn.

Loss of production from Sudan and Syria remains near term concern, still valuations compelling: To our and street's relief the upstream subsidy sharing during FY12 was restricted to 40% (our assumption was 44.5%). This led to superior performance for Q4 and subsequently for FY12. If subsidy situation remains grim in FY13E then the upstream burden may go up marginally. However, disruption of production in Sudan and Syria remains a near term concern. If crude continues to stay higher, even at lower production OVL is likely to make higher profits in FY13E thus benefitting the consolidated results. The stock is available at 9.8x and 8.0x FY13E and FY14E consolidated EPS of Rs25.3 and Rs30.7. We value ONGC at 10x FY14E EPS of Rs30.7 and maintain 'Buy' rating on the stock with a revised target price of Rs307 (earlier Rs322).

Source : Equity Bulls

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