ONGC - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, ONGC's top line and profitability were higher than our estimates on account of lower-than-expected subsidy sharing by ONGC. We maintain our Buy recommendation on the stock.

Higher crude oil realization drives top-line growth: ONGC's standalone top line increased by 22.2% yoy to Rs.18,819cr mainly on the back of higher realization. Net crude oil realization stood at US$44.3/bbl in 4QFY2012 compared to US$38.8/bbl in 4QFY2011 and US$44.7/bbl in 3QFY2012. Net realization was higher than our estimates as the Oil Ministry reduced ONGC's contribution to 78% of upstream burden compared to historical average of 81%. For FY2012, net realization stood at US$54.7/bbl compared to US$53.77/bbl in FY2011.

EBITDA increases by 45.2% yoy: The company's EBITDA margin improved by 974bp yoy to 61.5% and EBITDA increased by 45.2% yoy to Rs.11,577cr mainly on account of higher realization.

Higher other income lifts PAT growth: During the quarter, depreciation and amortization expenses increased by only 2.5% yoy to Rs.4,906cr and other income increased by 69.6% yoy to Rs.993cr. Consequently, reported net profit increased by 102.2% yoy to Rs.5,644cr. Adjusted PAT grew by 102.3% yoy to Rs.5,646cr.

Outlook and valuation: We expect robust volume growth from ONGC Videsh Limited (OVL), which is expected to increase its production at a CAGR of 10.2% during FY2012-14. Also, a concrete subsidy-sharing formula by the government could make ONGC's cash flows more predictable. The stock is currently trading at 8.3x and 8.0x FY2013E and FY2014E PE, respectively, compared to its five-year average forward PE of 10.2x. Hence, we recommend Buy on the stock with an SOTP target price of Rs.321.

Source : Equity Bulls

Keywords