ONGC - Lower write offs, higher sales volumes benefit Q1 - Centrum

ONGC reported better than expected performance during Q1 owing to lower dry well write offs, higher crude and gas sales volumes, rupee depreciation and higher other income despite higher quantum of cess. ONGC's net crude realisation during Q1 stood at US$46.6/bbl and it shared Rs123.5bn subsidies with OMCs. Discoveries in Western Offshore fields has the potential to produce over 60,000bpd (3.0mmt) by 2015. Although near term volumes remain stagnant, we believe ONGC's efforts to increase crude and natural gas production from its domestic fields through EOR/ IOR techniques and new discoveries will start yielding results from FY14 onwards.

Revenues buoyed by higher volumes and favourable exchange rate: ONGC reported 24.0% YoY jump in revenues at Rs200.8bn backed by higher sales volumes and rupee depreciation.

Crude production at 5.6mmt, natural gas at 5.9mmt: ONGC's own crude production declined to 5.64mmt from 5.78mmt while JV production increased to 0.90mmt from 0.81mmt owing to increased production by Cairn. Natural gas production too declined to 5.93bcm from 6.03bcm which is likely to be normalized in Q2.

Dry well write offs decline: Dry well write offs declined from Rs29.8bn in Q4 to Rs9.3bn in Q1 while depreciation and depletion jumped to Rs19.8bn from Rs16.3bn due to higher production from Cairn. ONGC's subsidy burden for Q1 stood at Rs123.5bn. Lower dry well write offs, higher crude and gas sales volumes, rupee depreciation and higher other income led to 48.4% YoY and 7.7% QoQ jump in PAT at Rs60.8bn.

New discovery in Western Offshore to add over 60,000bpd (3.0mmt) by 2015: ONGC's standalone performance was superior in Q1, but OVL's O+OEG production was down 22.7% YoY at 1.8mmt which is a matter of concern. Production is expected to come back to normal over the next couple of quarters but performance of FY13 is likely to suffer. Currently the D1 field in Western Offshore is producing about 12,500bpd which is likely to increase to 27-30,000bpd over the next 1.0-1.5yrs and subsequently to 60,000bpd (3.0mmt) by 2015. This assures a rise in ONGC's standalone production (both oil and natural gas) over the next couple of years. The stock is available at 11.5x and 9.4x FY13E and FY14E consolidated EPS of Rs24.3 and Rs29.9. We value ONGC at 11x FY14E EPS of Rs29.9 and maintain 'Buy' rating on the stock with a revised target price of Rs329 (earlier Rs313).

Source : Equity Bulls

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