ONGC - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, Oil and Natural Gas Corporation (ONGC)'s top-line and profitability were higher than our estimates on account of lower-than-expected subsidy shared by ONGC. Given the recent rise in the stock price, we recommend an Accumulate rating on the stock.

Higher crude oil realization in INR terms drives top-line growth: ONGC's standalone top line increased by 24.0% yoy to Rs.20,084cr mainly due to an increase in JV crude oil sales and higher realizations in INR terms. Net crude oil realization declined by 4.4% yoy and stood at US$46.6/bbl in 1QFY2013. However, the realization was higher in INR terms due to steep INR depreciation against the USD which more than offset net crude oil realization. The company shared a subsidy burden of Rs.12,346cr in 1QFY2013 vs. Rs.12,046cr of subsidy shared in 1QFY2012 and Rs.14,170cr in 4QFY2012.

EBITDA increases by 18.9% yoy: The company's EBITDA margin contracted by 235bp yoy to 55.4%. However, the EBITDA increased by 18.9% yoy to Rs.11,130cr mainly on account of higher realization in INR terms.

Lower depreciation and higher other income lifts PAT: Depreciation and amortization expenses decreased by 22.4% yoy to Rs.3,198cr during the quarter and other income increased by 23.7% yoy to Rs.1,038cr in 1QFY2013. Consequently, the reported net profit increased by 48.4% yoy to Rs.6,078cr.

Outlook and valuation: We remain positive on ONGC from a long-term perspective due to potential reserve accretion from its large exploration and production (E&P) acreage. The new discovery from D1 field would help to raise additional crude oil output from FY2014. Also, a concrete subsidy-sharing formula by the government could make ONGC's cash flows more predictable. The stock is currently trading at 8.9x FY2014E PE, compared to its five-year average forward PE of 10.2x. Hence, we recommend an Accumulate rating on the stock with a SOTP target price of Rs.312.

Source : Equity Bulls

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