ONGC - Result Update: Higher Upstream Share of Subsidy Burden plays a dampener - Karvy

ONGC reported flat numbers as bottom-line decreased by 3% sequentially despite fuel price hike, as the subsidy share increased from 31.5% to 40% in 2QFY12. The subsidy burden for the upstream companies have almost been similar to 1QFY13 of Rs.151 bn despite a 20% dip in under recoveries as the upstream share increased to ~40%. Thus, net realization stood slightly higher at $46.8/bl vis-à-vis $45.9/bl QoQ , as crude oil price and rupee stayed flat sequentially. Higher recoup cost and slightly lower volumes offset higher dividend income.

Our assumption of under recoveries at Rs. 1380 bn demands ~10% correction in crude oil price. We have assumed a net realization of $51/ bl in FY13, which seem to be farfetched if crude and rupee stays at current levels. We are positive on the stock for long term, assuming stable net realization of ~ $ 60/bl with crude oil price att $100/bl and Rupee at 50. However, we believe the stock is going to be under performer until crude oil price corrects and stabilizes 8-10% lower.

We maintain Buy rating and target price on the stock as a long term bet.

Source : Equity Bulls

Keywords