ONGC - 4QFY2013 Result Update - Angel Broking

For 4QFY2013, Oil and Natural Gas Corporation (ONGC)'s top-line and profitability were higher than our estimates. We maintain our Buy rating on the stock.

Top-line rises due to higher crude realizations: ONGC's top-line increased by 13.7% yoy to Rs. 21,389cr (above our expectation of Rs. 19,938cr). Its crude oil net realization increased by 14.7% yoy to US$50.8/bbl whereas gas realizations increased 7.0% yoy to 8.4/scm. Crude oil's sales volume however was flat yoy at 5.9mn tonne and the subsidy burden stood at Rs. 12,312cr.

EBITDA decreases on higher operating costs: The company reported an EBITDA decline of 7.3% due to higher employee costs and higher other expenses. EBITDA margin also contracted by 1,133bp yoy to 50.2%.

Higher depreciation drags PAT: ONGC's depreciation and write-off expenses increased by 45.2% yoy to 7,126cr due to higher dry wells write-off. The company reported an exceptional item relating to one-time contribution of difference towards employers contribution to superannuation fund amounting to Rs. 1,850cr which was allocated to different business expenses including employee costs. Hence, the adjusted PAT declined by 7.2% yoy to Rs. 5,239cr.

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. Further, we expect the government to progressively raise diesel prices during CY2013 and CY2014, which is expected to result in lower subsidy burden for ONGC. Also, a concrete subsidy-sharing formula by the government could make ONGC's cash flows more predictable. The stock is currently trading at an inexpensive PE valuation of 9.2x FY2014E and 8.3x FY2015E. Hence, we recommend a Buy rating on the stock with a SOTP target price of Rs. 372.

Source : Equity Bulls

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