ONGC - Q1FY14 Result - Nirmal Bang Institutional

- Oil & Natural Gas Corporation (ONGC) posted net profit of Rs40.2bn for 1QFY14 compared to Bloomberg consensus estimate of Rs52.3bn and our estimate of Rs49.3bn.

- Net profit was below expectations on account of: (1) Fall in net realization at US$40/bbl, and (2) Higher employee costs and other expenditure on implementation of post-retirement benefit scheme.

- We have retained our Buy rating on ONGC with a revised target price of Rs376 from Rs391 earlier on account of: (1) The street factoring in higher subsidy contribution from ONGC, beyond US$56/bbl, which we believe is excessive given its surging cost of production and increased capex requirement, (2) The company likely to post volume CAGR of 4% over FY13-FY16E compared to -3% CAGR over FY10-FY13, (3) Volume growth gradually taking uplift from subsidiary ONGC Videsh's (OVL) side, (4) Factoring in gas price hike of US$6.5/mmBtu from FY15E, assuming the government shares 40% of incremental benefits. We have moderated our EPS estimates by 3.9%/3.6% for FY14/FY15, respectively, following lower volume growth, thereby leading to a reduction in our target price

Source : Equity Bulls

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