ONGC Results Report - Crude prices key trigger for future growth - HDFC Securities

Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities and Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities

Our BUY recommendation on ONGC with a price target of INR 143 is premised on (1) increase in crude price realisation and gas price realisation and (2) higher gas production in FY22 and FY23 as per the guidance given by the management. We expect oil prices to remain at ~USD 61/63/bbl in FY22/23E vs. USD 43/bbl in FY21, given global economic rebound post the COVID-19 pandemic. 4QFY21 revenue was 2% below our estimate, owing to a lower-than-expected crude oil price realisation of USD 59.6/bbl (vs the estimated USD 60.7/bbl). EBITDA in 4Q was 4% below our estimate while APAT was 152% above our estimate due to higher-than-anticipated other income.

Standalone financial performance: Revenue for 4QFY21 stood at INR 212bn (-1/+25% YoY/QoQ). EBITDA grew by 18/21% YoY/QoQ to INR 101bn due to lower opex. APAT in 4Q was INR 65bn.

Standalone operational performance: 4Q crude oil realisation was USD 59.6/bbl (USD 49.0/44.3 YoY/QoQ) whereas gas realisation was USD 1.9/mmbtu vs. USD 3.3/1.9 YoY/QoQ. Oil sales volume was 4.5mmt, -5/+1% YoY/QoQ. Gas sales volume was 4.2bcm, -7/-3% YoY/QoQ.

Call takeaways: (1) The Board has recommended a final dividend at 37%, i.e., INR 1.85/eq share, for FY21. (2) Capex spent in FY21 was INR 280bn and Capex target for FY22 is ~INR 295bn. (3) OPAL operated at full capacity in 4QFY21 and generated a profit of INR ~3bn in 4Q. Currently, OPAL continues to perform well. (4) ONGC operated at 90% capacity overall in FY21 despite facing innumerable challenges. (5) ONGC Videsh consortium has put LNG project in Mozambique on hold due to force majeure.

Change in estimates: We raise our FY22/23E EPS estimates by 109.9/103.3% to INR 29.7/33.3 to factor in (1) improvement in crude price realisation owing to recovery in the global demand post COVID-19 pandemic and (2) the overall performance of FY21.

We value ONGC's standalone business at INR 94 and its investments at INR 49. The stock is currently trading at 3.7x FY23E EPS.

Shares of OIL AND NATURAL GAS CORPORATION LTD. was last trading in BSE at Rs.122.35 as compared to the previous close of Rs. 120.9. The total number of shares traded during the day was 1646034 in over 11253 trades.

The stock hit an intraday high of Rs. 124.5 and intraday low of 121.9. The net turnover during the day was Rs. 202775692.

Source : Equity Bulls

Keywords