Recommendations » India

ONGC 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, 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 volumes and realizations: The company’s top-line increased by 15.8% yoy to Rs.20,987cr (above our expectation of Rs.19,294cr). The net realization for crude oil increased by 6.7% yoy to US$47.9/bbl and gas realizations increased 10.5% yoy to 8.4/scm. Crude oil sales volumes grew 7.0% yoy to 6mn tonne.

EBITDA decreases on higher subsidy burden: EBITDA margin contracted by 693bp yoy to 54.0% and EBITDA increased by 2.6% yoy to Rs.11,342cr, mainly due to higher subsidy burden.

Higher other income lifts PAT: The company’s other income grew by 33.7% yoy to Rs.1,281cr, which resulted in the adjusted net profit growing by 54.6% yoy to Rs.5,563cr (above our expectation of Rs.4,843cr).

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 valuation of 10.8x FY2013E and 9.0x FY2014E PE. Hence, we recommend a Buy rating on the stock with a SOTP target price of Rs.357.