- ONGC reported net sales at Rs201b (v/s est. Rs211b, adj. for subsidy), EBITDA at Rs110b (v/s est. 115b, adj. for subsidy), and PAT at Rs61b (v/s est. Rs56b, adj. for subsidy), up 48% y-o-y and 8% q-o-q.
- Net sales (adj. for subsidy) were lower than estimates due to (a) lower realization at $110/bbl (v/s est. $113.5/bbl) and (b) lower than est. gas sales Rs42b (gas sales declined 2% q-o-q v/s est. 1% increase).
- EBITDA level differential v/s est. was lower due to lower statutory levies at Rs53b (v/s est. Rs58b, adj. for subsidy), led by lower net realization at $47/bbl v/s est. $52/bbl (adj. for subsidy).
- PAT was above estimates due to (a) significantly lower D,D&A expenses at Rs32b(v/s est. Rs45b) led by lower dry-well write offs and partly due to (b) higher other income at Rs11.3b (v/s est. Rs10.3b).
- Upstream shared 32% in 1QFY13 v/s 40% in FY12: In 1QFY13, ONGC subsidy share stood at Rs123.4b (v/s est. Rs152b) and its share in upstream stood at 82% (v/s 80.8% in FY12). We model FY13/14 upstream subsidy sharing at 40% and ONGC share at 81%.
- ONGC set to break production growth jinx with significant discovery: ONGC reported a major oil discovery near Mumbai High in D1 field and has increased the D1 field initial in-place oil resource estimates from 600mmboe to >1bboe. We believe, this discovery will help ONGC to break the production growth jinx (ONGC's domestic production has been flat for the last 6 years) as the company expects the D1 production to increase from current 12.5kbpd to 36kbpd by Feb-13 and 60kbpd by Jan-14.
Valuation and view: With the new discovery, ONGC is likely to post the domestic production growth in FY14/FY15, which has been a concern for quite some time; however, near-term profits will remain impacted due to high under recoveries and lower production from OVL led by geopolitical tensions. ONGC trades at ~45% discount to its global peers on EV/BOE (1P basis) and likely subsidy rationalization remains a long term trigger. Dividend yield stands at 3.5%. The stock trades at 9.9x FY13E EPS of Rs28.3. SOTP-based TP for ONGC is Rs320/sh. Buy.
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Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.
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