Hold ONGC, says Ventura Securities
Ventura Securities has recommended hold rating on Oil and Natural Gas Corporation (ONGC), in its February 13, 2013 research report. According to the research firm, majority of the increase in production of the company is expected to arise from the marginal fields, which are on course to commence production over the next 3 years.
February 15, 2013 / 13:39 IST
Ventura Securities has recommended hold rating on Oil and Natural Gas Corporation (ONGC), in its February 13, 2013 research report. According to the research firm, majority of the increase in production of the company is expected to arise from the marginal fields, which are on course to commence production over the next 3 years.
"ONGC's registered good performance for the quarter on the back of higher crude sales, higher rupee realizations and higher realization for value added products. The company bore 38.5% of under recovery as against 40% in Q2FY13. While a diesel price increase will further strengthen the street belief in controlling subsidies and can provide a fillip to earnings (in terms of higher realizations) we feel a recent crude price increase (from $ 109/ bbl to $118 /bbl) would negate the benefits. Brent crude prices sustaining above $115/bbl would mean an increase in subsidy payout and weak growth in profit numbers.ONGC's reported net profit registered a decline of 17.5 % to Rs 5562.7 crore on YoY basis due one offs in Q3FY12. Net sales for the quarter increased by 15.8% yoy & 6.1% QoQ to Rs. 21093.2 crore on the back of higher rupee realization and higher realization of value added products.Crude oil sales volume from own fields increased to 4.91 mn tons (+0.4% yoy). This was offset by lower sales volume from JV fields at 1.126 mn tons (+50% yoy) due to a small decline in Cairn's Rajasthan's fields. ONGC's total crude oil sales volume were at 6.04 mn tons in Q3FY13 versus 5.64 mn tons in Q3 FY12. ONGC's total natural gas sales volume was at 5.02 bcm in Q3FY13 versus 5.06 bcm in Q2FY13 and 5.02 bcm in Q3FY12.The company has guided for 25.78 MMT of oil production and 3.31 from JV fields for FY14. On the gas production the company has targeted 24.61bcm from nominated blocks and 1.84bcm from JV fields. Majority of the increase in production is expected to arise from the marginal fields, which are on course to commence production over the next 3 years.During the quarter, ONGC shelled out Rs 12,433 crore towards fuel subsidy as against Rs 12536 crore in Q3FY12. The company bore 38.5% of under recovery as against 40% in Q2FY13. However, the actual share of subsidy will be determined by government only at the end of the financial year on the basis of financial strength of OMCs and Centre's fiscal situation.Driven by the marginally lower crude prices, ONGC gross realization stood at $ 110.2 per barrel v/s $ 111.5 per barrel, down by 1.2% yoy. However, post discount to the OMCs, Net realizations in dollar terms increased by 7.3% on YoY basis to USD 47.87 /bbl while that in rupee terms grew by robust 13.9% to Rs 2597/bbl helped by the rupee depreciation.Other income increased to Rs 1281.2 crore in Q3 FY13 (+2.1% YoY). The management has stated that the current cost of gas production is ~US$3.7/mmbtu and in case of a gas price hike, many isolated gas fields may become viable which will help in increasing the gas production. ONGC has guided for a capex of Rs 33,065 crore for FY13. Till January 2013, the company has incurred a capex of ~ Rs 23,000 crore. Currently, the stock is trading below the mean band of its historical valuations at 9.7x and 8.5x its FY14 and FY15 consensus earnings estimates, we recommend a HOLD on the stock," says Ventura Securities research report.Institutional holding more than 40% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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