Accumulate ONGC; target of Rs 283: Prabhudas Lilladher

Prabhudas Lilladher is bullish on Oil and Natural Gas Corporation (ONGC) and has recommended accumulate rating on the stock with a target of Rs 283 in its November 9, 2012 research report.

“ONGC’s Q2FY13 EBITDA declined 28% YoY and ~7% QoQ to Rs103.7bn, lower than our estimates (PLe Rs108.8bn) owing to one time provisions to the tune of ~Rs6.5bn relating to new COSA agreement signed with OMCs. Net realization on own crude for the quarter stood at US$46.8/bbl versus $83.7/bbl in Q2FY12, while flat on a QoQ basis. Government has arrived ONGC’s standalone net realization at 46.8/ bbl taking into account a US$56/bbl discount on ONGC’s standalone production (incl. condensates). Higher other income at Rs19bn (versus Rs11.3bn) was a result of forex gain ~Rs2.5bn and provision write back of Rs3.6bn during the quarter. Consequently, PAT stood at Rs58.97bn slightly higher than our expectation of Rs56.75bn.”

“Delays on commissioning of projects is expected to push production upsides to 2015, management expects domestic production for FY14 at ~25.79MMTPA versus ~28MMTPA guided earlier. OVL production continued to decline, down 28% YoY and 15% QoQ to 1.56MMT. Management has guided flat production for next year as well at ~7MMTPA. Government has granted extension of exploration period to ONGC in KG 98/2 and they are expected to drill ~8 wells upto Nov’13, management has guided peak production of ~60kbpd from this field (~3 MMTPA).”

“Owing to headwinds in the form of uncertainty on subsidy-sharing mechanism and increasing under recoveries in the system. We believe things are unlikely to improve significant going ahead and upstream PSU will be a cash cow for sharing incremental subsidy burden. Management itself has ~US$46/bbl will not be a remunerative realisation to meet the capex obligation going ahead. Management has earlier said that break-even crude oil requirement for its new capex stands at US$55/bbls. However, valuations are supportive at 4.2x FY2013E EV/EBITDA, 8.4x FY2014E EPS; we value ONGC at 9x FY2014E EPS arriving at a value of Rs283/share. We maintain ‘accumulate’ on the stock,” says Prabhudas Lilladher research report.

FIIs holding more than 30% in Indian cos

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