ONGC fall expected; production to be flat: JM Fin

Mehul Thanawala of JM Financial explains to CNBC-TV18 that the fall in ONGC's profits was in line with analysts' estimates. Thanawala adds that according to JM Financial's analysis, the overall production for FY13 will be flat.

Below is an edited transcript of the analysis on CNBC-TV18 Q: Let's start with ONGC because it is the top loser on the Nifty today. What do you make of the results and what is your call on the stock?
A: ONGC suffered primarily because of the underrecovery share impacted the quarterly profits, though the results were in line with our estimates. We estimated profits at Rs 5,900 crore which is almost what was reported. There is a difference because of the slightly higher share of underrecovery than expected which resulted in a EBITDA slightly lower than estimates, but other income made up for that.
Overall, while the under-recovery share was higher and the PAT did decline on a sequential basis as well as on a year-on-year basis, I think for most analysts this should have been factored into their estimates. So as far as ONGC is concerned we do not see much impact on the stock because of the results.
Yes, the stock did underperform because the results were lower on a sequential basis. But fundamentally, the issue is more of underrecovery rather than core earnings from the business.
This quarter, the forex also helped the PSU as in the last quarter. So, while net realisation fell, forex helped to some extent and therefore overall results were slightly better than what would have been under normal circumstances.
Overall, ONGC remains a favourite but it is not a stock where can play with a short-term view. It offers slow and steady and it is trading at about 10 times which is slightly less than current year earnings. Therefore it is ideal for long-term investors eyeing slow and steady growth. Q: After the announcement of results, ONGC scaled down their production targets for FY13. What is your estimate of FY13 production targets for both ONGC and for OVL? And how much would it affect EPS in your estimate?
A: We conducted a detailed regionwise analysis of ONGC’s units across all the country to arrive at our own estimates. Our estimates indicate flattish production which has already been factored-in. Regarding ONGC, there has been a decline in the existing fields.
Therefore any delay in projects coming onstream would impact the flattish numbers that we are expecting. Delays have resulted due to accidents such as the leak at KG. So, the results for FY14 could be scaled down and we will wait till there is further clarity on growth once the KG issue gets settled. But currently, we maintain our estimate that production will be flat.