Buy ONGC; target of Rs 191: HDFC Securities


HDFC Securities’ research report on ONGC

Q4FY19 Revenue/EBITDA were up 11.6/8.7% YoY to Rs 267.58/123.71bn owing to 5.6% jump in oil price realisation to Rs 4,365/bbl and NG realisation was up 20.2% YoY to USD3.5/mmbtu. Crude oil sales volumes were down 0.7% YoY to 5.9mmt. APAT was down 31.6% YoY and came to Rs 40.45bn owning to 19.4% and 50.5% increase in Exploration write-off and depreciation and depletion cost. EBITDA was 11% below our estimates owing to (1) Unpaid royalty of Rs 10.14bn on behalf of its JV partner (Vedanta) from 15-Aug-18 to 31-Dec-18 that has wholly been accounted for in Q4, (2) Rs 6bn of provision made towards arbitration case against GoI relating to certain disputes and claims arising in connection with
Production Sharing Contracts of PMT fields. Adjusting for the one-off expenses and provisions, EBITDA stood at Rs 139.85bn, which was in-line with our estimates. Revenue for FY19 was up 29% YoY to Rs 1,096.55bn owing to 34% jump in oil price realisation to Rs 4,766/bbl and NG realisation was up 19.1% YoY to USD3.32/mmbtu. Crude oil sales volumes were down 5% YoY to 22.5mmt and gas sales volume was up 5.1% to 20.5bcm.


Upstream companies were out of flavour despite realizing market price for crude oil, mainly on account of lower provisioning of budgetary support in FY19 (Rs 248bn). The subsidy sharing concern allayed when the Govt. committed to settle Rs 430bn of subsidy from its own pocket. We do not foresee any subsidy sharing burden on upstream companies if crude oil prices remain below USD80/bbl. In the absence of overhang of subsidy sharing, upstream companies should be re-rated. Our TP is Rs 191/sh (8x Mar-21E standalone core EPS (adj. for dividend income), + OVL EPS and Rs 39 from other investments).

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