EBITDA below estimate; gas production up 4% YoY
* ONGC’s reported revenue of INR230b (+15% YoY, +21% QoQ) came in below our estimate of INR243b due to lower production/sales and marginally lower realization. Reported EBITDA of INR125b (+22% YoY, +20% QoQ) was below our estimate of INR134b, led by higher other expenditure (USD7.2/boe v/s estimate of USD6.8/boe).
* PAT grew 15% YoY (-2% QoQ) to INR50b, missing our estimate of INR67b, led by lower other income of INR11b (est. of INR14b; +16% YoY, -42% QoQ) and higher depreciation of INR58.6b (est. INR44b; +25% YoY, +21% QoQ). D,D&A was higher led by higher depletion and higher dry well write-offs.
* Net realization grew 21% YoY (+18% QoQ) to USD60.6/bbl. Subsidy sharing was nil; we model nil subsidy sharing for FY18, FY19 and FY20 as well. At USD60- 70/bbl of Brent, we do not see much concern. However, if crude were to rise further, then it may result in subsidy sharing, thereby adversely impacting the profitability.
* Oil sales declined 1.3% YoY (+1.4% QoQ) to 5.92mmt, and gas sales grew 7.3% YoY (+1.2% QoQ) to 5.0bcm. Oil production declined ~1% YoY (-1.7% QoQ) to 6.34mmt and gas production grew 1.5% YoY (flat QoQ) to 6.28bcm.
* Gas production is expected to increase again, led by completion of its development projects. We expect gas production to increase 10-15% annually.
Valuation and view
* Rising crude oil prices, growth in oil & gas production, and declining opex led by cost efficiencies place ONGC on a strong footing. We model Brent crude price at USD60/bbl for FY19/20 and INR/USD at 64.6/66/67.
* We expect EPS of INR23.3/24.3 for FY19/20. The stock trades at 7.7x FY20E EPS, and EV of 3.4x FY19E EBITDA. Using SOTP, we value the stock at INR230/share, implying a 23% upside. Maintain Buy.
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