IGI Logo

Exceptional items lead to net loss

* ONGC’s reported EBITDA stood at INR163.4b (-12% YoY, -20% QoQ), 22% below our estimate, due to higher other expenses in 4QFY23. Net loss came in at INR2.5b (v/s our PAT est. of INR109.3b) led by exceptional items of INR92.4b for provisions-related ongoing dispute regarding the applicability of service tax and GST on Royalty.

* Management expects oil production from KG-DWN-98/2 to commence by Aug’23 in an optimistic scenario and by Oct’23 in a worst case scenario. The peak oil production is likely to be ~40-45kbopd as per earlier guidance.

* Although the levy of windfall tax by the Center with a fortnightly revision raised concerns on realizations of upstream companies, the govt. has adjusted windfall taxes in line with crude oil fluctuations. Our estimate suggests that the govt. is allowing a post-windfall realization of USD68- 81/bbl and we expect it to remain at ~USD70/bbl for FY24-25.

* The implementation of the Kirit Parikh Committee's recommendations from Apr'23 has provided the much-needed respite to the company, as it had to sell gas below the cost of production for quite a long time. We build in gas price assumptions of USD6.5/mmBtu for FY24-FY25E. Further, management highlighted that every year, ~6-8% of APM gas production comes from new wells that will attract 20% premium as per the new pricing policy.

* We keep our standalone estimates unchanged for now, however, we cut our consolidated estimates, due to the investments ONGC has in HPCL, MRPL and PLNG.

* We value the standalone business at 6x FY25E adj. EPS of INR30.4 and add the value of investments of INR33 to arrive at our TP of INR215, implying 35% potential upside. We reiterate our BUY rating on the stock.

Production in line, oil realization slightly below estimate

* ONGC reported revenue of INR362.9b, 5% below our estimate.

* Crude oil sales stood at 4.7mmt, while gas sales came in at 4.1bcm (both in line).

* VAP sales stood at 613tmt (est. 793.8 tmt). ? Reported oil realization was at USD77.1/bbl; 5% below our estimate.

* Net of windfall tax, realization stood at USD71.6/bbl.

* EBITDA came in 22% below our est. at INR163.4b (-12% YoY, -20% QoQ) due to higher other expenses at INR89.6b (v/s INR45.4b in 3QFY23).

* Net loss stood at INR2.5b (our est. PAT of INR109.3b) due to exceptional items worth INR92.4b.

* The exceptional items were on account of provisions made by ONGC related to an ongoing dispute regarding the applicability of service tax and GST on Royalty.

* Adj. PAT came in at INR61.8b for the quarter.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaime