ONGC's Q1FY19 results (Outperformer) - Strong realisations offset muted oil output
Q1FY19 result highlights
- ONGC adjusted PAT of Rs65.3bn, +68/10% yoy/qoq (IDFCe Rs65bn). Reported PAT of Rs61.4bn (+58% yoy) includes one off forex impact of Rs6bn which impacted other opex.
- Adjusted EBITDA of Rs153.3bn (+55% yoy, IDFCe 153.9bn).
- Oil production at 6.2mt, down 4% yoy, flat qoq (IDFCe 6.3mt). Gas production of 6.2 bcm, up 3% yoy, 2% qoq (IDFCe 6.2bcm). Management remains confident of ending the year with positive growth in oil production, with several new projects starting up by H2FY19.
- Despite the lower oil production in Q1, FY19E target of oil production at 25.9mt and gas production of 25.5bcm +2/4% yoy respectively unchanged from FY18 end.
- Net realisations of $71.5/bbl for the qtr, up 48% yoy (IDFCe $73/bbl) in line with the 48% yoy increase seen in Brent crude prices. Average gas realisations of Rs8.3/scm were up 23% yoy (IDFCe Rs8/scm).
Key positives: Growth in gas volumes, with guidance of strong growth over FY19-21E. Sharply higher realisations
Key negatives: Sharply higher opex and statutory duties. Oil production growth remains elusive as of now
Impact on financials: FY19/20E EPS revised +9% each due to changes in oil price and gas volume assumptions. TP revised up to 255/sh.
Valuations & View
We believe the market is overcompensating for the near term uncertainty on ONGC, due to stress on the balance sheet from the acquisition of the 51% stake in HPCL and the fears of subsidy coming back in FY19E. ONGC trades at attractive 7.3x FY19E EPS/4x EV/E, which does not take into account the impressive 1.4/4.5% CAGR (FY17-21E) in group oil/gas output, the material boost to earnings/value from the start-up of the KG Basin asset and the traction from OpAL by FY20-21E. We factor subsidy contribution of US$7.7/.3 per bbl for FY19/20E in our estimates, which still delivers EPS of Rs22.8/sh by FY20 vs Rs15.6 in FY18, CAGR of 21%. Additionally, EPS contribution from MRPL/KG Basin and HPCL are significant, implying group EPS will see a CAGR of 21% over FY17-21E. Reiterate outperformer, with our target price of Rs255 implying a 53% upside from CMP.
Oil and Natural Gas is engaged in exploration, development and production of crude oil and natural gas. Co.'s business also includes niche areas like -processing of crude oil & natural gas; oil field services, transportation of the oil and natural gas, production of value added products like - LPG, Naphtha, Superior Kerosine Oil, ATF, C2-C3, etc., Refinery, Petrochemicals, Power, unconventional and alternate sources of energy. Co.'s five international locations as per oil & gas production are in Vietnam, Russia, Venezuela, Sudan, South Sudan, and Colombia. Co.'s five international locations as per oil & gas reserves are in Russia, Venezuela, Sudan, South Sudan, Myanmar and Vietnam.
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