IDFC Securities - ONGCs Q2FY19 results (Outperformer) - Another strong quarter, but oil output a miss

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IDFC Securities

ONGC's Q2FY19 results (Outperformer) - Another strong quarter, but oil output a miss

Q2FY19 result highlights

· ONGC adjusted PAT of Rs82.6bn, +61/16% yoy/qoq (IDFCe Rs72bn). This is the highest profit reported by ONGC in the last 4 years. Adjusted EBITDA of Rs158bn (+51% yoy, IDFCe 159bn).

· Oil production at 6.1mt, down 6%/2% yoy/qoq (IDFCe 6.2mt). Gas production of 6.4 bcm, was up 2% yoy, 3% qoq (IDFCe 6.4bcm). Management remains confident of ending the year with positive growth in oil production, with several new projects starting up by H2FY19.

· With the lower oil production in H1Fy19, we see downside risk to FY19E target of oil production at 25.9mt and gas production of 25.5bcm +2/4% yoy.

· Net realisations of $73.1/bbl for the qtr, up 43% yoy (IDFCe $73/bbl) in line with the 44% yoy increase seen in Brent crude prices. Average gas realisations of Rs8.65/scm were up 29% yoy (IDFCe Rs8.1/scm).

Key positives: Growth in gas volumes, with guidance of strong growth over FY19-21E. Sharply higher realisations

Key negatives: Higher opex and statutory duties. Oil production growth remains elusive as of now

Impact on financials: FY19/20E EPS revised +15/11% due to changes in oil price and gas volume assumptions. TP revised up to 265/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 6.2x FY19E EPS/3.3x EV/E, which does not take into account the impressive 1.2/4.5% 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$6/bbl for FY19/20E in our estimates, which still delivers EPS of Rs25/sh by FY20E vs Rs15.6 in FY18, CAGR of 28%. 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 Rs265 implying a 68% upside from CMP

13/11/2018 7 EN

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IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

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ONGC's Q2FY19 results (Outperformer) - Another strong quarter, but oil output a miss

GMR Infrastructure's Q3FY20 results (Outperformer) - Air traffic growth improved at the airports; deleveraging process gains momentum

Ambuja Cement's Q4CY19 results (Outperformer) - In line; cost efficiencies at play

Event update: Aurobindo Pharma (Outperformer) - Unit IV receives EIR; positive outcome

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