MOSL: ONGC (Buy)-Adjusted EBITDA marginally above estimate-gas production up 16% YoY

ONGC: Adjusted EBITDA marginally above estimate; gas production up 16% YoY

(ONGC IN, Mkt Cap USD38.1b, CMP INR176, TP INR229, 31% Upside, Buy)

• ONGC reported EBITDA of INR67b (up 6% YoY, but down 35% QoQ), significantly lower than our estimate of INR107.6b, largely due to higher statutory levies and increased staff cost. Adjusting for one-offs (royalty payment of INR24b to the state government and provision of INR19.4b on account of pay revision), EBITDA stands at INR111b, marginally above our estimate of INR107.6b.
  
• PAT declined 6% YoY (flat QoQ) to INR43b, only marginally below our estimate of INR45b. Higher other income at INR45b (up 11% YoY and 365% QoQ; our estimate was INR10b) and lower tax rate at 21.6% (against 30.4% in 3QFY17 and 30.6% in 4QFY16) supported PAT.
  
• Net realization grew 57% YoY and 10% QoQ to USD54.9/bbl (our estimate was USD55.1/bbl). ONGC's realization premium to Brent in 4QFY17 was USD0.8/bbl against the historical trend of USD1/bbl. Subsidy sharing was nil; we model nil subsidy sharing for FY18 and FY19 as well.
  
• Oil sales grew 2% YoY and 2.3% QoQ to 6.14mmt and gas sales grew 18% YoY (flat QoQ) to 4.63bcm. Oil production was flat YoY/QoQ at 6.39mmt and gas production grew 13.4% YoY but declined 1.3% QoQ to 5.94bcm. In FY17, gas production grew 3.3% to 23.3bcm and oil production declined 1.5% to 25.5mmt. Gas production is expected to increase again, led by completion of its development projects. We expect gas production to increase 10-15% annually, going ahead.