Kotak Institutional Equities gives ONGC ‘add’ rating; Final quarter results below estimates

By: | Published: June 5, 2018 1:26 AM

ONGC’s revenues increased 4% q-o-q to Rs 240 bn, 1.4% below our estimate led by modestly lower VAP sales and realisations.

ongc, ongc Q4fY18 results, ongc TPQ4fY18 results were below our estimates driven by sharply higher operating costs and exploratory write-offs. (Reuters)

Q4fY18 results were below our estimates driven by sharply higher operating costs and exploratory write-offs. Consolidated EPS declined 9% to Rs 17.2 in FY18 despite higher volumes and crude price, reflecting sharp increase in provisions /write-offs/DD&A across upstream assets and lower profits from MRPL. The stock prices in subsidy-sharing uncertainty; the management expects a structured mechanism from the government. Add stays with a target price of Rs 200 ( Rs 215 earlier).

Q4FY18 results marred by higher operating costs, statutory levies and exploratory write-offs: ONGC’s revenues increased 4% q-o-q to Rs 240 bn, 1.4% below our estimate led by modestly lower VAP sales and realisations. Ebitda declined 9% q-o-q to Rs 114 bn, 9% below our estimate, impacted by higher operating expenses, levies and employee costs. Higher operating costs were attributed to increase in work-over activities, R&M expenses and a decommissioning provision of Rs 2 bn related to PMT field.

Net income jumped 18% q-o-q to Rs 59.2 bn (EPS of Rs 4.6), 7% below our estimate, boosted by sharp increase in other income due to dividend receipts from HPCL and IOCL. DD&A cost increased 7% q-o-q to Rs 62.8 bn due to higher exploratory write-offs, which was partly offset by write-back on impairment. Crude sales declined 3.8% y-o-y to 5.9 million tons led by 3% fall in own production. Gas sales grew 3.5% y-o-y to 4.8 bcm, ahead of 2.2% growth in production.

Consolidated EPS of Rs 17.2 in FY18, including bleak performance from OVL: Standalone adjusted EPS increased 6% to Rs 15.5 in FY18, driven by (i) 9% growth in gas sales to 19.5 bcm, (ii) 5% increase in VAP sales and (iii) higher oil/VAP realisations, which was partially offset by higher DD&A and exploratory write-offs.

OVL’s Ebitda declined 15% y-o-y to Rs 56.7 bn in FY18. Consolidated reported EPS declined 9% y-o-y to Rs 17.2, further impacted by lower contribution from MRPL. 1% decline in crude sales and 9% growth in gas in FY18; guidance of modest 2-4% growth: ONGC management reduced overall production targets for FY19, while guiding for modest 2-4% growth in oil and gas production to 25.9 mn tons and 25.5 bcm respectively.

Cut FY19-20 EPS estimates by 2-6%: We cut EPS estimates (excluding HPCL) to Rs 20.8 (-2%) for FY2019 and Rs 20.6 (-6%) for FY2020, factoring in (i) higher Dated Brent crude price ($/bbl) at 72.5|67.5, (ii) weaker INR-USD exchange rate, (iii) assumption of 100% windfall tax above $55/bbl, which will restrict subsidy bill for the government and (iv) higher operating costs and DD&A. We retain Add with a revised target price of Rs 200, based on 10X FY2020e EPS plus value of investments.

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