Market Watch: ONGC rating ‘buy’ – Numbers in the third quarter were weak

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Published: February 18, 2020 12:30:49 AM

Higher DDA & lower other income behind PAT miss; consol. FY20e EPS down 5% due to results and soft oil prices; ‘Buy’ retained

Oil prices remain subdued in the absence of a recovery in oil demand and the coronavirus-related demand destruction. Oil prices remain subdued in the absence of a recovery in oil demand and the coronavirus-related demand destruction.

Oil sold was in line with estimate, while gas sold was 4% below our estimate, leading to in-line Ebitda. Higher depreciation, depletion, write-off and lower-than-expected other income resulted in a miss of 20% in PBT. Oil prices remain subdued in the absence of a recovery in oil demand and the coronavirus-related demand destruction. However, OPEC+ appears to take further action to stabilise prices. We maintain our forecast of $65/bbl for FY21/22.

Ebitda in-line: Standalone revenue of Rs 237 bn (-14% y-o-y, – 3% q-o-q) was in line with our estimate. The y-o-y decline primarily was due to lower oil price realisation. Standalone Ebitda stood at Rs 123 bn (2% below our estimate; – 26% y-o-y, -7% q-o-q).DDA was at Rs 70.8 bn (7% beat; +15% y-o-y, +13% q-o-q). Other income stood at Rs 14 bn (34% below estimate; -37% y-o-y, -48% q-o-q). Higher DDA and lower other income resulted in PAT of Rs 41.5 bn (17% miss;-50% y-o-y, -34% q-o-q). 9MFY20 standalone Ebitda stood at Rs 407 bn, down 14% y-o-y.

Key operational highlights: Crude oil sold stood at 5.2mmt v/s 5.4mmt in Q3FY19 and Q2FY20. Larger part of the production comes from age-old fields which the company has not been able to compensate from new fields. Gas sold has also failed to pick up, standing at 4.8bcm v/s 5.3bcm in Q3FY19 and 4.9bcm in Q2FY20.

Highlights from commentary: Production from KG basin is expected to start from 18th Feb’20. Standalone capex was at Rs 180 bn in 9MFY20 v/s Rs 320 bn for full year.

Valuation and view: Although gas production has been delayed, we expect a significant jump in the next 2-3 years led by the 13 projects the company has been working upon. Oil production is expected to remain flat. We cut our consol. EPS estimate by 5% for FY20, led by the large miss in the quarter and soft oil prices in 4QY20YTD. We value the stock at 8x FY22e adj. EPS and add the value of investments to arrive at a TP of Rs 150. Maintain Buy.

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