BUY CMP 413.55 Target Price 471.00 OIL AND NATURAL GAS CORPORATION LTD Result Update (PARENT BASIS): Q1 FY15 SEPTEMBER 24 th 2014 ISIN: INE213A01029 Index Details Stock Data Sector Oil & Gas BSE Code 500312 Face Value 5.00 52wk. High / Low (Rs.) 472.00/261.00 Volume (2wk. Avg.) 385000 Market Cap (Rs. in mn.) 3538135.30 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY13A FY14E FY15E Net Sales 838889.30 926972.68 1004838.38 EBITDA 433600.00 485357.00 528800.21 Net Profit 220948.10 248301.70 269618.56 EPS 25.83 29.02 31.51 P/E 16.01 14.25 13.12 Shareholding Pattern (%) Highlights ONGC Ltd, reported 13.17% jump in its Net profit or Profit After Tax and stood at Rs.218512.70 mn during the firth quarter of FY15 as against Rs. 193089.30 mn during first quarter of FY14. Sales Revenue for Q1 FY15 grew by 13.17% at Rs. 218512.70 mn against Rs. 193089.30 mn in the corresponding quarter of previous year. EBDITA also grew up by 20.24% YOY and stood at Rs. 97594.50 mn against Rs. 81163.50 mn in the same period previous year. Profit before tax stood at Rs. 71970.10 mn against Rs. 57836.40 mn in the corresponding quarter of the previous year. ONGC Videsh Signed production sharing contracts for two onland exploration blocks B-2 & Ep-3 in Myanmar. The company approved the proposal for Redevelopment of its giant offshore field- Mumbai High (north) involving a capital investment of Rs, 57064.70 million including foreign exchange component of Rs. 44217.60 million. 1 Year Comparative Graph ONGC s wholly owned subsidiary videsh issues US$ 1.5 billion and Euro 525 million unsecured bonds in the international capital markets. ONGC LTD BSE SENSEX The company investing Rs. 52190.00 million towards Daman development project to enhance production of natural gas and condensate in its Taptio Daman Block in Arabian Sea. Net Sales and PAT is expected to grow at a CAGR of 7% and 9% over 2013 to 2016E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) ONGC Ltd 413.55 3538135.30 25.83 16.26 2.65 190.00 Indian Oil Corporation Ltd 355.85 863986.90 52.04 6.84 1.27 50.00 BPCL Ltd 643.70 465449.30 70.90 9.08 2.39 170.00 Reliance Industries Ltd 964.90 3120721.10 68.89 14.01 1.58 95.00
Analysis & Recommendation - BUY Oil And Natural Gas Corporation Ltd reported robust first quarter results with Net Profit and EBDITA rising up by 19.07% and 20.24% respectively. Net Profit on standalone basis rose from Rs. 40159.80 mn to Rs. 47817.90 mn in Q1 FY15. EBDITA increased from Rs. 81163.50 mn to Rs. 97594.50 mn in the June quarter of FY15. Net sales fell by 13.17% at 218512.70 mn against Rs. 193089.30 mn in the corresponding quarter of the previous year. Profit before tax increased by 24.44% from Rs. 57836.40 mn to Rs. 71970.10 mn in Q1 FY15. ONGC s Market capitalization as on 31st September 2014 was INR 3760.60 billion. ONGC Videsh Signed production sharing contracts for two onland exploration blocks B-2 & Ep-3 in Myanmar. The company investing Rs. 52190.00 million towards Daman development project to enhance production of natural gas and condensate in its Taptio Daman Block in Arabian Sea. ONGC shares under recoveries of Public Sector Oil Marketing companies by allowing discount in prices of crude oil, PDS Kerosene, Domestic Kerosene and Domestic LPG based on the rates of discount communicated by Ministry of Petroleum & Natural Gas and Petroleum Planning and Analysis Cell. The company has no long term and short term borrowings. Being a debt free company with high growth prospects due to hike in gas prices and leader in Oil & Gas segment, ONGC is a sure to bet for long term investment. Thus we recommend BUY for the scrip at Rs. 471.00 for medium and long term. Company Profile Oil and Natural Gas Corporation Limited engages in the exploration, development, production, and refining of oil and gas in India and internationally. The company s products include crude oil, natural gas, liquefied petroleum gas, naphtha, ethane/propane, kerosene oil, low sulphur heavy stock, high speed diesel, motor spirit, aviation turbine fuel, liquid diesel oil, and mineral turpentine oil. It is also involved in power generation, liquefied natural gas supply, and pipeline transportation activities; and the provision of petrochemicals. Oil and Natural Gas Corporation was incorporated in 1993 and is headquartered in Dehradun, India. In 1994, Oil and Natural Gas Commission was converted in to a Corporation, and in 1997 it was recognized as one of the Navratnas by the Government of India. Subsequently, it has been conferred with Maharatna status in the year 2010. From a modest beginning, ONGC has grown to be one of the largest E&P companies in the world in terms of reserves and production. ONGC as an integrated Oil & Gas Corporate has developed in-house capability in all aspects of exploration and production business i.e., Acquisition, Processing & Interpretation (API) of Seismic data, drilling, work-over and well stimulation operations, engineering & construction, production, processing, refining, transportation, marketing, applied R&D and training, etc. Today, Oil and Natural Gas Corporation Ltd. (ONGC) is, the leader in Exploration & Production (E&P) activities in India having 72% contribution to India s total production of crude oil and 48% of natural gas. ONGC has established more than 7 Billion Tonnes of in-place hydrocarbon reserves in the country. In fact, six out of seven producing basins in India have been discovered by ONGC. ONGC produces more than 1.27 million Barrels of Oil Equivalent (BOE) per day. It also contributes over
three million tonnes per annum of Value-Added-Products including LPG, C2 - C3, Naphtha, MS, HSD, Aviation Fuel, SKO etc. ONGC has two wholly owned subsidiaries, ONGC Videsh Ltd. (OVL) and MRPL. ONGC s Market capitalization as on 31 st September 2014 was INR 3760.60 billion. During the financial year ended 31, march 2014, ONGS Group has produced 59.20 million tonne of oil and oil equivalent gas. The Gross Revenuue was INR 1744.70 billion and total oil and gas reserves were 2004 mmtoe as on 31 st march 2014. QUARTERLY HIGHLIGHTS (PARENT BASIS) Q1 FY15: ONGC Ltd is the only Indian energy major in Fortune's Most Admired List 2014 under 'Mining, Crude Oil Production' category. RS. In millions June-14 June-13 % Change Net sales 218512.70 193089.30 13.17 Net Profit 47817.90 40159.80 19.07 EPS 5.59 4.69 19.07 EBITDA 97594.50 81163.50 20.24 Profit Before Tax 71970.10 57836.40 24.44 Net sales of the company grew by 13.17% YOY from Rs. 193089.30 mn to Rs. 218512.70 mn in Q1 FY15. Net profit rose by 19.07% at Rs. 47817.90 mn in the 1 st quarter of financial year 2015. EBDITA grew by 20.24% YOY from Rs. 81163.50 mn to Rs. 97594.50 mn in Q1 FY15. The company has reported an EPS of Rs. 5.59 for the 1 st quarter of FY15 as against an EPS of Rs. 4.69 in the corresponding quarter of the previous year. Profit before tax increased by 24.44% from Rs. 57836.40 mn to Rs. 71970.10 mn in Q1 FY15. Break Up Of Expenditure Rs In Mn Q1 FY15 Q1 FY14 CHNG % Cost of Materials consumed 1302.30 1141.30 14.11 Depreciation 25623.10 23325.00 9.85 Employee Benefit Expenses 4067.30 5897.30 (31.03) Other Expenditure 29976.80 45803.20 (34.55) Statutory levies 58270.90 55720.00 4.58 Exploration cost written off 38275.10 15681.90 144.07 Purchase of Traded Goods 8.10 10.20 (20.59)
Segment Revenue In Mn Q1 FY15 Q1 FY14 CHNG % Offshore 151937.80 132886.00 14% Onshore 67235.70 60845.90 11% Other Important Updates ONGC s wholly owned subsidiary videsh issues US$ 1.5 billion and Euro 525 million unsecured bonds in the international capital markets. ONGC Videsh Ltd and YPF S.A, the major oil producing company of argentina has entered in to a memorandum of understanding (MOU) on Sept 1 st 2014 to cooperate in the hydrocarbon sector. ONGS approved the proposal for Redevelopment of its giant offshore field- Mumbai High (north) involving a capital investment of Rs, 57064.70 million including foreign exchange component of Rs. 44217.60 million. Implementation of the project will lead to incremental gain of 6.997 million tone crude oil and 5.253 billion cubic meters gas by 2030. ONGC Videsh Signed production sharing contracts for two onland exploration blocks B-2 & Ep-3 in Myanmar. The company investing Rs. 52190.00 million towards Daman development project to enhance production of natural gas and condensate in its Taptio Daman Block in Arabian Sea. Mangalore Refinery & Petrochemical Ltd (MRPL) is the second such unit in the country with design capacity of 2.2 MMTPA and can produce about 20% of its product as polymers grade propylene apart from almost 25% of products as LPG.
FINANCIAL STATEMENTS & ESTIMATIONS (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as on 31 st March, 2013-2016E SOURCES OF FUNDS Shareholder's Funds ONGC LTD FY-13A FY-14A FY-15E FY-16E Share Capital 42777.60 42777.60 42777.60 42777.60 Reserves and Surplus 1201754.60 1324472.40 1510563.76 1700894.79 Total Net worth (a) 1244532.20 1367250.00 1553341.36 1743672.39 Non Current Liabilities Deferred Tax Liability (net) 128879.80 165786.80 203917.76 234505.43 Other Long term liabilities 11241.70 11850.20 12205.71 12449.82 Long term Provisions 221874.40 257199.60 290635.55 319699.10 Total Non Current liabilities (b) 361995.90 434836.60 506759.02 566654.35 Current Liabilities Trade payables 53410.10 63724.80 72964.90 80991.03 Other Current liabilities 112226.60 119261.70 124032.17 127257.00 Short term Provisions 9101.90 7811.20 6561.41 5380.35 Total Current Liabilities(c) 174738.60 190797.70 203558.47 213628.39 Total Liabilities (a + b + c) 1781266.70 1992884.30 2263658.85 2523955.13 Non-Current Assets Fixed Assets: APPLICATION OF FUNDS 1. Tangible assets 274036.80 302291.90 330707.34 357163.93 2. Producing Properties 524407.10 657832.60 789493.47 915812.43 3. Intangible assets 798.00 500.60 420.50 445.73 4. Capital Work in Progress 144153.70 116450.30 100147.26 103151.68 5. Exploratory/Development Wells in Progress 104758.80 139127.60 175300.78 206854.92 Total Fixed Assets 1048154.40 1216203.00 1396069.35 1583428.68 Non Current Investments 91730.50 172043.10 220215.17 248867.05 Long Term loans and advances 221728.50 181783.60 187237.11 194726.59 Deposit with Schedule Banks under Site 101331.20 113101.60 124411.76 135608.82 Restoration Fund Scheme Other non-current assets 14053.50 11320.00 9282.40 9839.34 Total Non Current Assets (d) 1476998.10 1694451.30 1937215.78 2172470.48 Current Assets Inventories 57043.90 58825.10 60236.90 61140.46 Trade receivables 68637.20 81656.70 94721.77 107982.82 Cash and Bank Balances 132185.90 107988.80 114468.13 119046.85 Short-terms loans & advances 37021.20 43669.60 50220.04 56246.44 Other current assets 9380.40 6292.80 6796.22 7068.07 Total Current Assets (e) 304268.60 298433.00 326443.07 351484.65 Total Assets (d+e) 1781266.70 1992884.30 2263658.85 2523955.13
Annual Profit & Loss Statement for the period of 2013 to 2016E Value(Rs.in.mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales 829859.40 838889.30 926972.68 1004838.38 Other Income 54662.10 67132.30 69146.27 72603.58 Total Income 884521.50 906021.60 996118.95 1077441.96 Expenditure -495044.60-472421.60-510761.94-548641.76 Operating Profit 389476.90 433600.00 485357.00 528800.21 Interest -288.80-3.60-2.64-2.90 Gross profit 389188.10 433596.40 485354.37 528797.31 Depreciation -83744.80-109277.10-120204.81-130542.42 Profit Before Tax 305443.30 324319.30 365149.56 398254.89 Tax -96186.30-103371.20-116847.86-128636.33 Profit After Tax 209257.00 220948.10 248301.70 269618.56 Equity capital 42777.60 42777.60 42777.60 42777.60 Reserves 1186896.00 1313533.70 1510563.76 1700894.79 Face value 5.00 5.00 5.00 5.00 EPS 24.46 25.83 29.02 31.51 Quarterly Profit & Loss Statement for the period of 31 st DEC, 2013 to 30 SEP, 2014E Value(Rs.in.mn) 31-Dec-13 31-Mar-14 30-Jun-14 30-Sep-14E Description 3m 3m 3m 3m Net sales 208522.40 213130.90 218512.70 249760.02 Other income 26623.30 13718.30 8951.80 10652.64 Total Income 235145.70 226849.20 227464.50 260412.66 Expenditure -103444.40-121272.20-129870.00-135120.17 Operating profit 131701.30 105577.00 97594.50 125292.49 Interest -0.20-0.40-1.30-0.62 Gross profit 131701.10 105576.60 97593.20 125291.87 Depreciation -25883.60-35803.50-25623.10-26494.29 Profit Before Tax 105817.50 69773.10 71970.10 98797.58 Tax -34557.80-20883.10-24152.20-31911.62 Net Profit 71259.70 48890.00 47817.90 66885.96 Equity capital 42777.60 42777.60 42777.60 42777.60 Face value 5.00 5.00 5.00 5.00 EPS 8.33 5.71 5.59 7.82
Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) 24.46 25.83 29.02 31.51 EBITDA Margin (%) 46.93 51.69 52.36 52.63 PBT Margin (%) 36.81 38.66 39.39 39.63 PAT Margin (%) 25.22 26.34 26.79 26.83 P/E Ratio (x) 16.91 16.01 14.25 13.12 ROE (%) 17.02 16.29 15.99 15.46 ROCE (%) 38.48 40.03 38.98 37.81 EV/EBITDA (x) 8.74 7.91 7.05 6.47 Book Value (Rs.) 143.73 158.53 181.56 203.81 P/BV 2.88 2.61 2.28 2.03 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs. 413.55, the stock P/E ratio is at 16.01 x FY15E and 14.25 x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.29.02 and Rs.31.51 respectively. Net Sales and PAT is expected to grow at a CAGR of 7% and 9% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at 7.05 x for FY15E and 6.47 x for FY16E. Price to Book Value of the stock is expected to be at 2.28and 2.03 x respectively for FY15E and FY16E. We recommend BUY in this particular scrip with a target price of Rs. 471.00 for Medium to Long term investment. INDUSTRY OVERVIEW The Indian oil and gas (O&G) sector is projected to touch US$ 139,814.7 million by 2015 from US$ 117,562.9 million in 2012. The sector provides vast opportunities for investors. To meet this demand, the Government of India has adopted various policies, such as allowing 100 per cent foreign direct investment (FDI) in many segments of the sector, such as natural gas, petroleum products, pipelines, and refineries. This move along with various others has made the oil and gas sector in India a more viable place to invest. Today, India s oil and gas sector attracts both domestic and foreign investment, as seen by the presence of Reliance Industries Ltd (RIL) and Cairn India in the country. Market Size During FY 2013 14, the total consumption of petroleum products in India was 158.2 million tonnes (MT). The consumption stood at 14.2 MT in March 2014, according to data released by the Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas. The share of fuels in the country's exports surged from 5.59 per cent in 2003 04 to 20.05 per cent during 2013 14. Total exports of fuel products stood at US$ 62.69 billion in value terms during FY 2013 14. The country had total reserves of 1354.76 billion cubic metres (BCM) of natural gas and 758.27 million metric tonnes (MMT) of crude oil at the end of FY 2012 13. Investments The following are some of the major investments and developments in the oil and gas sector.
Vietnam has offered two exploration blocks to ONGC Videsh (OVL), in addition to the five it has already offered the company. Oil and Natural Gas Corporation (ONGC) has selected one of the five blocks that were proposed in November, 2013 and will evaluate the two new blocks. "We are planning to visit Vietnam soon with our interest in at least one block. Based on the outcome of preliminary examination of data, we may also express interest in the two other blocks recently offered by the country, reported by ONGC official. Indian Oil Corporation Ltd (IOCL) via its wholly owned affiliate IndOil Montney Ltd, Canada, signed transaction agreements with Progress Energy Canada Ltd and PETRONAS Carigali Canada BV for acquiring a 10 per cent interest in Progress Energy Canada s LNG-destined natural gas reserves in northeast British Columbia as well as the proposed Pacific NorthWest LNG Ltd (PNW LNG) export facility located on Canada s West Coast. Prize Petroleum Company Ltd, a wholly owned subsidiary and upstream arm of Hindustan Petroleum Corporation Ltd (HPCL), has entered into a sale purchase agreement with M/s AWE, Australia to acquire 11.25 per cent interest in T/L1 license and 9.75 per cent interest in T/18P permit for a total consideration of A$ 85 million (US$ 79.66 million). Reliance Industries Ltd (RIL) has been awarded two offshore blocks, M17 and 18, in Myanmar s offshore block bidding round of 2013. The blocks in Myanmar s Moattama basin together encompass 27,600 square kilometres and are at depths of up to 3,000 feet. GAIL (India) Ltd has entered into an agreement with Japan-based Chubu Electric Power Co to seek collaboration in the area of joint LNG procurement. The two companies will look to work together on shipping optimisation as well. India and Azerbaijan have proposed to form a joint working group in the field of hydrocarbon. Both countries have agreed to explore opportunities for partnership in renewable energy sector, energy efficiency and several upcoming projects in petro-chemicals, oil and gas, pipelines, etc., in India, Azerbaijan or other third countries in collaboration or joint venture. Petrotech 2014 was a major success, reported by Union Minister for Petroleum and Natural Gas, during the event s penultimate day. He also announced a major development on the Turkmenistan Afghanistan Pakistan India (TAPI) pipeline project, where the Minister shared that the framework was being readied on a fast-track basis by the four stakeholder nations. The main aim is to bring gas from Turkmenistan to India by 2017. Government Initiatives The expert appraisal committee of Ministry of Environment and Forests, Government of India, has given its approval to IOCL s Rs 43200.00 mn (US$ 718.56 million) liquefied natural gas (LNG) terminal project at Ennore, near Chennai. The proposed facility s capacity will be five million tonnes per annum (MTPA). The terminal is
expandable to 10 15 MTPA. This is part of the corporation s Rs 560000.00 mn (US$ 9.31 billion) investment plan during the 12th Five-Year Plan Period (2012 17). The Cabinet Committee on Investments (CCI) cleared projects worth Rs 79470.00 mn (US$ 1.32 billion) in the sector in December 2013. The projects involve companies such as Chennai Petroleum Corporation Ltd (CPCL), IOCL and HPCL. The Rs 23790.00 mn (US$ 395.72 million) Assam renewal project taken up by ONGC has also been cleared. The panel also gave the go-ahead to a Rs 52000.00 mn (US$ 864.88 million) worth LNG terminal project of Gujarat State Petroleum Corporation Ltd (GSPC) at Mundra.. Road Ahead The use of shale gas can be the first step in the road to economic freedom. The minister feels that the country could do something similar to the US, which became a net exporter of energy from a net importer of energy, on the back of shale gas and oil. By 2015 16, India s demand for gas is expected to touch 124 MTPA, as per projections of India s Petroleum and Natural Gas Ministry. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.
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