Change in Estimates Rating Target Net sales fall 8.8% yoy owing to lower net realizations of crude oil and lower gas production Discount on crude oil fell.% yoy and.% qoq to US$60.8/bbl Natural gas realization was at Rs9,7/tscm v/s Rs9,0/tscm in Q FY1 For upstream contribution towards under recoveries is at 7% and share among upstream companies is at 8.% We maintain our BUY rating with a 9month target price of Rs80 as we see additional rerating room as reforms are yet to play out completely Result table (Rs m) Q FY1 % yoy Q1 FY1 % qoq Net sales 0,78,17 (8.8) 18,1 (6.) Purchases (Trading) (10) (8) 0.7 (8) 1.0 Raw material (,60) (1,188) 0. 78 (9.8) Personnel costs (,9) (,7).0 (,067) 1.1 Statutory levies (,98) (8,) (6.) (8,71) (6.) Other overheads (,97) (9,8) (17.) (9,977) 8.1 Operating profit 109,11 11,06 (9.6) 16,918 (1.8) OPM (%)..0 (9) bps 8.1 (7) bps Depreciation (,66) (,97) (.9) (6,898) (1.7) Interest (1) (1).6 (1) 7.7 Other income 1,609 1,80 (8.) 8,9.0 PBT 79,6 90,891 (1.7) 71,970 10. Tax (,907) (0,) (17.7) (,1).1 Effective tax rate (%) 1...6 Adjusted PAT,9 60,68 (10.) 7,818 1.9 Adj. PAT margin (%) 6.6 7.1 () bps 1.9 7 bps Ann. EPS (Rs). 8. (10.). 1.9 Net sales below expectations owing to lower net realizations Oil and Natural Corporation Ltd () reported 8.8% yoy fall in net sales to Rs0bn (including income from operations). This was lower than our expectations with net crude oil realizations coming in lower than estimates. Crude oil production was down 0.9% yoy on the back of.7% yoy decrease in crude oil production from JV fields and sharp fall in condensate production from nominated blocks of. Crude oil production from the nominated fields was flat on yoy basis while being up 1% sequentially. Fall in production at JV fields was due to fall in production at Cairn s Rajasthan field where the company has 0% stake. Gas production was down by 8.7% yoy as production from nominated fields was down 8.% yoy while JV production was lower by 1.% yoy. Crude oil revenues declined 9.% yoy and 7.1% qoq driven by fall in net realizations. Net realizations on sales volumes of crude oil from nominated blocks fell to US$1./bbl as compared to US$.8/bbl in Q FY1. Gas segment revenues fell 8.9% yoy and 6.% qoq mainly on the back of fall in production and sales volumes. Revenues for the VAP segment saw muted growth of 0.9% yoy and 1.6% qoq. On yoy basis, 6.% fall in CC revenues was offset by 9.% increase in LPG revenues. This report is published by IIFL India Private Clients research desk. IIFL has other business units with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc. The views and opinions expressed in this document may at times be contrary in terms of rating, target prices, estimates and views on sectors and markets. Rating: Sector: Sector view: Oil & Gas Positive Sensex: 8,07 Week h/l (Rs): 7 / 6 Market cap (Rscr) : 6, 6m Avg vol ( 000Nos):,887 Bloomberg code: IS BSE code: 001 NSE code: FV (Rs): Prices as on Nov 1, 01 Share price trend 0 170 10 Sensex 70 Nov1 May1 Nov1 Share holding pattern BUY Target: Rs80 CMP: Rs9 Upside:.1% Mar1 Jun1 Sep1 Promoters 68.9 68.9 68.9 Institutions 17. 17. 17.6 Others 1. 1.6 1. Research Analyst: Prayesh Jain research@indiainfoline.com November 17, 01 Result Update
() Subsidy burden at Rs16bn Subsidy incidence at Rs16bn was significantly higher than our estimates. As per the government notification for subsidy sharing pattern, the total upstream contribution was at Rs16bn. For upstream contribution to total under recoveries was at 7%. During, s contribution to the upstream subsidy share was at 8.% as compared to 8.% in Q FY1. OPM below expectations on back of higher subsidy burden During, saw 9.6% yoy decline in operating profit leading to a fall of 9bps yoy in OPM to.%. The key reason for the fall was lower realizations of crude oil. Resultantly, statutory levies as a percentage of sales, particularly cess which is priced in absolute terms and was higher by 16bps as a percentage of net sales. Other income was lower by 8.% yoy owing to fall in income from short term deposits. Depreciation and depletion was lower by.9% yoy owing to 7.6% yoy fall in dry well write offs and 1.% decline in depreciation. Trend in crude oil production and sales Trend in gas production and sales 8 mn tons Crude production Crude sales 7 bcm Gas production Gas sales 7 6 6 1 Q FY09 Q FY09 Q FY09 Q FY10 Q FY10 Q FY10 Q FY11 Q FY11 Q FY11 Q1 FY1 Q FY1 Q FY1 Q FY1 Q1 FY1 Q FY1 Q FY1 Q FY1 Q1 FY1 Q FY1 Q FY1 Q FY1 Q1 FY1 1 Q FY09 Q FY09 Q FY09 Q FY10 Q FY10 Q FY10 Q FY11 Q FY11 Q FY11 Q1 FY1 Q FY1 Q FY1 Q FY1 Q1 FY1 Q FY1 Q FY1 Q FY1 Q1 FY1 Q FY1 Q FY1 Q FY1 Q1 FY1 Trend in subsidy discount and net realization Trend in subsidy burden 10 10 US$/bbl Gross crude price Net crude price 180,000 160,000 10,000 Rs mn 100 10,000 80 100,000 60 0 0 Q FY09 Q FY10 Q FY11 Q1 FY1 Q FY1 Q1 FY1 Q FY1 Q1 FY1 Q FY1 Q1 FY1 80,000 60,000 0,000 0,000 Q FY09 Q FY10 Q FY11 Q1 FY1 Q FY1 Q1 FY1 Q FY1 Q1 FY1 Q FY1 Q1 FY1 Cost Analysis As a % of net sales Q FY1 bps yoy Q1 FY1 bps qoq Raw materials 1.8 0. 1 (0.) 10 Personnel Costs..0 1.9 7 Statutory levies 6.7 6.0 67 6.7 (1) Other overheads 1.8 17. (167) 1.7 1 Total costs 6. 6.0 9 1.9 7
() Key takeaways from the conference call The company has given the following targets for production: Production targets FY1 FY16 Oil (MT)..0 Gas (BCM).0. JV Oil (MT).6.8 Gas (BCM) 1. 1. OVL Oil (MT).6. Gas (BCM).1.1 With regards to the KG Deepwater block the company apprised that the FDP is under progress and will be submitted to the company by the third party by March 01. Also the DGH has cleared the DoC. The field is expected to commence production in FY19 and scale up to peak levels in FY1 wherein oil production would be at 90,000bbl/day and gas production would be at mmscmd. For FY1, the company has lined up a capital expenditure plan of Rs60bn for both FY1 and FY16. For OVL the company has lined up US$1.6bn. The D1 block is currently producing 1,000bbl/day and is expected to reach 0,000bbl/day by March 01. For FY16, the company expects,000bbl/day. The increase in production will come from 1) increase at D1, ) Daman development project (gas), ) Redevelopment of Mumbai High North (approved), ) Redevelopment of Mumbai High South, which is in pipeline. Maintain BUY has traded at a steep discount to its global peers over the past few years on the back of issues such as 1) subsidy burden and ) government controlled gas prices (which are much lower than industry levels). However, of late government is trying to set right these issues by taking measures such as 1) partial deregulation of diesel prices, ) capping of sale of subsidised LPG cylinders and ) raising gas prices. These steps, we believe, will lead to rerating of towards its global peers. We have cut our estimates to factor in the delay in gas price hike but we maintain our BUY rating with a 9month price target of Rs80.
() Financial summary (Consolidated) Y/e 1 Mar (Rs m) FY1 FY1 FY1E FY16E Revenues 1,6,86 1,7,666 1,980,86,161,0 yoy growth (%) 10. 7. 1. 9.1 Operating profit 9,00 8,1 666,886 786,196 OPM (%).8..7 6. Preexceptional PAT,196 6,06 0,878 80,81 Reported PAT,196 6,06 0,878 80,81 yoy growth (%) (1.9) 9. 1.. EPS (Rs) 8. 1.0.8. P/E (x) 1.9 1.7 11.0 8.8 Price/Book (x)..0 1.8 1.6 EV/EBITDA (x) 6. 6... Debt/Equity (x) 0.1 0. 0.1 0.1 RoE (%) 16.8 16. 17.0 18.8 RoCE (%) 0.8 18.6 18. 0.
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