Edelweiss Research on ONGC

ONGC’s Q3 FY10 revenues were up 23.1 per cent y-o-y to Rs 15,310 crore on account of higher crude prices and realisations on value added products, and lower subsidy. Core profit increased 23.4 per cent y-o-y and declined 40 per cent q-oq, to Rs 3,050 crore, lower than estimates.
In line with crude prices, ONGC’s gross crude realisation for the nominated crude increased 29.9 per cent y-o-y and 8.7 per cent q-o-q to $76.7/bbl. The company bore a subsidy burden of Rs 3,497 crore for Q2 FY10, implying a discount of $18.97/bbl. Net realisations were up 69.7 per cent y-o-y and 2.3 per cent q-o-q, to $57.7/bbl. Standalone crude production and sales declined 4.5 per cent y-o-y (6.64 MMT) and 0.9 per cent y-o-y (5.65 MMT). However, natural gas production and sales were up marginally. Quarterly earnings were below estimates on higher recouped costs and lower other income, which are non-recurring. Consequently, PAT estimates for FY10 have been reduced and some of the parts valuation has also been revised downwards to Rs 1,354 a share. At Rs 1,140, ONGC is trading at P/E of 9.7x and 9.4x its FY11 and FY12 estimated earnings and 4.9x and 4.6x its estimated EV/Ebidta, respectively