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ONGC: Forex gains boost performance
Aug 14, 2012

Oil and Natural Gas Corporation (ONGC) has announced results for the first quarter of financial tear 2012-13 (1QFY13). The topline registered an increase of 23.9% year on year (YoY) during the quarter and bottomline was up by 48.4% YoY. Here is our analysis of the results.

Performance summary
  • Topline was up by 23.9% YoY during the quarter.
  • The operating profits were up by 40.4% YoY during the quarter with margins at 49.2% (versus 43.4% in 1QFY12).
  • The company registered 48.4% YoY growth in the bottomline during the quarter with net profit margins at 30.1% versus 25.0% in 1QFY12.
  • The gross realizations for the quarter stood at US$ 109.89 per barrel, down from US$ 121.21 per barrel in 1QFY12 and US$ 121.64 per barrel in the previous quarter (4QFY12). In rupees terms, the gross realizations registered a growth of 9.8% YoY during the quarter.
  • The net realizations for the quarter stood at US$ 46.62 per barrel down from US$ 48.74 in 1QFY12, versus US$ 44.32 per barrel in the previous quarter (4QFY12). In rupees terms, the net realizations registered a growth of 15.9% YoY.
  • The overall under recovery discount for the quarter stood at Rs 123.5 bn, up 2.5% YoY.

Rs m  1QFY12 1QFY13 Change 
Sales  162,894 201,778 23.9%
Expenditure  92,179 102,479 11.2%
Operating profit (EBDITA)  70,715 99,299 40.4%
Operating profit margin (%)  43.4% 49.2%  
Other income  8,395 10,385 23.7%
Interest  40.1 293.1 630.9%
Depreciation  18,365 19,976 8.8%
Profit before tax  60,704 89,415 47.3%
Profit before tax margins (%)  37.3% 44.3%  
Tax  19,755 28,638 45.0%
Profit after tax 40,949 60,777 48.4%
Net profit margin (%)  25.1% 30.1%  
No. of shares    8,555  
Diluted earnings per share (Rs)*    31.7  
P/E ratio (x)*    9.0  

What has driven performance during 1QFY13?
  • The company registered a 23.9% YoY increase in the revenues. This was on account of higher sales realizations on crude oil and gas and value added products and favourable forex rate movement. The net realizations in rupee terms were up 15.9% YoY. The gross revenues of ONGC were down by Rs 123.5 bn on account of discounts offered to the state run oil refiners.

  • The operating income (EBITDA) for the quarter registered a growth of 4.9% YoY with margins at 49.2% as compared to 43.4 % in 1QFY12. The overall costs (as a% of sales) declined mainly due 47.5% YoY fall in exploration costs written off. However, the statutory levies and 'Other costs' were up by 41.2% YoY and 13.0% YoY respectively.

    Cost breakup
    Rs m 1QFY12 1QFY13 Change
    Raw materials 789 2,702 242.4%
    as a % of sales 0.5% 1.3%  
    Staff expenses 3,098 3,304 6.7%
    as a % of sales 1.9% 1.6%  
    Statutory levies 37,306 52,679 41.2%
    as a % of sales 22.9% 26.1%  
    Other costs 28,127 31,787 13.0%
    as a % of sales 17.3% 15.8%  
    Exploration costs written off 22,859 12,006 -47.5%
    as a % of sales 14.0% 5.9%  
    Total expenses 92,179 102,479 11.2%
    as a % of sales 56.6% 50.8%  

  • The growth in the bottomline was mainly on account of high crude prices and foreign exchange fluctuations. The company benefitted from sharp rupee depreciation (it prices its locally produced gas in dollar terms). The company could not benefit from high crude prices as the growth was offset on account of the discounts offered by ONGC to state run oil refining companies. The impact of these discounts reduced net profits by Rs 71.5 bn. The net income was also boosted by high interest and dividend income (up 42.8% YoY) which in turn gained from increase in average rates of interest (10.21% from 8.99%).

What to expect?
While the bottomline has registered an impressive growth this quarter, the lack of clarity regarding subsidy sharing mechanism remains an overhang on the company's future performance. In a recent development, the company has made a fresh discovery at the D1 offshore field off India's western coast . The initial estimates suggest that the discovery would boost in place reserves at the field to 142 million tonnes of oil equivalent (MToE), from 82 MToE currently. The management has given guidance of capex of Rs 331 bn. It plans to raise crude oil production by 15% to 28 MToE by March 2014. Through continuous efforts and oil recovery techniques, ONGC has been able to reduce the decline rate from 7%-8% to 2%-3%. At the current stock price, ONGC is trading at a Price to Earnings multiple of 9. We are in the process of reviewing our estimates and will update our subscribers very soon.

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