CMP 317.00

Target Price 358.00

ISIN: INE213A01029

FEB 26th

, 2013

OIL AND NATURAL GAS CORPORATION LTD

Result Update: Q3 FY13

BUYBUYBUYBUY

Stock Data

Sector Oil & Gas

BSE Code 500312

Face Value / Div. Per Share 5.00

52wk. High / Low (Rs.) 354.10/240.10

Volume (2wk. Avg ) 436000

Market Cap ( Rs in mn ) 2712099.84

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY12A FY13E FY14E

Net Sales 765163.90 828820.86 895126.53

EBITDA 441739.60 428086.78 464176.85

Net Profit 251229.20 234960.40 252210.21

EPS 29.36 27.46 29.48

P/E 10.80 11.54 10.75

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX ONGC LTD

SYNOPSIS

Oil and Natural Gas Corporation Limited

engages in the exploration, development,

production, and refining of oil and gas in

India and internationally.

ONGC has posted a net profit of Rs. 55627.20

million for the quarter ended December 31,

2012 as compared to Rs. 67414.10 million for

the quarter ended December 31, 2011.

Total Income has rose from Rs. 194753.00

million for the quarter ended December 31,

2011 to Rs. 223743.80 million for the quarter

ended December 31, 2012.

ONGC's chartered-hired ultra-deep water

drillship DDKG1 has set a world record for

drilling well in deepest water depth by an

offshore drilling rig.

ONGC has been ranked at 386 in the

Newsweek Green Rankings 2012 Global 500

list [15th among Global Energy majors]

published by the international magazine

Newsweek.

ONGC has declared an interim dividend of Rs.

5.00 per share (100%) amounting to Rs.

42780 mn.

Net Sales and PAT of the company are

expected to grow at a CAGR of 9% and 10%

over 2011 to 2014E 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 317.00 2712099.84 29.36 10.80 2.43 195.00

Indian Oil Corporation Ltd 295.50 719038.10 13.03 22.73 1.24 50.00

BPCL Ltd 373.80 269385.00 25.01 14.90 1.75 11.00

Reliance Industries Ltd 832.50 2683849.10 60.67 13.70 1.65 85.00

Investment Highlights

Results updates- Q3 FY13,

The company’s net profit falls to Rs.55627.20 million against Rs.67414.10 million in the corresponding quarter

ending of previous year, a decrease of 17.48%. Revenue for the quarter rose 13.91% to Rs.210932.10 million

from Rs.185171.30 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs.6.50 a share during the quarter, registering 17.48% decrease over previous year period.

Profit before interest, depreciation and tax is Rs.105533.90 millions as against Rs.151511.30 millions in the

corresponding period of the previous year.

Months DEC-12 DEC-11 % Change

Net Sales 210932.10 185171.30 13.91%

PAT 55627.20 67414.10 -17.48%

EPS 6.50 7.88 -17.48%

EBITDA 105533.90 151511.30 -30.35%

Expenditure :

Break up of Expenditure Rs. in Millions

Q3 FY13 Q3 FY12

Cost of Materials consumed 1559.90 1521.90

Depreciation 23416.50 22220.30

Employees Benefit Expenses 3460.70 3370.50

Other Expenditure 35157.40 31349.50

Statutory levies 57107.80 38705.30

Exploration cost written off 20696.50 23099.30

Purchase of Traded Goods 7.30 6.30

Latest Updates

� ONGC Videsh Limited (OVL), a 100% subsidiary company of Oil and Natural Gas Corporation Limited (ONGC),

is operator of an exploration block CPO-5 in Colombia in which it has 70% participating interest. The CPO-5

block is located on land in llanos basin of Colombia and is presently under phase 1 of exploration having

commitment of drilling 2 exploratory wells. The first of the two commitment wells i.e. Kamal-1X was spudded

on October 29, 2012 and drilled up to the target depth of 10,500 feet. Based on analysis of drilling and well

log data, two objects were released for production testing within the primary target horizon of Mirador

Formation. The first of the two objects, in the interval 9643-9649 feet, produced oil varying in rate from 120

BOPD to 300 BOPD through bean sizes of 24/64” and 64/64”. The oil is heavy in nature with API gravity of

about 14.

� ONGC's chartered-hired ultradeep water drillship DDKG1 has set a world record for drilling well in deepest

water depth by an offshore drilling rig. The rig DDKG1 has studded well NA7-1 in exploratory block KG-

DWN-2004/1 in east coast India at a water depth of 3165m (10,385 feet) on Jan 23, 2013.

� The De-Kastri Oil Terminal of Sakhalin-1 project (in which ONGC Videsh Limited has 20 percent stake)

located near the De-Kastri settlement in Ulchi District of Khabarovsk Krai, has bagged the Best Oil Terminal

Award of Russia in 2012.

� ONGC won three PSE Excellence Awards 2012 for "Best Financial Performance", "Best Corporate

Governance" and "Environmental Excellence & Sustainable Development" instituted by the Indian Chamber

of Commerce (ICC).

� ONGC has been ranked at 386 in the Newsweek Green Rankings 2012 Global 500 list [15th among Global

Energy majors] published by the international magazine Newsweek. The rankings provide cross-industry

framework for comparing the environmental commitment and performance of major companies.

� ONGC has declared an interim dividend of Rs. 5.00 per share (100%) amounting to Rs. 42780 mn.

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.

Subsidiary Companies

ONGC Videsh Ltd. (OVL), a wholly owned subsidiary of Oil and Natural Gas Corporation Ltd. (ONGC) was

rechristened on 15th June, 1989 from the erstwhile Hydrocarbons India Pvt. Ltd. which was incorporated on 5th

March, 1965. The authorised and paid-up share capital of OVL as on September 30, 2012 stood at ` 5,000 crore.

The primary business of the company is to prospect for oil and gas acreages abroad, which includes acquisition of

oil and gas fields in foreign countries as well as exploration, production, transportation and sale of oil and gas.

MRPL, a wholly owned subsidiary of Oil and Natural Gas Corporation Ltd. (ONGC), located in a beautiful hilly

terrain north of Mangalore city, is a State of Art Grassroot Refinery at Mangalore and is a subsidiary of ONGC. The

Refinery has got a versatile design with high flexibility to process Crudes of various API and with high degree of

Automation.

MRPL has a design capacity to process 15 million metric tonnes per annum and is the only Refinery in India to

have 2 Hydrocrackers producing Premium Diesel (High Cetane). It is also the only Refinery in India to have 2

CCRs producing Unleaded Petrol of High Octane.

Financial Highlight

Annual Profit & Loss Statement for the period of 2011 to 2014E

(A*- Actual, E* -Estimations & Rs. In Millions)

Value(Rs.in.mn) FY11 FY12 FY13E FY14E

Description 12m 12m 12m 12m

Net Sales 691773.00 765163.90 828820.86 895126.53

Other Income 25682.00 44790.30 55403.65 63160.16

Total Income 717455.00 809954.20 884224.51 958286.69

Expenditure -281584.30 -368214.60 -456137.73 -494109.85

Operating Profit 435870.70 441739.60 428086.78 464176.85

Interest -251.10 -348.30 -348.51 -372.90

Gross profit 435619.60 441391.30 427738.27 463803.95

Depreciation -159429.90 -74965.70 -84460.53 -92906.58

Profit Before Tax 276189.70 366425.60 343277.75 370897.37

Tax -86949.70 -115196.40 -108317.35 -118687.16

Net Profit 189240.00 251229.20 234960.40 252210.21

Equity capital 42777.60 42777.60 42777.60 42777.60

Reserves 924306.50 1075063.70 1310024.10 1562234.32

Face value 5.00 5.00 5.00 5.00

EPS 22.12 29.36 27.46 29.48

Quarterly Profit & Loss Statement for the period of 30 June, 2012 to 31 Mar, 2013E

Value(Rs.in.mn) 30-June-12 30-Sep-12 31-Dec-12 31-Mar-13E

Description 3m 3m 3m 3m

Net sales 201777.80 198850.90 210932.10 217260.06

Other income 10384.60 19011.30 12811.70 13196.05

Total Income 212162.40 217862.20 223743.80 230456.11

Expenditure -102478.60 -115956.20 -118209.90 -119493.03

Operating profit 109683.80 101906.00 105533.90 110963.08

Interest -293.10 -30.60 -12.10 -12.71

Gross profit 109390.70 101875.40 105521.80 110950.37

Depreciation -19975.70 -16481.00 -23416.50 -24587.33

Profit Before Tax 89415.00 85394.40 82105.30 86363.05

Tax -28638.00 -26428.70 -26478.10 -26772.55

Net Profit 60777.00 58965.70 55627.20 59590.50

Equity capital 42777.60 42777.60 42777.60 42777.60

Face value 5.00 5.00 5.00 5.00

EPS 7.10 6.89 6.50 6.97

Ratio Analysis

Particulars FY11 FY12 FY13E FY14E

EPS (Rs.) 22.12 29.36 27.46 29.48

EBITDA Margin (%) 63.01% 57.73% 51.65% 51.86%

PBT Margin (%) 39.92% 47.89% 41.42% 41.44%

PAT Margin (%) 27.36% 32.83% 28.35% 28.18%

P/E Ratio (x) 14.33 10.80 11.54 10.75

ROE (%) 19.57% 22.47% 17.37% 15.71%

ROCE (%) 61.56% 46.22% 37.89% 34.71%

Debt Equity Ratio 0.00 0.00 0.00 0.00

EV/EBITDA (x) 6.22 6.14 6.34 5.84

Book Value (Rs.) 113.04 130.66 158.12 187.60

P/BV 2.80 2.43 2.00 1.69

Charts

Outlook and Conclusion

� At the current market price of Rs.317.00, the stock P/E ratio is at 11.54 x FY13E and 10.75 x FY14E

respectively.

� Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.27.46 and

Rs.29.48 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 9% and 10% over 2011 to 2014E

respectively.

� On the basis of EV/EBITDA, the stock trades at 6.34 x for FY13E and 5.84 x for FY14E.

� Price to Book Value of the stock is expected to be at 2.00 x and 1.69 x respectively for FY13E and FY14E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.358.00 for Medium to Long term

investment.

Industry Overview

India is the world’s fourth largest consumer of primary energy and accounts for about 4.6 per cent of the world's

energy consumption after China, US and Russia.

Vandana Hari, Asia Editorial Director, Platts, believes that India’s tremendously growing energy demand has

made the country an energy leader on the global platform with more than 28 billion tonnes of prognosticated

reserves.

The Government of India's New Exploration Licensing Policy (NELP) launched in 1997-98 has garnered

investments over US$ 14 billion and has resulted in 87 oil and gas (O&G) discoveries. NELP has encompassed all

the ingredients of a favourable investment climate, fiscal stability, transparency of the rule of law, contract

stability, minimal policy induced uncertainties and a stable legal and regulatory framework.

The refining sector in India has also undergone a silent transformation wherein the country emerged as a major

export hub. With a refining capacity of 215 million metric tonnes per annum (MMTPA), exports of petroleum

products have now crossed 60 million tonnes (MT), raking-in revenues of about US$ 60 billion. ‘Petroleum

products’ have emerged as the single largest component of merchandise exports from India.

Production and Consumption – Key Statistics

The hydrocarbons sector is continuously undergoing changes and policy modifications are in-tune with them.

Natural gas is rapidly contributing to the energy requirements owing to commercial development of coal bed

methane, shale gas, underground coal gas and gas hydrates.

President Pranab Mukherji anticipates that natural gas usage will increase significantly in the years to come

while urging the need to connect various parts of India with gas pipelines so that economic benefits of natural

gas reach to all. The Government of India (GoI) is also lending full support to companies acquiring overseas O&G

assets and imports of liquefied natural gas (LNG).

Diesel & Petrol

• Petroleum products are India’s biggest export earner, fetching revenue of about US$ 59 billion annually.

Export of these products stood at 28.9 MT during April-September 2012, according to the petroleum

ministry’s data wing, the Petroleum Products Planning and Analysis Cell (PPAC).

• During 2011-12, the consumption of petroleum products was about 148 million metric tonne (MMT)

showing an import dependence of more than 75 per cent.

• Diesel consumption, which makes up for more than 40 per cent of the fuel sales, registered a growth rate

of 7.2 per cent at average 87, 000 barrels per day (b/d) in September and October 2012 wherein

automobile sector contributed majorly (as reflected in the sale of diesel vehicles).

Gas

India's shale gas reserves are at about 290 trillion cubic feet (TCF), of which 63 TCF could be recovered,

according to a study by US Energy International Agency. Shale gas is natural gas formed from being trapped

within shale formations.

Natural gas sector constitutes about 9.8 per cent of primary energy consumption which is projected to grow up

to 20 per cent by 2025 as per Indian Hydrocarbon vision. About 65 per cent of natural gas consumption is

accounted by power and fertiliser sectors. Petroleum and Natural Gas Regulatory Board chairman S. Krishnan

stresses on the need to evolve a strategy to meet significantly higher share of energy needs from natural gas and

take its contribution in the country’s energy basket from 9.8 per cent to 25 per cent in the medium term.

• The production of natural gas in India was 135 million metric standard cubic metres per day (MMSCMD)

during 2011-12.

Oil & Gas - Key Developments and Investments

• ONGC Videsh Ltd (OVL) has decided to invest around US$ 5 billion to acquire ConocoPhillips’ 8.4 per cent

stake in the Kashagan field off North Caspian Sea. The deal, marking OVL’s biggest acquisition ever, is

expected to be closed in the first half of 2013 and it would enable OVL venture into the largest oil-proven

North Caspian Sea of Kazakhstan

• Indian energy firms have earned honour by getting placed in the 2012 Platts Top 250 Global Energy

Company Rankings . Of the 12 Indian companies represented in the 250, six have managed to make it to

the top 50 fastest growing companies wherein Cairn India took the top slot as the fastest-growing

company not just in Asia but in the world. Indian companies were much ahead in both categories - the

independent power producers (IPP) and gas utility - with NTPC Ltd and GAIL (India) topping their

respective regional segments, Platts ranking indicated

• Public sector Bharat Petroleum Corporation Ltd (BPCL) plans to infuse a capital outlay of Rs 45, 000

crore (US$ 8.26 billion) over 2012-17 to enhance its refining capacity and upstream operations. The

company seems to be very up-beat about its Mozambique discovery and intends to monetise the gas finds

by proposing to set up two LNG plants of 5 million tonnes per annum (MTPA) capacity each. BPCL is also

expanding its Kochi Refinery at a cost of over Rs 20, 000 crore (US$ 3.67 billion) wherein the capacity

would boost from 9.5 MTPA to 15.5 MTPA and the company would diversify into the petrochemical

sector to manufacture niche products

• India’s premier oil exploration and production company, ONGC, plans to invest Rs 11 lakh crore (US$

201.83 billion) between 2013 and 2030 and expects to produce 130 MT of oil and oil equivalent

hydrocarbons in 2030. The company would use its assets abroad to meet half of its requirements to

accomplish this goal while a substantial part of the investments would go into exploring ‘domestic, yet-to-

find’ reserves

• Reliance Industries Ltd and Venezuelan state oil company Petroleos de Venezuela, SA have inked a 15-

year heavy crude oil supply deal along with a memorandum of understanding (MoU) according to which

the two partners would further develop Venezuelan heavy oil fields. RIL is to explore upstream options

for joint participation in heavy oil projects of the Orinoco Oil Belt, according to the MoU.

RIL is estimated to invest around US$ 8 billion to develop the oil fields and it is contemplating to invest

about US$ 20 billion from 2012-13 till 2015-16 on sectors including petrochemicals and refining

• NYSE-listed Marsh & McLennan Companies’ Indian subsidiary Marsh has launched its insurance broking

and risk management services for India's energy sector. The company, which deals in insurance broking

and risk management, is targeting the increasing risk and insurance needs of the Indian O&G sector

Oil & Gas - Government Initiatives

India has been very active in O&G exploration and production activities on the global front and the Government

has played vital role in sustaining the country’s strategic position.

India and Canada have mutually agreed to share efforts in energy sector, particularly exports of Canadian oil and

natural gas as well as renewable energy cooperation while Iraq is set to become India’s strategic energy partner.

On the similar lines, Indian companies have been invited by the Government of Turkmenistan to explore

hydrocarbon at its Caspian Offshore region. Indian companies that expressed interest over the proposal include

ONGC Videsh and GAIL (India). Kakageldy Abdullaev, Acting Minister of Oil and Gas Industry and Mineral

Resources of Turkmenistan held discussions with India's Petroleum Minister S. Jaipal Reddy over the same.

Further, India has also evinced interest to set up fertiliser and petrochemical units in Mozambique.

The Indian Government is planning to incentivise energy firms to explore and produce natural gas domestically

by extending them similar fiscal incentives which are currently available to only crude oil producers, President

Pranab Mukherjee said. Currently, tax incentives are given for crude oil production while similar fiscal

concessions are denied to gas producers.

Jaipal Reddy has also informed that before India launches its tenth bidding round of O&G exploration blocks by

the end of 2012, the Government would implement a more investor friendly regime - both for investment and

from point of view of pricing. The modulations would be based on the recommendations made by the Rangarajan

committee, which is analysing existing production sharing contracts and matters related to pricing of gas.

Oil & Gas - Road Ahead

Majorly driven by transportation and industrial sectors, demand for oil is anticipated to surge immensely by

2020 while domestic power and fertiliser industries are projected to drive the demand for natural gas in the

country. Given the recent exploration and development efforts undertaken in India, domestic production of O&G

is expected to increase substantially. Furthermore, development of technologies enabling efficient use of fossil

fuels coupled with use of renewable energy sources could help in filling the demand-supply gap for O&G. The

Government has already started taking initiatives to reduce the country’s dependence on imports by encouraging

exploration of alternate fuel sources such as coal bed methane (CBM), gas hydrates, hydrogen fuel cell, and

blending of bio-fuels.

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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