2 September 2020
1QFY21 Results Update | Sector: Oil & Gas
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
TP: INR105 (+31%)
Volumes back to normal levels; KG basin production faces delay
1009.6 / 13.7
150 / 52
Financials & Valuations (conso) (INR b)
Adj. EPS (INR)
EPS Gr. (%)
Div. Yield (%)
FCF Yield (%)
2020 2021E 2022E
ONGC’s 1QFY21 oil and gas sales were in line with estimates along with net crude
oil price realization, thus resulting in in-line revenues. However, lower other
expenditure led to an EBITDA beat during the quarter.
Offtake of crude oil by refineries from ONGC was not affected. However, there
was a reduction in gas production due to less off-take by some customers, which
has now been restored to normal levels.
Production guidance in FY21 for oil stood at ~22.7mmt and for gas at ~24.9bcm.
OPEC+ managed production cuts well (in line with demand), as various economies
globally came out of the lockdowns. Thus, crude oil prices hovered around
~USD45/bbl over the last two months. Starting Aug’20, OPEC+ also eased
production cuts by 2mnbopd (to 7.7mnbopd).
Global demand is expected to reach ~97% of pre-COVID levels in the next quarter
(Oct-Dec’20). We have built in crude oil price forecast of ~USD45/bbl for 2HFY21
and we expect prices to remain stable around current levels in the medium term.
ONGC has guided that KG basin will see some delay in production as many vendors
have enforced force majeure. Despite domestic gas price ceiling declining, KG
basin’s production would not be impacted.
Despite the delay, ONGC is expected to grow its gas production in FY22E, with
efforts to arrest the decline in oil production from age-old fields (accounting for
60-70% of the total oil production). Maintain Buy.
EBITDA beat on lower other expenditure
Shareholding pattern (%)
Jun-20 Mar-20 Jun-19
FII Includes depository receipts
Net oil realization stood at USD28.7/bbl (v/s est. USD30.0/bbl and
USD66.3/bbl in 1QFY20). Net sales were in line at INR130b (-51% YoY).
EBITDA stood at INR59b (v/s est. +26%, -61% YoY), on lower other
expenditure. This was primarily due to lower travelling/employee cost,
lower statutory levies and cess, and lower feedstock gas prices at Dahej
ONGC believes that DD&A may remain at the same levels but other costs
may decline significantly, led by various cost cutting measures.
Tax was higher at 45.1% (v/s est. 33.3%), due to further provisioning of
Service Tax/GST on Royalty as contingent liability. The matter is listed for
hearing in the second week of Sep’20 before the Honorable High Court of
Rajasthan. Thus, PAT stood at INR5b (in-line, -92% YoY).
ONGC had MAT credit of ~INR50b at end-FY20. The company would take a
decision on moving to the new tax regime by Dec’20, after evaluating crude
prices over the next couple of months and its impact on tax.
Crude sales came in at 5.2mmt (in-line, -3% YoY, -5% QoQ), with production
down ~4% YoY to 5.7mmt.
Gas sales stood at 4.2mmt (v/s est. -5%, -15% YoY, -9% QoQ), with
production down ~14% YoY to 5.6bcm.
VAP sales stood at 680tmt (-29% YoY, -21% QoQ).
Operational parameters for 1QFY21
Swarnendu Bhushan- Research Analyst
Sarfraz Bhimani - Research Analyst
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.