8 May 2017
Update
| Sector:
Oil & Gas
BSE SENSEX
29,859
S&P CNX
9,285
ONGC
Buy
CMP: INR183
TP: INR233 (+27%)
Crude price dip an opportunity to buy
Demand growth to tighten oil prices in 2HCY17
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
ONGC IN
12,833
212/133
-1/-7/12
2,442.3
35.7
1438
31.9
Financials Snapshot (INR b)
Y/E Mar
FY17E FY18E
1408
1683
Sales
549
689
EBITDA
196
257
NP
15.3
20.0
EPS (Rs)
12.2
31.1
EPS Gr. (%)
150
158
BV/Sh. (Rs)
10.4
13.0
RoE (%)
9.0
10.8
RoCE (%)
12.0
9.2
P/E (x)
1.2
1.2
P/BV (x)
EV/EBITDA (x)
5.2
4.2
Div. Yield (%)
4.3
5.6
Brent has declined by ~5% to a five-month low due to concerns on oversupply, led
by production growth in the US.
However, compliance by OPEC has been strong at 98% since January 2017. Russia
has also been complying, though not fully. Both OPEC and non-OPEC have resolved
to continue with production cuts beyond the current mandate.
This coupled with demand growth of 1.4mnbopd in 2017 is expected to result in
tightening of oil prices in 2HCY17.
Assuming Brent of USD55/60/bbl in FY18/19, we estimate ONGC’s EPS at
INR20.3/22.9. Every USD5/bbl change in oil price causes ~10% change in EPS.
Valuing the stock at 10x FY19E EPS and adding the value of investments, we arrive
at a target price of INR233 (unchanged). Buy.
FY19E
1905
801
294
22.9
14.5
167
14.1
11.6
8.0
1.1
3.6
6.4
Brent declines to five-month low
Since September 2016, US oil production has been steadily increasing by an
average of 0.08mnbopd every month.
From 8.9mnbopd in 2016, US oil production is expected to rise to 9.2mnbopd
in 2017 and to 9.9mnbopd in 2018.
As a result, despite almost full OPEC compliance and partial non-OPEC
compliance, Brent has declined to USD47/bbl.
However, demand growth a strong 1.4mnbopd
Shareholding pattern (%)
As On
Dec-16 Sep-16 Dec-15
Promoter
68.9
68.9
68.9
DII
11.7
11.9
11.5
FII
5.8
5.4
6.0
Others
13.6
13.8
13.6
Note: FII Includes depository receipts
Stock Performance (1-year)
ONGC
Sensex - Rebased
220
200
180
160
140
120
Unlike 2009, when oil demand fell by 1.2mnbopd, oil demand is expected to
grow at 1.4mnbopd in 2017.
For a balanced market, demand for OPEC crude oil production is 33.1mnbopd,
which is slightly higher than current production of 32.6mnbopd by OPEC. If
OPEC and non-OPEC maintain their production cuts in 2HCY17, it would result
in a tighter demand-supply, in turn resulting in higher oil prices.
According to International Energy Agency (IEA), global oil and gas discoveries
have declined to a 70-year low due to reduced expenditure. This would have a
further positive impact on oil prices.
Reiterate Buy on ONGC
Our recent note
highlighted cost efficiencies and expected growth in oil and
gas production for ONGC.
Assuming Brent of USD55/60/bbl in FY18/19, we estimate EPS at
INR20.3/22.9. Every USD5/bbl change in oil price causes ~10% change in EPS.
Valuing the stock at 10x FY19E EPS and adding the value of investments, we
arrive at a target price of INR233 (unchanged). We reiterate
Buy.
Swarnendu Bhushan
(Swarnendu.Bhushan@MotilalOswal.com); +91 22 6129 1529
Abhinil Dahiwale
(Abhinil.Dahiwale@MotilalOswal.com); +91 22 6129 1566
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.

ONGC
Exhibit 1: Brent declines despite production cuts by OPEC & non-OPEC
Change in OPEC quota (m bopd)-LHS
2.0
1.0
0.0
(1.0)
(2.0)
(3.0)
A total of 4.2mnbopd of production cut
resulted in Brent doubling within six months
Brent (USD/bbl)-RHS
Even non-OPEC countries like Russia & Mexico agreed for
0.6mnbopd cut in addition to 1.2mnbopd cut by OPEC
145.0
115.0
85.0
55.0
25.0
Source: Bloomberg, OPEC, MOSL
Exhibit 2: Global demand–supply to be tight in 2HCY17
Global demand
250
200
150
100
50
0
Non-OPEC supply
OPEC NGLs
OPEC Crude oil supply
For a balanced market, call for OPEC crude oil supply is 33.1mnbopd, slightly higher than current
production of 32.6mnbopd. If OPEC (& Russia) extend production cut, then oil prices are likely to rise
Exhibit 3: US oil production has jumped since October 2016
11.0
9.8
8.5
7.3
6.0
Since Oct'16, US oil production has increased by
average of 0.08mnbopd every month
U.S. Crude Oil Production (mnbopd)
From 8.9mnbopd in 2016, production is expected to rise to
9.2mnbopd in 2017 and to 9.9mnbopd in 2018
Source: IEA, MOSL
Exhibit 4: Global exploration expenditure in 2017 to decline to lowest since 2005
Source: Wood Mackenzie, MOSL
8 May 2017
2

ONGC
Valuation and view
ONGC is finally set to increase its gas production at 10-15% annually for the next
five years according to the management.
The stock is currently trading at 8.0x FY19E EPS and at an EV of 3.6x FY19E
EBITDA. We value the company at 10x (unchanged) FY19E EPS, to which we add
INR21/share as the value of listed investments and investment in Mozambique.
Our target price of INR233 implies an upside of 27%. We reiterate
Buy.
Exhibit 5: SOTP for ONGC
Valuation of ONGC
Conso FY19 EPS
FY19 Other income (INR bn)
Other income (INR/share)
FY19 EPS excluding other income (INR)
PE (x)
Valuation of ONGC conso (INR/share)
Listed investments
Indian Oil Corporation
Petronet LNG
GAIL
MRPL
Total valuation
Valuation of Mozambique
Recoverable reserves (tcf)
Valuation of block (USD bn)
ONGC's stake (%)
Discount rate (%)
Valuation for ONGC (USD mn)
Value paid (USD bn)
Valuation for ONGC (INR/share)
Valuation of ONGC (INR/share)
22.9
34.0
1.7
21.2
10.0
212
12
3
1
9
237
75
31
16
50
3
3.3
(4)
233
Source: MOSL, Company
Exhibit 6: ONGC: Key assumptions
Y/E March 31 (INR m)
Exchange Rate (INR/USD)
APM Gas Price (USD/mmbtu)
Brent crude price (USD/bbl)
Production Details (mmtoe)
Domestic Oil Prodn (mmt)
Domestic Gas Prodn (bcm)
Domestic Prodn (mmtoe)
OVL Production (mmtoe)
Group Production (mmtoe)
Subsidy Sharing (INRb)
ONGC Subsidy
Oil Price Realization (USD/bbl)
Gross
Upstream Discount
Net
FY07
45.3
2
64.5
27.9
24.9
52.8
8.0
60.7
170
66.3
22.1
44.2
FY08
40.3
2.3
82.3
27.8
25.1
53.0
8.8
61.8
220
85.5
32.6
52.9
FY09
46.0
2
84.8
27.1
25.4
52.6
8.8
61.3
282
88.0
39.6
48.4
FY10
47.5
1.9
69.7
26.5
25.6
52.1
8.9
60.9
116
71.7
15.7
56.0
FY11
45.9
3.9
86.5
27.3
25.3
52.6
9.4
62.0
249
89.4
35.6
53.8
FY12
47.8
4.2
114.5
26.9
25.7
52.6
8.8
61.4
445
117.4
62.4
55.0
FY13
54.4
4.2
110.6
26.1
25.3
51.5
7.3
58.7
494
110.5
62.9
47.6
FY14
60.6
4.2
107.8
26.0
24.9
50.9
8.4
59.3
564
106.7
65.8
40.9
FY15
61.4
4.905
86.0
25.9
23.5
49.5
8.9
58.3
363
86.0
40.9
45.1
FY16
65.5
4.7
47.6
25.9
22.5
48.5
8.9
57.4
17
48.6
1.8
46.8
FY17E FY18E FY19E
67.1
68.5
70.0
3.1
2.9
3.2
49.0
55.0
60.0
26.4
23.5
50.0
12.6
62.6
0
50.0
0.0
50.0
26.2
25.6
51.8
14.3
66.2
0
56.1
0.0
56.1
26.2
29.5
55.7
14.3
70.1
0
61.2
0.0
61.2
Source: Company, MOSL
8 May 2017
3

ONGC
Exhibit 7: Valuation of global peers – ONGC is undervalued compared to its global peers
20
Oil Search
16
Inpex
12
8
4
0
0.0
5.0
10.0
PE (x)
Source: Company, MOSL
15.0
20.0
25.0
Santos
PTTEP
CNOOC
Woodside
Average
Statoil
Encana
Canadian Natural
Resources
Devon
Southwestern
ONGC
8 May 2017
4

ONGC
ONGC: Story in charts
Exhibit 8: Expect domestic production uptick in
coming years (mmt)
Domestic Oil Prodn (mmt)
Domestic Gas Prodn (bcm)
55.7
5.1
4.3
5.4
5.4
Exhibit 9: JV production to decline
JVs (mmtoe)
5.3
5.2
52.1 52.6 52.6 51.5 50.9 49.5
51.8
48.5 50.0
4.9
4.9
25.6 25.3 25.7 25.3 24.9 23.5 22.5 23.5 25.6 29.5
4.4
3.8
26.5 27.3 26.9 26.1 26.0 25.9 25.9 26.4 26.2 26.2
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Source: Company, MOSL
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Source: Company, MOSL
Exhibit 10: OVL production to increase during FY18/19…
OVL Production (mmtoe)
70.1
66.2
62.6
60.9 62.0 61.4 58.7 59.3 58.3
57.4
14.3
14.3
8.9 9.4 8.8 7.3 8.4 8.9
12.6
8.9
Domestic Prodn (mmtoe)
Exhibit 11: …leading to increase in net realization (USD/bbl)
Net
117
89
72
16
56
36
62
63
66
Upstream Discount
111
107
86
41
49
2
54
55
48
41
45
47
50
56
61
50
56
61
Gross
52.1 52.6 52.6 51.5 50.9 49.5 48.5 50.0 51.8 55.7
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Source: Company, MOSL
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Source: Company, MOSL
Exhibit 12: ONGC: 1-year forward P/E (x)
22
18
14
10
6
2
10.3
12.0
11.3
P/E (x)
15 Yrs Avg(x)
5 Yrs Avg(x)
10 Yrs Avg(x)
Source: Company, MOSL
8 May 2017
5

ONGC
Financials and Valuations
Consolidated - Income Statement
Y/E March
Total Income from Operations
Change (%)
Government Levies
Other Operating Costs
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
EO Items
PBT after EO Exp.
Total Tax
Tax Rate (%)
Minority Interest
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY13
1,624,032
11.0
256,886
818,387
1,075,274
66.2
548,758
33.8
231,399
317,359
4,838
54,900
367,422
0
367,422
127,519
34.7
-2,294
242,196
242,234
-6.9
14.9
FY14
1,744,771
7.4
261,893
892,607
1,154,500
66.2
590,270
33.8
250,690
339,580
6,243
68,937
402,274
2,423
404,697
127,604
31.5
1,465
275,628
262,235
8.3
15.0
FY15
1,608,897
-7.8
255,065
807,294
1,062,360
66.0
546,538
34.0
289,844
256,694
28,624
59,644
287,715
-14,011
273,704
96,974
35.4
-6,606
183,335
183,638
-30.0
11.4
FY16
1,292,975
-19.6
0
841,408
841,408
65.1
451,567
34.9
241,590
209,977
21,573
100,669
289,073
-61,894
227,179
84,170
37.0
1,771
141,238
174,478
-5.0
13.5
FY17E
1,407,966
8.9
0
859,386
859,386
61.0
548,581
39.0
244,428
304,153
37,078
45,245
312,320
0
312,320
110,469
35.4
6,085
195,766
195,766
12.2
13.9
FY18E
1,682,920
19.5
0
994,138
994,138
59.1
688,782
40.9
273,581
415,201
43,200
34,010
406,010
0
406,010
143,608
35.4
5,696
256,706
256,706
31.1
15.3
(INR Million)
FY19E
1,904,630
13.2
0
1,103,660
1,103,660
57.9
800,971
42.1
324,031
476,940
46,200
33,974
464,714
0
464,714
164,372
35.4
6,351
293,991
293,991
14.5
15.4
Consolidated - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Minority Interest
Total Loans
Deferred Tax Liabilities
Capital Employed
FY13
42,778
1,482,502
1,525,280
19,466
204,508
142,251
1,891,506
1,234,978
827,192
407,786
83,255
397,397
841,867
21,282
776,748
127,804
153,956
302,540
192,449
636,828
373,384
263,445
139,920
1,891,506
FY14
42,778
1,678,732
1,721,510
29,125
455,881
178,635
2,385,152
1,408,679
945,671
463,008
183,545
538,270
1,094,748
47,459
915,192
148,015
160,284
365,631
241,263
857,070
543,502
313,568
58,122
2,385,152
FY15
42,778
1,761,766
1,804,544
24,731
518,713
181,759
2,529,748
1,712,933
1,025,052
687,881
201,399
422,115
1,122,017
47,491
890,070
106,062
187,970
297,393
298,644
841,225
490,837
350,388
48,845
2,529,748
FY16
42,778
1,804,666
1,847,443
25,067
535,926
203,553
2,611,989
1,701,114
1,205,496
495,619
176,432
685,950
1,183,722
87,822
920,649
100,897
96,865
405,588
317,299
938,206
528,837
409,369
-17,557
2,611,989
FY17E
64,166
1,861,117
1,925,284
31,152
700,000
203,553
2,859,988
2,028,949
1,281,423
747,526
176,432
572,295
1,231,042
87,822
640,776
111,844
99,340
199,026
230,565
595,905
318,493
277,413
44,870
2,859,988
FY18E
64,166
1,963,189
2,027,355
36,848
740,000
203,553
3,007,756
2,172,811
1,421,482
751,330
176,432
614,742
1,341,211
87,822
672,368
124,359
118,740
186,773
242,497
636,149
352,645
283,505
36,219
3,007,756
(INR Million)
FY19E
64,166
2,080,086
2,144,252
43,200
800,000
203,553
3,191,005
2,300,326
1,570,586
729,740
176,432
643,778
1,439,734
87,822
794,928
135,640
134,383
272,331
252,575
681,430
391,224
290,206
113,498
3,191,005
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Goodwill on Consolidation
Capital WIP
Pre & Producing Properties
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
8 May 2017
6

ONGC
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
FCF per share
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Fixed Asset Turnover (x)
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Net Debt/Equity
FY13
18.9
36.9
118.9
6.3
38.9
FY14
20.4
40.0
134.1
6.3
34.5
FY15
14.3
36.9
140.6
6.3
53.2
13.2
5.1
1.3
1.6
4.8
3.4
-0.8
10.4
9.1
10.4
0.9
0.6
24
43
111
1.1
9.0
0.1
FY16
13.6
32.4
144.0
5.7
62.0
13.9
5.8
1.3
2.0
5.7
3.0
21.2
9.6
8.3
8.3
0.8
0.5
28
27
149
1.0
9.7
0.0
FY17E
15.3
34.3
150.0
7.9
60.2
12.0
5.3
1.2
2.0
5.2
4.3
-20.6
10.4
9.0
11.5
0.7
0.5
29
26
83
1.1
8.2
0.2
FY18E
20.0
41.3
158.0
10.3
60.2
9.2
4.4
1.2
1.7
4.2
5.6
7.1
13.0
10.8
13.0
0.8
0.6
27
26
76
1.1
9.6
0.2
FY19E
22.9
48.2
167.1
11.8
60.2
8.0
3.8
1.1
1.5
3.6
6.4
14.9
14.1
11.6
14.3
0.8
0.6
26
26
75
1.2
10.3
0.2
3.4
1.9
16.8
15.0
20.2
1.3
0.9
29
35
84
1.2
65.6
-0.1
3.4
-6.5
16.2
14.3
17.9
1.2
0.7
31
34
114
1.1
54.4
0.0
Consolidated - Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
Others
CF from Investments
Issue of Shares
Inc/(Dec) in Debt
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
FY13
367,422
120,942
-124,257
-11,710
352,397
94,606
447,003
-422,802
24,201
10,698
11,524
-400,580
2,038
-2,678
-110,021
-117,532
-71,109
373,649
302,539
FY14
394,134
233,219
-105,667
42,031
563,718
-31,014
532,704
-615,655
-82,951
-20,671
14,467
-621,859
1,782
247,223
-97,624
152,246
63,091
302,539
365,631
FY15
273,704
269,009
-90,292
-115,768
336,653
3,433
340,086
-350,957
-10,871
0
47,997
-302,960
-23
1,603
-94,953
-105,364
-68,238
365,631
297,393
FY16
273,897
307,994
-68,207
174,596
688,280
0
688,280
-416,305
271,975
-40,331
-13,220
-469,856
0
17,213
-127,442
-110,229
108,195
297,393
405,587
FY17E
312,320
244,428
-110,469
-280,313
165,965
0
165,965
-430,000
-264,035
0
-10,064
-440,064
21,389
164,074
-117,925
67,538
-206,561
405,587
199,026
(INR Million)
FY18E
406,010
273,581
-143,608
-14,927
521,056
0
521,056
-430,000
91,056
0
11,325
-418,675
0
40,000
-154,634
-114,634
-12,253
199,026
186,773
FY19E
464,714
324,031
-164,372
-3,046
621,327
0
621,327
-430,000
191,327
0
11,325
-418,675
0
60,000
-177,094
-117,094
85,558
186,773
272,331
8 May 2017
7

Disclosures
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NOTES
NOTES
Disclosure of Interest Statement
Analyst ownership of the stock
No
Served as an officer, director or employee -
No
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