22 December 2017
Update
| Sector:
Oil & Gas
BSE SENSEX
33,940
S&P CNX
10,493
ONGC
Buy
CMP: INR188
TP: INR227(+21%)
Growth in gas production to continue
Key takeaways from our meeting with management
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 (%)
Gas production growth to continue
ONGC IN
12,833
212/155
3/11/-35
2,412.6
37.7
1,461
31.9
Financials Snapshot (INR b)
Y/E Mar
2017 2018E 2019E
Net Sales
1,421.5 1,509.3 1,742.5
EBITDA
470.6
640.0
743.4
PAT
210.8
244.6
290.7
EPS (INR)
16.4
19.1
22.7
Oil production to remain flat
Gr. (%)
20.8
16.1
18.9
WO26, B127 and Ratna are expected to increase oil production. Oil production
BV/Sh (INR)
172.4
179.0
187.0
from the nominated fields is expected to increase, while that from JVs is
RoE (%)
10.1
10.8
12.4
expected to decline. As a result, we expect flat oil production over FY18-20.
RoCE (%)
8.5
9.4
10.5
P/E (x)
11.4
9.8
8.2
Oil prices are expected to stabilize around current levels, led by normalization
P/BV (x)
1.1
1.0
1.0
of unplanned shutdowns and increased US production of oil from shale.
Shareholding pattern (%)
As On
Sep-17 Jun-17 Sep-16
Promoter
68.1
68.1
68.9
DII
13
12.1
11.9
FII
5
6
5.4
Others
13.9
13.9
13.8
FII Includes depository receipts
Stock Performance (1-year)
ONGC
Sensex - Rebased
270
230
190
150
Gas production growth over the near term is expected to be driven by the
Daman, C26, S1/Vashistha and Bassein fields. Gas produced from S1/Vashistha
is likely to command premium pricing.
Commencement of production from the KG-DWN-98/2 block could see some
delay from the earlier planned mid-2019. A total of 34 wells need to be drilled.
A total of three rigs are expected to be deployed, with each rig drilling one well
in three months.
ONGC had recently acquired a stake in GSPC’s KG basin block. Rig rates for this
block are being renegotiated, post which the fifth well would be drilled by the
company. A plan for further development would be charted after getting data
from the fifth well. We expect further delays in the project.
At current levels, the company does not expect subsidies to return; full
realization is expected to continue.
Reiterating Buy
Current price for gas production from difficult fields stands at USD6.3/mmBtu
(GCV) v/s USD2.89/mmBtu for APM gas. Gas production from S1/Vashistha and
KG-DWN-98/2 would fetch premium pricing, benefiting profitability. Cost-
control measures are also yielding results, in our view. Using Brent of
USD60/bbl, we estimate EBITDA of INR743b and EPS of INR22.7.
The ongoing valuation exercise for HPCL is a cause of concern. An unjustified
premium would be a double-whammy through holding company discount that
investors would attach to ONGC’s stake in HPCL.
The stock is trading at 8.2x its FY19E EPS. We value the stock at INR227, valuing
it at 10x average FY19-20E EPS, adjusted for other income. We reiterate our
Buy
rating on the stock. Our valuation includes a negative value of INR4 for its
stake in the Mozambique block. We also estimate that every USD5/bbl would
result in ~10% change in EPS.
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.
Swarnendu Bhushan – Research Analyst
(Swarnendu.Bhushan@MotilalOswal.com); +91 22 6129 1529
Abhinil Dahiwale – Research Analyst
(Abhinil.Dahiwale@motilaloswal.com); +91 22 6129 1566

ONGC
Exhibit 1: SOTP for ONGC
Valuation of ONGC
Average conso FY19-20 EPS
Average FY19-20 other income (INR bn)
Other income (INR/share)
Average FY19-20 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)
22.3
42.4
2.1
20.2
10.0
202
15
3
1
11
232
75
31
16
50
3
3.3
(4)
227
Source: MOSL, Company
Exhibit 2: 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
85.5
32.6
52.9
88.0
39.6
48.4
71.7
15.7
56.0
89.4
35.6
53.8
117.4
62.4
55.0
110.5
62.9
47.6
106.7
65.8
40.9
86.0
40.9
45.1
48.6
1.8
46.8
50.0
0.0
50.0
56.2
0.0
56.2
61.2
0.0
61.2
61.2
0.0
61.2
220
282
116
249
445
494
564
363
17
0
0
0
0
27.8
25.1
53.0
8.8
61.8
27.1
25.4
52.6
8.8
61.3
26.5
25.6
52.1
8.9
60.9
27.3
25.3
52.6
9.4
62.0
26.9
25.7
52.6
8.8
61.4
26.1
25.3
51.5
7.3
58.7
26.0
24.9
50.9
8.4
59.3
25.9
23.5
49.5
8.9
58.3
25.9
22.5
48.5
8.9
57.4
26.4
23.5
50.0
12.6
62.6
26.2
25.6
51.8
13.7
65.5
26.2
29.5
55.7
14.3
70.0
26.3
34.1
60.3
14.3
74.6
FY08
40.3
2.3
82.3
FY09
46.0
2
84.8
FY10
47.5
1.9
69.7
FY11
45.9
3.9
86.5
FY12
47.8
4.2
114.5
FY13
54.4
4.2
110.6
FY14
60.6
4.2
107.8
FY15
61.4
4.905
86.0
FY16
65.5
4.7
47.6
FY17 FY18E FY19E FY20E
67.1
3.1
49.0
64.7
3.0
55.4
65.5
3.5
60.0
65.5
3.8
60.0
Source: Company, MOSL
22 December 2017
2

ONGC
ONGC: Story in charts
Exhibit 1: Expect domestic production uptick in
coming years (mmt)
Domestic Oil Prodn (mmt)
52.6
25.7
51.5
25.3
50.9
24.9
49.5
23.5
48.5
22.5
Domestic Gas Prodn (bcm)
48.8
23.3
51.8
25.6
55.7
29.5
60.3
5.1
34.1
4.3
5.4
5.4
5.3
5.2
4.9
4.5
Exhibit 2: JV production to decline
JVs (mmtoe)
4.4
3.8
3.1
26.9
FY12
26.1
FY13
26.0
FY14
25.9
FY15
25.9
FY16
25.5
26.2
26.2
26.3
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17EFY18EFY19EFY20E
Source: Company, MOSL
FY17 FY18E FY19E FY20E
Source: Company, MOSL
Exhibit 3: OVL production to increase during FY18/19
Domestic Prodn (mmtoe)
61.4
8.8
58.7
7.3
59.3
8.4
58.3
8.9
OVL Production (mmtoe)
57.4
8.9
61.6
12.8
65.5
13.7
70.0
14.3
74.6
14.3
Exhibit 4: Increase in net realization (USD/bbl)
Net
117
62
111
107
86
63
66
41
2
55
FY12
48
FY13
41
FY14
45
FY15
47
FY16
49
0
50
50
56
0
56
61
0
61
0
61
61
Upstream Discount
Gross
52.6
51.5
50.9
49.5
48.5
48.8
51.8
55.7
60.3
FY12
FY13
FY14
FY15
FY16
FY17 FY18E FY19E FY20E
Source: Company, MOSL
FY17 FY18E FY19E FY20E
Source: Company, MOSL
Exhibit 5: ONGC: 1 Year forward P/E (x)
23.0
P/E (x)
Avg (x)
Max (x)
Min (x)
+1SD
-1SD
20.7
13.9
11.1
8.2
7.2
Mar-09
Jun-10
Sep-11
Dec-12
Mar-14
Jun-15
Sep-16
Dec-17
17.0
11.0
8.0
5.0
Dec-07
Source: Company, MOSL
22 December 2017
3

ONGC
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
2013
1,624,032
11.0
548,758
33.8
231,399
317,359
4,838
54,900
0
367,422
127,519
34.7
-2,294
242,196
242,234
-6.9
2014
1,744,771
7.4
590,270
33.8
250,690
339,580
6,243
68,937
2,423
404,697
127,604
31.5
1,465
275,628
262,235
8.3
2015
1,608,897
-7.8
546,538
34.0
289,844
256,694
28,624
59,644
-14,011
273,704
96,974
35.4
-6,606
183,335
183,638
-30.0
2016
1,356,642
-15.7
452,132
33.3
224,626
227,506
37,656
81,448
-79,433
191,865
69,507
36.2
-8,657
131,016
174,478
-5.0
2017
1,421,490
4.8
470,565
33.1
226,394
244,171
29,534
79,153
5,910
299,699
95,617
31.9
-10,702
214,783
210,759
20.8
2018E
1,509,281
6.2
640,039
42.4
265,252
374,787
38,905
49,694
0
385,576
136,380
35.4
4,594
244,601
244,601
16.1
2019E
1,742,527
15.5
743,358
42.7
289,640
453,718
46,200
51,175
0
458,694
162,242
35.4
5,716
290,735
290,735
18.9
(INR Million)
2020E
1,806,280
3.7
773,017
42.8
307,819
465,198
54,000
33,703
0
444,901
157,364
35.4
6,129
281,408
281,408
-3.2
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Minority Interest
Debt
Deferred Tax
Total Capital Employed
Net Fixed Assets
Capital WIP
Pre-producing & Producing Properties
Goodwill on consolidation
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Net Current Assets
Total Assets
2013
42,778
1,482,502
1,525,280
19,466
204,508
142,251
1,891,506
407,786
397,397
841,867
83,255
21,282
776,748
127,804
153,956
302,540
192,449
636,828
-162,620
1,891,506
2014
42,778
1,678,732
1,721,510
29,125
455,881
178,635
2,385,152
463,008
538,270
1,094,748
183,545
47,459
915,192
148,015
160,284
365,631
241,263
857,070
-307,509
2,385,152
2015
42,778
1,761,766
1,804,544
24,731
518,713
181,759
2,529,748
687,881
422,115
1,122,017
201,399
47,491
890,070
106,062
187,970
297,393
298,644
841,225
-248,548
2,529,748
2016
42,778
1,935,359
1,978,136
26,518
445,477
264,457
2,714,588
1,509,467
219,045
357,640
153,301
406,669
763,161
99,181
95,013
412,908
156,059
694,694
-344,442
2,714,588
2017
64,166
2,147,729
2,211,895
41,243
556,819
290,991
3,100,948
1,599,858
195,730
375,963
141,737
697,096
671,644
113,641
116,926
312,422
128,654
581,079
-221,858
3,100,948
2018E
64,166
2,233,491
2,297,657
45,837
740,000
290,991
3,374,485
750,957
234,886
1,350,455
141,737
697,096
850,318
117,223
106,489
486,358
140,249
650,964
-287,004
3,374,485
2019E
64,166
2,335,429
2,399,595
51,553
800,000
290,991
3,542,139
729,240
289,766
1,457,653
141,737
697,096
923,538
129,917
122,945
517,736
152,939
696,890
-291,089
3,542,139
(INR Million)
2020E
64,166
2,434,096
2,498,262
57,682
1,000,000
290,991
3,846,935
684,991
355,174
0
141,737
697,096
679,551
111,972
127,443
273,303
166,832
270,288
135,959
2,288,261
22 December 2017
4

ONGC
Financials and Valuations
Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
EV/BOE (USD, 1P basis)
Leverage Ratios (%)
Net Debt/Equity (x)
2013
18.9
36.9
118.9
6.3
38.9
2014
20.4
40.0
134.1
6.3
34.5
2015
14.3
36.9
140.6
6.3
53.2
13.1
5.1
1.3
1.6
4.8
3.4
10.4
9.1
10.4
0.6
42.6
10.4
0.1
2016
13.6
31.1
154.1
5.7
66.8
13.8
6.0
1.2
1.8
5.4
3.0
9.2
8.3
8.4
0.5
25.6
8.4
0.0
2017
16.4
34.1
172.4
7.6
52.5
11.4
5.5
1.1
1.9
5.6
4.0
10.1
8.5
9.3
0.5
30.0
9.3
0.1
2018E
19.1
39.7
179.0
10.6
64.9
9.8
4.7
1.0
1.8
4.1
5.7
10.8
9.4
12.6
0.4
25.8
12.6
0.1
2019E
22.7
45.2
187.0
12.6
64.9
8.2
4.1
1.0
1.5
3.6
6.7
12.4
10.5
14.7
0.5
25.8
14.7
0.1
2020E
21.9
45.9
194.7
12.2
64.9
8.5
4.1
1.0
1.7
4.0
6.5
11.5
9.6
13.2
0.5
25.8
13.2
0.3
3.4
16.8
15.0
20.2
0.9
34.6
20.2
-0.1
3.4
16.2
14.3
17.9
0.7
33.5
17.9
0.1
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
7,321
695,601
-416,305
279,296
-40,331
-13,220
-469,856
0
17,213
-127,442
-110,229
115,516
297,393
412,908
FY17
299,699
174,355
-95,617
-148,900
229,536
64,457
293,993
-259,754
34,239
-290,427
8,106
-542,074
0
111,342
-112,705
147,595
-100,486
412,908
312,423
FY18E
385,576
265,252
-136,380
55,188
569,636
0
569,636
-430,000
139,636
0
0
-430,000
0
183,181
-158,839
34,299
173,935
312,423
486,358
(INR Million)
FY19E
458,694
289,640
-162,242
-5,872
580,219
0
580,219
-430,000
150,219
0
0
-430,000
0
60,000
-188,797
-118,840
31,378
486,358
517,736
FY20E
444,901
307,819
-157,364
-437,005
158,351
0
158,351
-430,000
-271,649
0
0
-430,000
0
200,000
-182,741
27,216
-244,433
517,736
273,303
22 December 2017
5

Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
Motilal Oswal Securities Ltd. (MOSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock
broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed
public company, the details in respect of which are available on
www.motilaloswal.com.
MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock
Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Metropolitan Stock Exchange Of India Ltd. (MSE) for its stock broking activities & is Depository participant with Central Depository Services Limited
(CDSL) & National Securities Depository Limited (NSDL) and is member of Association of Mutual Funds of India (AMFI) for distribution of financial products. Details of associate entities of Motilal Oswal Securities Limited are
available on the website at
http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf
Pending Regulatory Enquiries against Motilal Oswal Securities Limited by SEBI:
SEBI pursuant to a complaint from client Shri C.R. Mohanraj alleging unauthorized trading, issued a letter dated 29th April 2014 to MOSL notifying appointment of an Adjudicating Officer as per SEBI regulations to hold
inquiry and adjudge violation of SEBI Regulations; MOSL requested SEBI to provide all documents, records, investigation report relied upon by SEBI which were referred in Show Cause Notice. The matter is currently
pending.
MOSL, it’s associates, Research Analyst or their relative may have any financial interest in the subject company. MOSL and/or its associates and/or Research Analyst may have beneficial ownership of 1% or more securities in
the subject company at the end of the month immediately preceding the date of publication of the Research Report.
MOSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a)
from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and
earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other
potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s),
as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL even though there might exist an inherent conflict of interest in some of the stocks mentioned in the
research report.
Research Analyst may have served as director/officer, etc. in the subject company in the last 12 month period. MOSL and/or its associates may have received any compensation from the subject company in
the past 12 months.
In the last 12 months period ending on the last day of the month immediately preceding the date of publication of this research report, MOSL or any of its associates may have:
a)
managed or co-managed public offering of securities from subject company of this research report,
b)
received compensation for investment banking or merchant banking or brokerage services from subject company of this research report,
c)
received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company of this research report.
d)
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ONGC
Disclosure of Interest Statement
Analyst ownership of the stock
ONGC
No
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