ONGC’s Q1FY09 results surpassed our estimates on both the revenue and PAT front owing to the highest-ever net crude realization of $69.4/ barrel ($50.3/ bbl) as against our estimate of $60/ barrel.
Gross realizations were up substantially during the quarter to $125.8/ barrel ($71.9/ barrel) on the back of a sudden surge in international crude oil prices.
During the recently concluded quarter, ONGC’s crude oil production remained flat at 6.84mmt (6.88mmt) while natural gas production increased by 4.8% year-on-year (y-o-y) to 6.39bcm (6.10bcm).
The company also shared the highest-ever subsidy burden of Rs9,811 crore with the Oil Marketing Companies (OMCs).
Going forward, the government has capped the upstream sharing at Rs45,000 crore for FY09, which translates into ONGC’s share of around Rs38,500 crore.
We believe the upstream burden will remain at this level during FY09 and will benefit ONGC. However, any tweaking in the upstream share will impact ONGC’s performance. At the current market price, the stock is available at 9.1x FY2010E consolidated EPS of Rs108.1. We maintain BUY on the counter, with a target price of Rs1,135.