ONGC’s gross realizations for crude during 4QFY08 stood at $100.4/ barrel while net realizations were $49.7/bbl ($35.6/bbl). Net realizations were impacted by higher subsidy sharing ($50.7/bbl) with the Oil Marketing Companies (OMCs).
However, it was still higher than 4QFY2007 realizations, which aided 26% y-o-y jump in standalone revenues to Rs15,626 crore (Rs12,397 crore), which exceeded our expectations. Subsidy sharing increased a substantial 81.5% y-o-y to Rs8,472 crore (Rs4,668 crore) owing to the sharp surge in oil prices during the quarter.
We believe that domestic production is set to improve marginally over the next 2-3 years while OVL would be the prime growth driver for ONGC. Higher contribution from MRPL is expected post its refinery expansion.
The government’s directive of capping upstream share of subsidy at Rs45,000 crore for FY09 is a positive for the upstream players. This translates into ONGC’s share at about Rs38,000 crore in FY09, which is significantly higher than FY08.
We expect some revision in ONGC’s natural gas prices during FY2009, which will help it improve its Earnings. The stock is currently available at 8x FY2010E EPS of Rs108.1. We maintain a BUY, with a revised target price of Rs1,135 (Rs1,115).