ONGC Ltd. - HDFC securities

ONGC Ltd.

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Initiating Coverage

ONGC Ltd. . 06-October-2020

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Industry LTP Recommendation Base Case Fair Value Bull Case Fair Value Time Horizon

Exploration & Production Rs. 69.2 Buy on dips to Rs.64-66 band and add more on dips to Rs.59.5-61.5 band Rs. 73.9 Rs. 79.0 2 quarters

Our Take: The Government is looking to provide a package of measures to help domestic oil producers pull through the price crash and the uncertainty in the global oil market. The government is formulating a structure to give Indian upstream companies some relief in royalty and cess along with other reliefs. ONGC incurs cost of production at US$ 45/barrel. This includes 10-12.5% royalty to centre on offshore production and 20% royalty to state government on onshore production, 20% ad valorem OID (Oil Industry Development) cess. Any relief in this regard could be positive for ONGC to add to its profitability.

A unified tariff proposed by the Petroleum and Natural Gas Board (PNGRB) in respect of the pipelines forming part of the national gas grid system will encourage more pipelines and boost gas demand. The PNGRB has sought stakeholders’ views for fixing a uniform tariff for Zone 1 of the pipeline, which comprises the first 300 km. The rest of the grid system comprises Zone 2.

ONGC’s acquisition of a majority stake in HPCL, is a defining move, one that significantly transforms ONGC’s downstream portfolio. While ONGC in itself remains committed to excellence in the upstream business, HPCL fits well into the group’s integrated energy strategy. HPCL will provide the company, a pure-play refining and marketing edge with an extensive retail presence (over 16,500 outlets) in the country, entailing significant diversification benefits.

Valuations & Recommendation: ONGC enjoys a dominant market position in the domestic crude oil and natural gas production business with large proven reserves, globally competitive cost structure, and stable performance of its subsidiary ONGC Videsh Ltd. (OVL). Company also has excellent financial flexibility arising from its moderate gearing, large liquid investments, its significant sovereign ownership and strategic importance. However, subdued oil prices, low domestic gas prices and high dividend payout could impact its cash accruals going forward. Although oil prices have recovered, they are still at low levels. Low oil and gas prices and the Government of India’s recent gas pricing mechanism are adverse for ONGC, which will affect ONGC’s profitability.

Investors could buy the stock on dips to Rs.64-66 band (5.0xFY22E EPS plus current value of listed investments after 25% haircut) and add more on dips in Rs.59.5-61.5 band (4.5x FY22E EPS plus current value of listed investments after 25% haircut). Base case fair value of the stock is Rs 73.9 (6.0xFY22E EPS plus current value of listed investments after 25% haircut) and the bull case fair value of the stock is Rs 79

HDFC Scrip Code OILNAT

BSE Code 500312

NSE Code ONGC

Bloomberg ONGC IN

CMP Oct 05, 2020 69.2

Equity Capital (Rscr) 6292.0

Face Value (Re) 5.0

Eq- Share O/S (cr) 1258.4

Market Cap (Rscrs) 87055.5

Book Value (Rs) 164.5

Avg. 52 Wk Volumes 1095217

52 Week High 149.7

52 Week Low 50.0

Share holding Pattern % (June, 2020)

Promoters 60.4

Institutions 25.5

Non Institutions 14.1

Total 100.0

Fundamental Research Analyst Abdul Karim [email protected]

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(6.5xFY22E EPS plus current value of listed investments after 25% haircut) over the next 2 quarters. At the CMP of Rs 69.2 the stock trades at 5.5xFY22E EPS plus current value of listed investments after 25% haircut. Financial Summary (Consolidated)

Particulars (Rs Cr) Q1FY21 Q1FY20 YoY-% Q4FY20 QoQ-% FY19 FY20 FY21E FY22E

Total Operating Income 62496.1 109545.8 -42.9 104489.0 -40.2 4,53,460.6 4,25,001.4 3,29,382.1 3,75,775.3

EBITDA 8278.4 16915.3 -51.1 -5389.8 -253.6 83,864.7 61,168.7 41,175.9 56,279.9

Depreciation 5847.9 5757.9 1.6 6771.8 -13.6 33,246.9 35,658.3 29,727.1 30,565.8

Other Income 1079.4 1812.9 -40.5 3824.0 -71.8 6,557.8 -496.9 -487.0 -477.3

Interest Cost 1497.7 1519.4 -1.4 2191.3 -31.7 5,836.7 6,999.8 7,751.1 9,373.9

Tax 922.2 4330.8 -78.7 -3952.3 -123.3 20,880.2 7,508.0 1,338.2 6,611.6

RPAT 119.8 6771.0 -98.2 2839.0 -95.8 30,458.7 10,505.7 1,872.5 9,251.4

Diluted EPS (Rs) 0.1 5.4 -98.1 -4.9 -102.0 27.7 14.4 2.4 8.3

RoE-% 16.5 8.5 1.4 5.1

P/E (x) 2.5 4.8 29.2 8.4

EV/EBITDA 2.3 3.4 6.2 4.5

(Source: Company, HDFC sec)

Q1FY21 Result Review ONGC Ltd reported below expectation numbers in Q1FY21, consolidated net profit was down by 98.2 per cent YoY to Rs 119.8 crore. Its revenue from operations dropped 42.9 per cent YoY to Rs 62496.1 crore. Its revenue and net profit have been impacted by lower crude price realization due to Covid-19 fall out on global oil and gas industry. Lower gas prices also contributed to lower revenue as well as profitability.

For nomination fields, the net realised price of crude declined 53 per cent in a year to Rs 2,179 per barrel during the quarter. For joint venture fields, the price was 52 per cent lower. The gas price during the quarter was also down 35 per cent from a year earlier to $2.39 per mmBtu.

Crude oil production in the Q1FY21 fell 3.5per cent to 5.66 million metric tonnes and gas output declined 14per cent to 5.54 billion cubic meters.

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Recent Triggers Strong Operating Metrics

On standalone basis, ONGC has consistently reported a healthy reserve replacement ratio of over 1x over the last 14 years with an average reserve life of 15 years, indicating the sustainability of the producing reserves.

Company made 12 discoveries – 7 onshore and 5 offshore. 2P Reserve accretion stood at 53.21 Million tonne oil equivalent (MMTOE) with a Reserve Replacement Ratio (RRR) of 1.19. Now, Company is equally focused on timeline of monetization and count or volume of the discoveries.

ONGC’s field discovery costs remained low, averaging around USD3.072/mmbtu over the past. However, ONGC’s annual production at a standalone level (excluding JVs) declined to 44.6mmtoe in FY20 (FY19: 45.9mmtoe) driven by a fall in crude production to 20.7mmtoe (21.1mmtoe).

ONGC has high reliance on offshore assets with Mumbai High Field and Basin Gas Field assets contributing a bulk to the oil and gas production, respectively. Given the vintage of the assets, the fields are witnessing a natural decline and ONGC is making efforts through enhanced oil recovery/improved oil recovery activities to keep the production at similar levels.

On a consolidated level, the production declined to 63.2mmtoe in FY20 (FY19: 64.9mmtoe) largely due to lower crude production in ONGC Videsh Ltd. (OVL) of 9.8mmtoe (10.1mmtoe and in JVs of 2.6mmtoe (3.1mmtoe) due to the cuts taken by OPEC+ to balance the demand-supply gap during the outbreak of COVID-19 and the subsequent lockdown.

Focus on expanding its exploration network could help to generate revenue going forward With the imposition of lockdown, onshore operations of ONGC were hampered in a few places but have since been restored. Further, as against the budgeted capex of about Rs 32,000 crore for FY21, there would be some reduction post review to optimise and rationalize. In FY20, its capex stood at Rs 29538.5 crore. Over the last 5 years, Company’s cumulative E&P spend is close to Rs 150,000 crore. Recently, ONGC and NTPC Ltd. have signed a Memorandum of Understanding (MoU) to set up a joint venture company for the renewable energy business. OVL has large capex plans for the exploration and development of its existing blocks as well as acquisition of participating interests in new properties. The large capital expenditure plan of OVL would entail incurrence of new project implementation risks and additional debt.

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Some of its Projects under Implementation Project Name Completion Date Project Cost. Rs in Cr

Pipeline Replacement Project-VI Dec-20 763.9

Mumbai High North Redevelopment Phase-IV Mar-22 3228.8

Heera Re-development Phase-III Project May-22 2494.7

Long term Triggers Established PSU in oil and gas industry in India with continued support from the government as well as experienced management ONGC is a Maharatna PSU in which Government of India (GOI) holds 60.4% stake, as on June 30, 2020. ONGC is the country’s largest oil and gas producer and ONGC's domestic production including share of production in fields operated through joint ventures represented 72.6% and 79.85% of India’s total production of crude oil and natural gas respectively for the FY20. It is also a significant producer of value-added products such as liquefied petroleum gas (LPG), superior kerosene oil (SKO) and naphtha. As a key largest oil & gas company of India, ONGC is ensuring energy security in India. ONGC continues to have a strategic importance for the GoI. Apart from this, ONGC plays an important role in execution of the Government’s policies the oil & gas sector, with its presence across the hydrocarbon value chain. ONGC’s significance to the GoI is further supported on account of the substantial dividend and taxes paid by it to the exchequer. ONGC is managed by an experienced team of management. The current Chairperson and Managing Director of the company, Mr Shashi Shanker, is a Petroleum Engineer from Indian School of Mines (ISM), Dhanbad and an MBA in Finance, and has a diverse and rich experience of over 35 years in oil and gas industry. He is also Chairman and Managing Director on the Board of ONGC Videsh Ltd. He is also the Director (In-charge) and Member of the High Powered Steering Committee for Government’s flagship initiative ’Make-in-India’. Mr Subhash Kumar, Director (Finance), Fellow Member of ICMAI and also Associate Member of ICSI. He has an experience of over 3 decades in oil and gas industry. Mr Rajesh Kakkar, Director (Offshore), has more than three and a half decades of experience in the various aspects of operations and management in both offshore and onshore fields. Furthermore, the other senior management of the company has vast experience in the oil and gas industry.

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Dominant market position in E&P, diversified portfolio and wide infrastructure led by technical capabilities ONGC is India’s largest oil and gas E&P Company having maintained its leadership position and continues to maintain its position even after the introduction of New Exploration and Licensing Policy (NELP) and thereafter Hydrocarbon Exploration and Licencing Policy (HELP). NELP and HELP has increased private participation in the oil and gas sector in India. ONGC has the largest proven reserves in India discovered over the past six decades. The large reserves base provides the company an abundant and stable long-term source of hydrocarbons for crude oil and natural gas production. The company has declared 12 new discoveries (seven onshore, five offshore) in FY20 and three further discoveries (one onshore, two offshore) in Q1FY21. On standalone basis, ONGC was able to maintain the Reserve Replacement Ratio (RRR) of more than 1 in FY20 for the 14th consecutive year thereby reflecting ONGC’s strong exploratory performance over the years. Apart from its E&P activities, ONGC has presence across the hydrocarbon value chain with operations in refining, petrochemicals, and LNG. ONGC has integrated forward into downstream refining and marketing operations in India through successive acquisitions of Mangalore Refinery and Petrochemicals Ltd (MRPL) and Hindustan Petroleum Corporation Ltd (HPCL). Around 75% of revenue of ONGC (consolidated) is from refining and marketing segment. Oil & gas industry is a capital intensive industry and it requires large funds as well as time to develop an infrastructure. With its long track record of operations, ONGC has been engaged in development of a robust infrastructure providing it an edge over newer players in the industry. ONGC has developed significant onshore and offshore production facilities, subsea and land pipelines, gas processing, drilling and work-over rigs, storage facilities and other infrastructure located throughout the principal oil and gas-producing regions of India. ONGC (standalone) drilled 500 wells in FY20 as against 516 wells in FY19. Aggressive domestic as well as overseas expansion plans ONGC’s average Capex (standalone) per annum has been in the range of Rs 30,000 to Rs 32,000 crore with about 23-25 % expenditure on development drilling, 23-25% expenditure on exploration drilling, 38-40% expenditure on capital projects and balance 10- 12% on surveys, R&D, integration and JVs. The same trend is expected to continue in the ensuing years. However, it is expected that there would be some reduction in Capex in FY21 as against budgeted Capex of around Rs 32,000 crore as the Company has undertaken a comprehensive review of its Capex plan for optimization and rationalization. On a consolidated level, OVL has large Capex plans to fulfil its mission of 60 MMTOE by 2030.

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Over the long term, OVL’s mission is to produce 60 million metric tonne per annum (MMTPA) by 2030, through both organic and inorganic initiatives. This strategy would, however, expose OVL to significant event, geological, execution and geo-political risks in the host countries. One however draws comfort from the safeguards built in the three-tier approval process (vetting by OVL’s Board, ECS and CCEA) for overseas acquisitions. OVL also sets the hurdle rate for acquisitions after factoring in the geo-political risks inherent in the host country, and its status as a GoI company helps it obtain feedback from the Government’s diplomatic network. Recently commissioned, OPAL, the largest dual-feed ethylene cracker in Asia, could be very profitable due to secured feedstock supply - naphtha from ONGC’s Hazira/Uran plant and C2/C3/C4 from rich fraction of Dahej LNG.

Sound financial profile impacted in FY20

ONGC’s financial profile remained comfortable in FY20 and Company enjoys high financial flexibility that allows it to raise debt and access capital markets at competitive rates to fund its capex and working capital requirements.

On a consolidated basis, the total income from operation was down by 6.3 per cent to Rs 425,001.4 crore in FY20 on account of both lower crude oil & natural gas production and reduction in realisations. EBITDA and PAT margin deteriorated from 18.5 per cent in FY19 to 14.5 per cent in FY20 and 7.7 per cent in FY19 to 4.3 per cent in FY20 respectively.

On a consolidated basis, overall gearing deteriorated as on March 31, 2020 to 0.5x as on March 31, 2020 from 0.45x as on March 31, 2019 owing to higher borrowings viz. term loans, and finance lease.

Interest coverage ratio also declined from 8.7x in FY19 to 3.6x in FY20, owing to increase in interest expenses due to higher borrowings and lower EBITDA.

ONGC’s liquidity profile is expected to remain strong, aided by healthy cash flow generation and sizeable cash and cash equivalents (Rs 11,049 crore as on March 31, 2020). Company has made strong dividend payout of 50 per cent in FY20, with dividend yield at 10.1 per cent.

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Debt to Equity(x) Interest Coverage Ratio (x)

Oil Price Outlook:

Crude Oil WTI Fut-US$/bbl Natural Gas Price-US$/mbtu

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Crude prices have declined sharply owing to the Covid-19 pandemic. Even post lifting of lockdowns the prices are expected to be weighed down by high inventory levels and a prolonged global economic recovery. Nevertheless over the long term prices are expected to recover owing to an increasingly active role by OPEC+ in managing prices as well as demand recovery.

What could go wrong? The unprecedented event of COVID-19 has affected the company’s operations and is likely to impact the overall business in near term.

If the Covid-19 disruption lasts longer than anticipated, the growth of the company will get further disrupted. Also due to supply chain disruptions, timelines for key projects like KG gas block have been pushed back.

Economic slowdown, volatility in oil and gas prices and regulatory changes in Oil and Gas industry could impact its growth story in the future. The changing macro-economic scenario can have an impact on the growth plan of the Company.

E&P business is highly capital intensive activity and has long gestation period with high uncertainty with respect to estimation of reserves. The success of E&P activities depends on quality of the available data engineering, geographies, geologies and geopolitical interpretation. Adverse outcome or failure on E&P project could bring cost burden and impact its profitability.

ONGC has been experiencing decline in production in its mature fields over the past. Company has launched improved oil recovery (IOR) and enhanced oil recovery (EOR) programs to increase the production as well as the recovery factor. Going forward, replacing reserves and growing production while maintaining a favourable cost structure could remain a key challenge for ONGC.

ONGC’s Oil production could remain flat over FY20–23, gas production is likely to rise after the KG-98/2 basin is fully operational from end-CY21/beginning FY22.

ONGC’s revenue is derived from the sale of crude oil and ONGC face crude price volatility related risk. Prices of crude oil depends on various factors including policies by OPEC, global as well as regional demand variations, geopolitical situations and market sentiments. The crude price (Brent) has fallen sharply since March 2020 touching USD 19/bbl in April 2020, however, crude prices have recovered to the level of around $40/bbl now. Any decrease in the price of the crude oil could impact the profitability of the company. For ONGC, every $1 a barrel change in prices of crude oil, natural gas, and other products has an impact of close to ₹ 6,000 crore on its revenue.

On a BoE basis, gas contributes 42% of ONGC’s production volumes. Gas contribution is likely to grow, as domestic gas production is increasing, while crude production continues to decline. Thus, a reduction in gas prices hurts ONGC the most.The GoI’s decisions with respect policies such as natural gas pricing (APM Mechanism), subsidy sharing, and dividend payments have a significant bearing on ONGC’s profitability and cash flows. The lower gas prices act as a deterrent for investments in and monetisation of gas fields, as gas production costs from newer blocks is estimated to be over USD5/mmbtu compared to the average breakeven cost of public sector

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upstream companies, given they also have nominated blocks under their purview. As per reports, India is considering a floor price for natural gas produced from local fields by pegging the price to the popular benchmark Japan-Korea Marker that is used for LNG tariff in North Asia with a discount. The implementation of a floor price could lead to an increase in the price, even after factoring in a discount of $1/mmBtu to the Japan-Korea Marker price. The current Japan-Korea Marker price is close to $5 per mmBtu. India could phase out price controls in natural gas and make it market-linked over time.

Company’s overseas subsidiary OVL’s investments suffer from geopolitical risks as some of the invested countries have a history of unstable regimes, resource nationalisation, changes in fiscal laws, etc. OVL also faces hurdles in acquisitions after factoring in the geo-political uncertainty in the host country. However, its status as a GoI company helps it obtain feedback from the Government’s diplomatic network.

ONGC incurs significant capex every year on exploration, development, and purchase of capital assets. Delay in project could Impact its earning visibility. Additionally, in FY18 the company acquired GSPC’s KG basin asset as well as GoI’s stake in HPCL, which has depleted its cash reserves.

On Oct 01, 2020, the government contracted gas price by a steep 25 per cent. The reduction in gas price to USD 1.79 per metric million British thermal unit (mmBtu) from USD 2.39 is credit negative for upstream companies such as ONGC as it will lower their revenue from gas sales. The average cost of gas production for the country's largest public-sector oil company ONGC is about $3.7/mmBtu, much higher than the new regulated price of natural gas at $1.79/mmBtu.

OVL’s investment in its Mozambique assets may require sharp writedown. Dilution of Govt.’s stake in ONGC could be an overhang on the stock. However recent indications from the Government of India suggest

that it is unlikely to divest its stake in PSUs like ONGC, as divestment via ETFs has hurt ONGC’s stock performance.

Company Profile: Oil and Natural Gas Corporation Ltd. (ONGC) is the largest crude oil and natural gas Company in India, contributing around 75 per cent to Indian domestic production. ONGC is a Maharatna PSU, with the GoI holding 60.41% stake in the company as on June 30, 2020. ONGC is engaged in the oil exploration, development, and production of crude oil and natural gas and supplies crude oil, natural gas, and value-added products, such as petrol, diesel, kerosene, naphtha, and cooking gas-Liquefied Petroleum Gas, to major Indian oil and gas refining and marketing companies.

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ONGC has a unique distinction of being a company with in-house service capabilities in all areas of E&P of oil & gas and related oil-field services. Company undertakes exploration and production activities in 17 other countries such as Azerbaijan, Kazakhstan, Myanmar, Vietnam, Iran, Iraq, Israel, Syria, UAE, Libya, Mozambique, South Sudan etc. through its wholly-owned subsidiary ONGC Videsh Limited (OVL). Its international subsidiary OVL’s primary business is to prospect for oil and gas acreages outside India, including exploration, development and production of oil and gas. It has integrated downstream activities in India with two subsidiaries viz. Mangalore Refinery & Petrochemicals Ltd. (MRPL) and Hindustan Petroleum Corporation Ltd. (HPCL) with combined capacity of over 31 million metric tons per annum (MMTPA) refinery and extensive network of over 15,000 retail outlets. ONGC has dedicated team of 33500 employees across the world. Peer Comparison

Company CMP Rs. Mar Cap Rs.Cr. EPS 12M Rs. Div Yld % ROE % OPM % Debt / Eq P/E P/BV EV/EBITDA

O N G C 69.2 86992.6 3.3 7.2 7.9 11.5 0.6 6.0 0.4 3.8

Oil India 88.7 9618.7 27.6 12.0 13.2 19.4 0.4 3.2 0.3 4.0

Operating Metrics Reserve Accretion (2P) (MMtoe) Crude Oil Production (MMT)

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Natural Gas Production (BCM) Value Added Product’s Production (KT)

Well Drilled (Nos)

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Sales Volume Particulars Units FY14 FY15 FY16 FY17 FY18 FY19 FY20

Crude Oil (MMT) MMT 23.61 24.11 24.15 23.86 23.67 22.5 21.34

Natural Gas (MMM3 MMM3 19633 17983 17100 17935 19494 20485 19423

LPG (000' Tonnes) 0000, Ton 1073 1090 1191 1352 1186 1109 1011

Naphtha/ARN(000' Tonnes) 0000, Ton 1379 1124 1065 1087 1180 1154 1177

Ethane-Propane (C2-C3)/Ethane/Propane / Butane (000' Tons) 0000, Ton 428 337 401 673 914 1192 1225

Superior Kerosene Oil (000' Tonnes) 0000, Ton 85 74 66 43 34 71 55

Sales Volume (Rs in Cr)

Rs in cr FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Crude Oil(Including Condensate) 53326.9 52573.4 53663.8 51131.6 54803.6 60389.9 77572.9 64836.3

Natural Gas (incl. Gas Marketing Margin) 16540 18329.1 18738.1 18223.9 13939.8 13737.2 18838.9 19355.6

Liquified Petroleum Gas (LPG)- Domestic Market 3148.4 3014.5 3438 3495.1 3727.6 4035.2 4349 3603.8

Ethane-Propane (C2-C3)/Ethane/ Propane / Butane 1344 1483.7 1006.4 944.1 1726.4 2422.6 3259 3255.1

Naphtha 7680.4 7574.3 5083.5 3060.9 3045.5 3808.4 4686.1 3986.3

Kerosene (SKO) 368.6 277.9 277.1 211.8 132.1 117.8 335.5 246.5

HSD 17 52.2 31.2 40.6 42.1 0 115.5 239

LSHS (Low sulphur heavy stock)/ RCO (Residual Crude oil) 106.3 129.5 70.5 41.2 56.2 48.2 69.4 74.7

Aviation Turbine Fuel 31.8 22 28.6 0 0 0 51.9 88.9

Others 3.8 8.7 5.6 7.6 13.1 20.9 21.7 15.2

Sub- Total 82567.2 83465.3 82342.8 77156.8 77486.4 84580.2 109299.9 95701.4

Sale of Traded Products 4.3 4.4 6 8.4 3.1 0 0 0

Other Operating Income 737.5 733.1 744.7 576.5 418.3 423.9 354.7 512.2

Revenue from Operation 83309 84202.8 83093.5 77741.7 77907.8 85004.1 109654.6 96213.6

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Projects completed in FY20

Project Name Completion

Date Project Cost. Rsin

Cr Oil gain (MMT)

Gas Gain (BCM)

Development Projects

NW B-173A Development Plan 03.05.2019 365.5 0.76 0.213

Field Development Plan of NELP Block KGONN-2003/1-NAGYALANKA-KG ONLAND 10.09.2019 285.0 0.83 0.343

Development of BSE-11 Block 13.10.2019 544.2 0.57 0.568

4th Phase Development NBP Field 03.10.2019 1,113.6 2.08 -

Daman Development Project 31.10.2019 4,797.2 3.811 26.93

MH South Redevelopment Ph-III 31.03.2020 4,953.9 7.547 3.864

Integrated Development of B-127 Cluster Fields(including B-55 field) 31.03.2020 2,020.9 1.992 4.68

Enhanced Recovery of Bassien field through Mukta, Panna formations 31.03.2020 4,654.9 1.729 18.83

Development of B-147 Field 31.03.2020 527.1 0.489 0.708

Infrastructure Projects

Assam Renewal Project 26.12.2019 2,384.2 - -

Construction of one ETP and three ETPs with WIPs 30.11.2019 235.7 - -

ONGC Valuation ONGC Valuation EPS (Rs/sh) Target P/E Value (Rs/sh) Basis

ONGC standalone EPS (Rs/sh) 8.5 6 51 x Mar 22E EPS

OVL EPS (Rs/sh) 0.5 6 3 x Mar 22E EPS

Total 54.1

Traded investments Shares (Mn) CMP Value (Rs mn)

MRPL 1,254.4 27.0 25355 2.0 25% Discount to CMP

IOCL 1,337.2 75.5 75669 6.0 25% Discount to CMP

GAIL 217.8 86.9 14196 1.1 25% Discount to CMP

Petronet 187.5 226.1 31795 2.5 25% Discount to CMP

HPCL 778.8 175.7 102632 8.2 25% Discount to CMP

Value of investments 249648 19.8

Core value 73.9

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Financials (Consolidated) Income Statement Balance Sheet

(Rs Cr) FY18 FY19 FY20 FY21E FY22E As at March FY18 FY19 FY20 FY21E FY22E

Net Revenues 362246.4 453460.6 425001.4 329382.1 375775.3 SOURCE OF FUNDS

Growth (%) 11.2 25.2 -6.3 -22.5 14.1 Share Capital 6416.6 6290.2 6290.2 6290.2 6290.2

Operating Expenses 297895.3 369595.8 363832.7 288206.2 319495.4 Reserves 197602.3 211850.6 200677.5 200396.1 195065.0

EBITDA 64351.1 83864.7 61168.7 41175.9 56279.9 Shareholders' Funds 204018.9 218140.8 206967.7 206686.3 201355.2

Growth (%) 10.9 30.3 -27.1 -32.7 36.7 Long Term Debt 55024.9 53144.1 80098.3 131954.8 137282.3

EBITDA Margin (%) 17.8 18.5 14.4 12.5 15.0 Net Deferred Taxes 41505.9 47366.8 46138.2 8223.6 40629.5

Depreciation 30573.9 33246.9 35658.3 29727.1 30565.8 Long Term Provisions & Others 27112.0 29912.6 35220.3 36981.3 38830.4

EBIT 33777.2 50617.9 25510.4 11448.8 25714.1 Minority Interest 15606.0 18106.2 17812.8 18703.5 19638.6

Other Income 7716.3 6557.8 -496.9 -487.0 -477.3 Total Source of Funds 343267.7 366670.5 386237.3 402549.4 437736.1

Interest expenses 4999.0 5836.7 6999.8 7751.1 9373.9 APPLICATION OF FUNDS

PBT 36494.4 51338.9 18013.7 3210.7 15863.0 Net Block & Goodwill 251985.7 257946.1 267547.5 272944.8 309260.6

Tax 13139.5 20880.2 7508.0 1338.2 6611.6 CWIP 21381.3 29896.1 45932.4 63225.2 44697.8

RPAT 23354.9 30458.7 10505.7 1872.5 9251.4 Other Non-Current Assets 113831.0 117784.0 109696.2 112297.3 113032.2

APAT 25909.8 34850.3 18082.0 2979.7 10413.9 Total Non Current Assets 387198.1 405626.2 423176.0 448467.3 466990.7

Growth (%) -9.9 34.5 -48.1 -83.5 249.5 Current Investments 0.0 0.0 0.0 0.0 0.0

EPS 20.6 27.7 14.4 2.4 8.3 Inventories 30563.0 35180.7 33051.2 25615.1 29223.0

Trade Receivables 13899.2 15396.1 9173.4 7109.5 8110.9

Cash & Equivalents 17505.8 27609.8 26266.4 30458.4 30907.3

Other Current Assets 11068.9 11889.3 12231.1 8443.3 24085.5

Total Current Assets 73036.9 90075.8 80722.1 71626.3 92326.7

Short-Term Borrowings 46221.2 48962.3 31574.5 26421.8 30928.1

Trade Payables 26550.7 32477.5 22967.9 17800.4 20307.6

Other Current Liab & Provisions 44195.4 47591.8 63118.4 73322.0 70345.6

Total Current Liabilities 116967.2 129031.6 117660.8 117544.2 121581.3

Net Current Assets -43930.3 -38955.7 -36938.7 -45917.9 -29254.6

Total Application of Funds 343267.7 366670.5 386237.3 402549.4 437736.1

ONGC Ltd.

16

Cash Flow Statement Key Ratios

(Rs Cr) FY18 FY19 FY20 FY21E FY22E (Rs Cr) FY18 FY19 FY20 FY21E FY22E

Reported PBT 36,494.4 51,338.9 18,013.7 3,210.7 15,863.0 EBITDA Margin 17.8 18.5 14.4 12.5 15.0

Non-operating & EO items -5,161.3 -2,166.1 8,073.2 1,594.1 1,639.7 EBIT Margin 9.3 11.2 6.0 3.5 6.8

Interest Expenses 4,999.0 5,836.7 6,999.8 7,751.1 9,373.9 APAT Margin 7.2 7.7 4.3 0.9 2.8

Depreciation 30,573.9 33,246.9 35,658.3 29,727.1 30,565.8 RoE 13.0 16.5 8.5 1.4 5.1

Working Capital Change -37,348.2 -7,606.3 16,232.5 10,285.0 -5,589.5 RoCE 10.3 12.8 7.3 2.6 4.7

Tax Paid -8,396.6 -15,019.4 -8,736.6 -39,252.8 25,794.4 Solvency Ratio

OPERATING CASH FLOW ( a ) 21,161.3 65,630.7 76,240.9 13,315.2 77,647.3 Net Debt/EBITDA (x) 1.6 1.2 1.8 3.8 3.0

Capex -47,963.4 -47,722.0 -61,295.9 -52,417.3 -48,354.2 Net D/E 0.5 0.5 0.5 0.8 0.8

Free Cash Flow -26,802.1 17,908.6 14,944.9 -39,102.1 29,293.2 PER SHARE DATA

Investments -626.0 107.0 18,581.3 -906.1 -924.2 EPS 20.6 27.7 14.4 2.4 8.3

Non-operating income 4,708.7 2,497.8 -10,990.4 -2,182.0 -288.0 CEPS 44.9 54.1 42.7 26.0 32.6

INVESTING CASH FLOW ( b ) -43,880.7 -45,117.3 -53,705.0 -55,505.4 -49,566.4 Dividend 8.3 1.7 7.0 1.7 11.6

Debt Issuance / (Repaid) 26,846.3 860.3 9,566.4 46,703.9 9,833.8 BVPS 162.2 173.4 164.5 164.3 160.1

Interest Expenses -4,999.0 -5,836.7 -6,999.8 -7,751.1 -9,373.9 Turnover Ratios (days)

FCFE -4,954.9 12,932.2 17,511.6 -149.3 29,753.1 Debtor days 14.0 12.4 7.9 7.9 7.9

Share Capital Issuance 0.0 -126.5 0.0 0.0 0.0 Inventory days 30.8 28.3 28.4 28.4 28.4

Dividend -10,474.3 -2,153.9 -8,750.4 -2,153.9 -14,582.5 Creditors days 26.8 26.1 19.7 19.7 19.7

Others -531.5 -13,147.1 -15,490.4 1,544.5 1,621.7 VALUATION

FINANCING CASH FLOW ( c ) 10,841.4 -20,404.0 -21,674.1 38,343.4 -12,500.8 P/E 3.4 2.5 4.8 29.2 8.4

NET CASH FLOW (a+b+c) -11,878.0 109.4 861.8 -3,846.9 15,580.1 P/BV 0.4 0.4 0.4 0.4 0.4

Cash & Equivalents 10,077.8 10,187.2 11,049.0 7,202.1 22,782.2 EV/EBITDA 3.0 2.3 3.4 6.2 4.5

EV / Revenues 0.5 0.4 0.5 0.8 0.7

Dividend Yield (%) 12.0 2.5 10.1 2.5 16.8 (Source: Company, HDFC sec)

ONGC Ltd.

17

One Year Stock Price Chart

(Source: Company, HDFC sec)

ONGC Ltd.

18

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