HDFC Securities forecasts muted performance for ONGC due to lower crude oil and gas realisations and lack of production growth for oil.

We expect oil prices to remain at ~USD 50/bbl in FY22/23E vs. USD 59/bbl in FY20, given the weak global macro. Lower oil and gas realisations will drag profitability down for ONGC. 3QFY21 revenue was 4% above our estimate, owing to a higher-than-expected crude oil price realisation of USD 44.2/bbl (vs the estimated USD 43.4/bbl). EBITDA in 3Q was 18% above our estimate owing to lower-than-expected opex. APAT was 15% below our estimate due to higher-than-anticipated finance cost and tax outgo.

Standalone financial performance: Revenue for 3QFY21 stood at Rs 17000  crore(-28/+1% YoY/QoQ). It fell YoY, mainly due to lower crude and gas realisations. EBITDA fell by ~32% YoY to Rs 8300  crore due to the the trickle- down effect of lower revenue and higher opex. APAT came to Rs 1400 crore.

Standalone operational performance: 3Q crude oil realisation was USD 44.2/bbl (USD 59.7/41.4 YoY/QoQ) whereas gas realisation was USD 1.9/mmbtu vs. USD 3.4/2.5 YoY/QoQ. Oil sales volumes were 5.3mmt,+1/+5% YoY/QoQ. Gas sales volumes were 4.5bcm, -6/-1% YoY/QoQ.

Call takeaways:

• The Board has approved creation of a wholly-owned subsidiary of the company for focusing on Gas & LNG business value chain. The subsidiary is being formed with the objective of sourcing, marketing and trading of natural gas, LNG business, Hydrogen enriched CNG, Gas to Power business, bioenergy/bio-gas/bio methane/other bio fuels business.
• The Board has approved acquisition of 5% equity in Indian Gas Exchange Ltd (IGX) as a strategic investment.
• Capex target for FY21/22 is Rs 29000/32000 crore.
• Standalone debt as on Dec-20 end stood at Rs 12800 crore.

(Harshad Katkar, Institutional Research Analyst, HDFC Securities & Nilesh Ghuge, Institutional Research Analyst, HDFC Securities)