HDFC Securities has given an add rating to Oil and Natural gas Corporation with a target price of Rs 86. The share price moved up by 0.85% from its previous close of Rs 82.40. The last traded stock price is Rs 83.10.
Revenue was in-line while EBITDA was 9% below the brokerage estimate owing to opex being 1.3 times higher than anticipation.
Considering the effects of Covid-19 on business conditions, ONGC assessed future realizations for oil and gas. As a result, it recorded an impairment loss of Rs 49 billion, the extent by which carrying amount of assets exceeds their value-in-use.
Investment Rationale:
The brokerage expects crude oil production volumes to remain subdued at 21.4mmt in FY21 and recovery to 22.8mmt in FY22. Natural gas volume should dip from 19.4bcm in FY20 to 18.9bcm in FY21 and recover to 20.2bcm in FY22.
The brokerage expects oil prices to remain muted at $36/41 vs. $59 in FY20, given weak global macros, despite a production cut from OPEC and non-OPEC countries. The gas realization should slide to $2.7/2.9 per MMBtu in FY21/22E ($3.9/mmbtu in Fy20).
View on the balance sheet:
Debt spiked by 9% year on year to Rs 1.1 trillion as did net Debt/EBITDA and net debt/equity ratios to 1.6/0.5 times from 1.1/0.4 times in FY19.
The brokerage increased its EPS estimates for FY21/22 by 13/14% to Rs 7.4/13.7 on account of increase in nominated volumes by:
1) 7% in crude volumes to 18.0/18.2mmt
2) 3.1/4.5% in gas volumes to 18.0/19.4BCM in FY21/22, respectively.
The brokerage says this is due to a lower than anticipated fall in oil and gas production during the lockdown.
Financials:
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 1,04,488.95 crore, down -4.53% from the last quarter sales of Rs 1,09,443.39 crore and down -6.97% from last year's same quarter sales of Rs 1,12,316.40 crore. The company has reported net profit after tax of Rs -6875.29 crore in the latest quarter.
Shareholding details:
Promotors held a 47.75% stake in the company as of March 31, 2020, while FIIs held 8.28%, DIIs 16.57%, and public and other 27.41%.
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