march 30, 2012 rating matrix oil and natural gas corporation...

March 30, 2012

Initiating Coverage

ICICI Securities Ltd | Retail Equity Research

Oil giant pushing through obstacles… Oil & Natural Gas Corporation (ONGC), India’s largest national oil & gas company, is primarily engaged in exploration, development and production of crude oil and natural gas in both India and abroad. ONGC’s core strength lies in its strong resource base and increasing production resulting from aggressive capex. We expect ONGC to grow at a CAGR of 10.2% in revenues over FY11-14E on the back of steady growth in revenues from oil & gas sales and growth in MRPL’s revenues. ONGC is expected to report net profit of | 22,903.3 crore in FY14E. The government reforms in pricing of petroleum products/price hikes would add significantly to the earnings and valuation of the company. We are initiating coverage on ONGC with a HOLD rating and target price of | 287.

Large resource base; JVs + marginal fields to spearhead volume growth The ONGC group has large 1P, 2P and 3P crude oil and natural gas reserves base of 961 mmtoe, 1,426 mmtoe and 1,688 mmtoe, respectively. The company has managed to maintain a diversified portfolio of yielding assets through its wholly owned subsidiary ONGC Videsh Ltd (OVL). We expect ONGC group’s oil & gas production at 63.5 mmtoe and 67.7 mmtoe in FY13E and FY14E, respectively, implying growth at a CAGR of 2.9% over FY11-14E. The production growth would mainly be attributable to the JVs and new and marginal fields.

Government reforms in pricing of petroleum product inevitable We believe price hikes and government reforms have become inevitable in the backdrop of high crude oil prices and gross under-recoveries. ONGC would be a major beneficiary of government reforms in the pricing of petroleum products. Any reforms and price hikes in petroleum products like diesel, LPG and kerosene would add significantly to its earnings. ONGC’s EPS would increase by ~| 2.3 for | 10,000 crore reduction in under-recoveries (38.7% upstream sharing).

Valuations We believe ONGC’s large reserves base, increasing production due to aggressive capital expenditure and price hikes/reforms on part of the Indian government would create value for investors, going forward. ONGC is trading at 9.7x FY13E and 10.2x FY14E EPS of | 27.5 and | 26.4, respectively. We are initiating coverage on the stock with a HOLD rating and a price target of | 287 (valuation based on average of P/BV multiple: | 301 per share and P/E multiple: | 272 per share). Exhibit 1: Key Financials (Consolidated) (Year-end March) FY10 FY11 FY12E FY13E FY14E

Revenues (| bn) 1034.4 1219.3 1434.6 1509.6 1635.0

EBITDA (| bn) 461.2 486.5 529.6 508.9 540.2

Net Profit (| bn) 197.3 228.2 279.8 238.6 229.0

EPS (|) 22.7 26.2 32.5 27.5 26.4

P/E (x) 11.8 10.2 8.2 9.7 10.2

Price/Book Value (x) 2.3 2.0 1.7 1.6 1.4

EV/EBITDA (x) 4.8 4.4 4.0 4.4 4.2

RONW (%) 19.5 19.8 21.0 16.3 14.4

ROCE (%) 25.6 26.6 25.8 21.3 19.3

Source: Company, ICICIdirect.com Research

Oil and Natural Gas Corporation (ONGC) | 268

Rating Matrix Rating : Hold

Target : | 287

Target Period : 12-15 months

Potential Upside : 7 %

YoY Growth (%) YoY Growth (%) FY11 FY12E FY13E FY14E

Net Sales 15.6 18.8 4.7 8.5

EBITDA 5.5 8.9 -3.9 6.2

Net Profit 15.7 22.6 -14.7 -4.0

Current & target multiple FY11 FY12E FY13E FY14E

PE (x) 10.2 8.2 9.7 10.2

Target PE (x) 10.9 8.8 10.4 10.9

EV/EBITDA (x) 4.4 4.0 4.4 4.2

P/BV (x) 2.0 1.7 1.6 1.4

EV/Sales (x) 1.8 1.5 1.5 1.4

RoNW (%) 19.8 21.0 16.3 14.4

RoCE (%) 26.6 25.8 21.3 19.3

Stock Data

Bloomberg Code/Reuters Code ONGC IN/ ONGC.NS

Sensex 17404

Average volumes 374256

Market Cap (| crore) 229289.0

52 week H/L 325/241Equity Capital (| crore) 4277.8

Promoters Stake (%) 69.2

FII Holding (%) 5.3

DII Holding (%) 6.8

Comparative return matrix (%)

Company 1M 3M 6M 12M

ONGC (8.0) (0.2) 2.7 (5.1)

Oil India (1.7) 7.5 (3.5) (3.7)

Cairn India (8.6) 8.0 29.4 (0.8)

Reliance Industries (11.0) (4.1) (3.9) (28.9)

Price movement

50

100

150

200

250

300

350

Mar-12Dec-11Sep-11Jul-11Apr-11

2,0002,5003,0003,5004,0004,5005,0005,5006,0006,500

Price (R.H.S) Nifty (L.H.S)

Analyst’s name

Mayur Matani [email protected]

Nishit Zota [email protected]


Company Background Oil & Natural Gas Corporation (ONGC) is India’s largest national oil & gas company. Set up in 1956, ONGC is primarily engaged in the exploration, development and production of crude oil and natural gas in both India and abroad. ONGC, through its wholly owned subsidiary ONGC Videsh Ltd (OVL), has a presence across 14 countries with participating interests in 33 projects comprising ten producing projects, 18 exploration blocks and four development blocks for its E&P activities. The company is also present in downstream refining and marketing operations in India through its subsidiary MRPL, which operates a refinery with an installed capacity of 11.8 MMTPA. ONGC is also involved in production of LPG and other value added products, alternative energy projects and exploring the feasibility of setting up a nuclear power project. The ONGC group has large 1P, 2P and 3P crude oil and natural gas reserves base of 961 mmtoe, 1,426 mmtoe and 1,688 mmtoe, respectively, covering a total exploratory area of 4,79,210 sq km in India and 150,323 sq km overseas. ONGC, PSC JV and OVL have 2P crude oil and natural gas reserves base of 986 mmtoe, 39 mmtoe and 402 mmtoe, respectively. In FY11, ONGC produced 27.3 million metric tonne (mmt) of crude oil and 25.3 billion cubic meters (bcm) of natural gas, representing 72.4% and 48.5% of India’s total production of crude oil and natural gas, respectively. Offshore production forms majority of ONGC’s total oil & natural gas production in FY11, with Mumbai High producing 10.6 mmt of crude oil and 4.6 bcm of natural gas. OVL produced 6.8 mmt and 2.7 bcm of crude oil and natural gas, respectively, in FY11. The ONGC group’s production of crude oil and natural gas stood at 34 mmt and 28 bcm, respectively, in FY11.

Exhibit 2: ONGC Group Structure


Shareholding pattern (March 2012)

Shareholder Holding (%)

Promoters 69.2

Institutional investors 17.1

Non promoter corporate holding 11.8

General public 1.9

FII & DII holding trend (%)

4.5 4.9 5.2 5.36.87.07.47.6

0

2

4

6

8

10

Q4FY11 Q1FY12 Q2FY12 Q3FY12

FII DII


Investment Rationale Large resource base; JVs, marginal fields to spearhead volume growth ONGC is India’s largest E&P player with strong exploration and production capabilities and a total acreage of 4,79,210 sq km in India and 150,323 sq. km overseas. ONGC has working interests in 36 nomination blocks (24 onshore and 12 offshore) and 79 NELP blocks (33 onshore and 46 offshore). ONGC has an aggressive exploration programme of | 44661.8 crore in the next five years. The company’s 1P, 2P and 3P crude oil & natural gas reserves base stands at 961 mmtoe, 1,426 mmtoe and 1,688 mmtoe, respectively. These reserves include 758 mmtoe, 1,025 mmtoe and 1,253 mmtoe of 1P, 2P and 3P reserves, respectively, from the domestic fields & 203 mmtoe, 402 mmtoe and 435 mmtoe of 1P, 2P and 3P reserves, respectively, from international fields.

Exhibit 3: ONGC Group oil & natural gas reserves

724

35203

961986

39

402

1426

1212

41

435

1688

0

450

900

1350

1800

ONGC JV OVL Total

mto

e

1P 2P 3P


Exhibit 4: Break-up of ONGC reserves

1P 2P 3POilDomestic (inc.JV) 401 476 573OVL 105 256 270Total Oil (mmt) 505 733 843GasDomestic (inc.JV) 358 548 680OVL 98 145 165Total Gas (bcm) 456 693 845Total (mmtoe) 961 1426 1688


ONGC group’s large resource and reserve base will drive

production growth and valuations

Crude oil and natural gas constitutes 51.4% and 48.6% of

ONGC Group’s 2P reserves


ONGC has a reserve life of 19.5 and 42.4 years for its domestic and international operations (based on 2P reserves), respectively.

Exhibit 5: Reserve life (FY11)

14.419.5

23.821.4

42.445.9

05

101520253035404550

1P 2P 3P

rese

rve

life

(yea

rs)

ONGC OVL


A higher oil price (resulting in improved commercial viability) has led to a stable reserve replacement ratio (RRR) in the second half of the last decade. ONGC reported a strong RRR of 1.8 in FY11 (five year average of 1.5). Over FY08-11, ONGC’s cumulative reserve accretion in FY08-11 has been 299 mmtoe. ONGC’s strong RRR indicates a potential for sustainable reserve accretion in future. Sustainable reserve accretion will drive production growth, which would eventually lead to higher earnings and valuations.

Exhibit 6: ONGC’s reserve replacement ratio over past few years

65.6 63.868.9

83.0 83.6

0

20

40

60

80

100

FY07 FY08 FY09 FY10 FY11

mto

e

0.00.20.40.60.81.01.21.41.61.82.0

Reserve Accretion Production RRR


ONGC has a reserve life of 19.5 and 42.4 years for its

domestic and international operations (based on 2P

reserves), respectively

ONGC has a healthy reserve replacement ratio of over 1.5over the last five years, which indicates sustainableproduction in future


Aggressive capex plans to sustain production levels ONGC has incurred a capex of | 91,306 crore in the past four years towards exploration, development, production & redevelopment projects. ONGC’s exploratory expense of | 22,609.6 crore has resulted in 106 discoveries. Steady cash generation and low leverage would enable the company to undertake a similar heavy capex programme, going ahead. ONGC is expected to undertake an aggressive exploration programme in the next five years, where the company is expected to spend | 44,661.8 crore to drill 611 wells in FY13-17E.

Exhibit 7: Aggressive capex plans

2355928276

31316 3306536163

0

8000

16000

24000

32000

40000

FY10 FY11 FY12E FY13E FY14E

( | c

rore

)


Exhibit 8: Break-up of capital expenditure (FY12E)

R&D1%Integration

2%

Survey6%

Development drilling18%

Exploratory drilling27%

Capital projects46%


On the development side, ONGC has drilled 947 development wells in FY08-11. The company has spent | 16,513.6 crore towards development drilling for FY08-11 and is expected to spend | 5830.6 crore and | 8,058.4 crore in FY13E and FY14E, respectively. The company is planning to drill 1120 development wells during the next five years with a capex of | 26,505 crore.

Exhibit 9: No. of wells drilled for exploration and development activities

87 98 106128 125

178

224 218

294256

0

50

100

150

200

250

300

350

FY07 FY08 FY09 FY10 FY11

no. o

f wel

ls

Exploratory Development


ONGC plans to drill 611 exploration wells and 1120

development wells during the next five years incurring a

capex of | 44,661.8 crore and | 26,505 crore, respectively


Since 2000, ONGC has been implementing incremental/enhanced oil recovery projects and redevelopment of existing fields to combat the natural decline in these fields. This has increased the recovery factor from 28% in 2000 to 33.5% in 2011. The cumulative gain through these IOR/EOR projects has been ~ 64 MMT, with an incremental gain of 8.48 MMT in FY11. ONGC has 21 IOR/EOR and redevelopment schemes in 15 major fields of which 15 have been completed and six are currently under implementation. The total investment in these projects has been | 25,797 crore (up to March, 2011) against a total planned investment of | 34,055 crore. These projects have tried to keep overall production constant by substituting production from mature fields (decline rate of 7% a year).

Exhibit 10: IOR/EOR/redevelopment projects to arrest production declines


Exhibit 11: Investment in IOR/EOR redevelopment projects Project Project Cost (| crore)IOR/ Redevelopment ProjectsHeera & South Heera Redevelopment 2305MHS Redevelopment Phase-II 8813MHN Redevelopment Phase-II 7133IOR Lakwa-Lakhmani 664IOR Geleki 1674

IOR Rudrasagar 439

E&P Infrastructure developmentConstruction of new MHN Complex 6326Pipeline Replacement-2 3796


Exhibit 12: Investment in new field development projects

Project Project Cost (| crore)Development of C series Fields Phase 1 3195Development of B-22 cluster Fields 2921Development of B-46 cluster Fields 1457Development of B-193 cluster Fields 5633Additional Development od D-1 Field 2164North Tapti Gas Field Development 755G-1 & GS-15 Development 2218Development of Cluster-7 Fields 3241Development of WO-16 Cluster 2523Development of BHE & BH-35 Area 372


ONGC’s implementation of IOR/EOR/redevelopment

projects has increased the recovery factor from 28% in

2000 to 33.5% in 2011

ONGC has 21 IOR/EOR and redevelopment schemes in 15

major fields of which 15 schemes have been completed

and six are currently under implementation

ONGC’s aggressive investment in new field development

projects (marginal fields) is expected to provide production

growth


JVs+ marginal fields to spearhead crude oil and gas volumes ONGC remains the largest producer of crude oil & natural gas, producing 27.28 MMT of crude oil and 25.33 BCM of natural gas from domestic fields in FY11. The company contributes 72.4% of crude oil and 48.5% of natural gas production in India. Exhibit 13: Area of domestic operations


We expect crude oil production from domestic fields to reach 28.2 mmt and 30.3 mmt in FY13E and FY14E, implying a CAGR of 3.5% in FY11-14E. The production growth can mainly be attributed to JVs and new and marginal fields, which would be coming on stream in the next few years. Some of these marginal fields are Cluster 7, B-22 & B-193 on the western offshore & G-1/GS-15 & Padmavati on the eastern offshore. A ramp-up in JV blocks would also add significantly to crude oil volumes. The Rajasthan block (Cairn-70%, ONGC-30%) would play a critical role in volume addition. Production at most of the old nomination blocks is exhibiting a declining trend. We believe the production in old nomination blocks would continue to decline.

Exhibit 14: ONGC’s domestic oil & gas production

24.7 24.4 23.9 24.3 26.1

1.8 2.9 3.2 3.9 4.2

23.1 23.1 23.2 24.6 26.4

2.02.12.22.22.5

0

15

30

45

60

75


mm

toe

ONGC (oil) JV (oil) ONGC (gas) JV (gas)


ONGC is the largest producer of crude oil & natural gas,

producing 27.28 MMT of crude oil and 25.33 BCM of

natural gas from domestic fields in FY11

Oil production from domestic fields to reach 28.2 mmt and

30.3 mmt in FY13E and FY14E, respectively, implying a

CAGR of 3.5% in FY11-14E


We expect gas production from domestic fields to reach 28.42 bcm by FY14E, implying a CAGR of 3.9% in FY11-14E. Most recent discoveries of ONGC happen to be gas discoveries, which could result in gas production growing at a faster rate than crude oil. Most recent discoveries in the Eastern coast- G-1 & GS-15, G-4 & GS-29, Vashishtha, S-1 & KG-DWN-98/2, are related to gas reserves. Production at GS-15 has already started in August 2011 while that from GS-1 is expected in 2012-13. Daman Offshore, one of the largest discoveries in nomination blocks in recent times, is expected to come on stream in FY16 and contribute around 5 BCM. The new and marginal fields on the western Coast-B-22, B-193, C-series, Cluster 7, North Tapti, etc. are together likely to contribute substantially in the next five years. In contrast to the nomination blocks, the JV blocks would exhibit a decline in gas production.

Exhibit 15: Areas of new field development projects


Exhibit 16: Areas of new field development projects


OVL: the growth driver ONGC has a global presence via its wholly owned subsidiary OVL (created in 1996), as well as through projects undertaken in consortia with other oil & gas companies. The primary business of OVL is acquisition of oil & gas fields in foreign countries, exploring, producing, transporting, exporting & carrying out other related functions. Currently, OVL has a presence in 14 countries, namely, Russia, Venezuela, Sudan, Myanmar, Vietnam, Syria, Brazil, Colombia, Cuba, Libya, Nigeria, Kazakhstan, Iran and Iraq. Out of 33 projects, OVL is the operator in 11 and joint operator in six. OVL has 2P oil reserves of 256.5 million metric tones and 2P gas reserves of 145 billion cubic metres. It contributes ~ 28% to ONGC’s consolidated 2P reserves. OVL’s primary assets are GNOP (Sudan), Carabobo (Venezuela) and Imperial & Sakhalin (Russia), which together account for 78% of OVL’s 2P reserves and 47% of its production. For FY11, the production for OVL amounted to 6.8 mmt of crude oil and 2.7 bcm of natural gas. ONGC Nile Ganga BV (ONGBV) is a wholly owned subsidiary of OVL, engaged in E&P activities in Sudan, Syria, Venezuela, Brazil and Myanmar.

Gas production from domestic fields to reach 28.42 bcm by

FY14E, implying a CAGR of 3.9% in FY11-14E

OVL has 2P oil reserves of 256.5 mmt and 2P gas reserves

of 145 bcm, which contribute ~ 28% to ONGC’s

consolidated 2P reserves


Exhibit 17: ONGC Videsh area of international operations


Exhibit 18: OVL participating interests in different producing areas

Country Project Participating Companies Current StatusVietnam Block 06.1 (offshore) OVL 45%, BP 35% (Operator); PetroVietnam 20% Producing Gas & CondensateSudan GNOP OVL 25%; CNPC 40%, Petronas 30%, Sudapet 5% (GNPOC- Operator) Producing OilSudan Block 5A OVL 24.125%;Petronas 67.875%;Sudapet 8%. (WNPOC-Operator) Producing OilRussia Sakhalin-I OVL 20%; ENL 30% (Operator) Sodeco 30%;SMNG-S 11.5% RN Astra 8.5% Producing Oil & GasColombia MECL OVL 25-50%;SIPC 25-50%; Ecopetrol (50-100%) (MECL-Operator) Producing OilSyria Himalaya (4 PSCs) SSPD (Operator) 62.5-66.67%,HES BV 33.33 to 37.5% Producing Oil & GasVenezuela Sancristobal, PIVSA OVL 40%, PDVSA 60% (PIVSA - Operator) Producing OilRussia Imperial Energy OVL 100% Producing OilBrazil BC-10 (offshore) OVL 15%; Shell 50% (Operator) & Petrobas 35% Producing Oil


Exhibit 19: Region-wise OVL production in FY11

0.2

0.5

0.6

0.6

0.8

0.8

1.8

1.5

0.2

0.4

2.2

0.0 0.5 1.0 1.5 2.0 2.5

Block 5A, Sudan

MECL, Colombia

BC10,Brazil

AFPC,Syria

Sancristobal, Venezuela

Imperial Russia

GNOP, Sudan

Sakhalin-1,Russia

Block 6.1,Vietnam

Oil (MMT) Gas (BCM)


OVL’s primary assets are GNOP (Sudan), Carabobo

(Venezuela) and Imperial & Sakhalin (Russia), which

together account for 78% of OVL’s 2P reserves and 47% of

its production


OVL’s production has grown at a CAGR of 2.4% in FY08-11 against ONGC’s standalone production, which remained flat for the same period. We expect OVL’s production to be 8.6 mtoe and 9 mtoe in FY13E and FY14E, respectively.

Exhibit 20: OVL’s oil & natural gas production

6.5 6.8 6.2 6.1 6.4

2.4 2.72.5 2.5 2.6

0.01.02.03.04.05.06.07.08.09.0

10.0


mm

toe

Oil (MMT) Gas (BCM)


The Sakhalin Block accounts for a large share (~34%) of OVL’s 2P reserve. The block is operated by Exxon (30%) and other partners Rosneft (20%), SODECO (30%) and OVL (20%). The Chavyo field has already attained peak production earlier in the decade and is expected to exhibit a declining trend, going ahead. The decline in the Chavyo field will be offset by production from the Odoptu field, which commenced production in September 2010. We expect production to rise, once production commences in Arkutun-Dagi. The production from Arkutun-Dagi is expected to start in FY15. OVL holds a 100% stake in UK-listed Imperial, which mainly operates in the Tomsk region of Western Siberia. There have been ramp-up issues and production has declined post acquisition by OVL in January 2009. Imperial’s production in 2008 was 10000 bopd and it is currently producing ~15000 bopd. We expect the operational issue to continue in the near future. Carabobo (Venezuela) is located in the heavy oil belt of Venezuela. OVL holds an 11% stake in the block. Marginal production of 20000 bopd is expected to start in December 2012. By FY14, production is expected to touch 50000 bopd. The license term is for 25 years and can be further extended by 15 years. OVL holds an 11% stake in the block. OVL holds a 17% stake in the A1 A3 block of Myanmar, which is expected to produce 200 mmscmd of gas from May 2013 onwards. Production is expected to peak one year after the commencement of production. As far as Syria is concerned, the European Union and the US have imposed sanctions that have impacted exports. Volumes have started dropping since Q3FY11. The ongoing dispute between North Sudan and South Sudan has resulted in a shutdown of operations in South Sudan, This has brought down volumes from 1,20,000 bopd to 57,000 bopd.

OVL’s production is expected to reach 8.6 mtoe and 9 mtoe

in FY13E and FY14E, respectively


Overall, ONGC’s group production is expected to increase at a CAGR of 2.9% from 62.1 mmtoe in FY11 to 67.7 mmtoe in FY14E. The total oil production is expected to increase at a CAGR of 2.5% from 34.0 mmt in FY11 to 36.6 mmt in FY14E. Total gas production is expected to increase at a CAGR of 3.4% from 28.0 bcm in FY11 to 31.0 bcm in FY14E.

Exhibit 21: ONGC Group oil & natural gas production

26.0 25.4 24.7 24.4 23.9 24.3 26.1

2.0 1.8 1.8 2.9 3.2 3.9 4.26.8 6.6 6.5 6.8 6.2 6.1 6.4

22.3 22.5 23.1 23.1 23.2 24.626.4

2.8 3.0 2.5 2.2 2.2 2.12.02.6

2.52.52.72.42.22.0

0

15

30

45

60

75

FY08 FY09 FY10 FY11 FY12E FY13E FY14E

mm

toe

ONGC (oil) JV (oil) OVL (oil) ONGC (gas) JV (gas) OVL (gas)


Government reforms in pricing of petroleum product is inevitable Gross under-recoveries on regulated petroleum products have increased over the past few years due to the increase in crude oil prices. This has led to an increase in the subsidy burden for ONGC from | 2,690 crore in FY04 to | 24,892 crore in FY11.

Exhibit 22: Impact of gross under-recoveries on ONGC

9,27420,146

40,00049,387

77,123

103,292

46,051

78,193

139,824

167,973178,469

020,00040,00060,00080,000

100,000120,000140,000160,000180,000200,000

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E FY14E

| Cr

ore

0

30

60

90

120

150

US$

per b

arre

l

Gross under-recoveries (LHS) ONGC Subsidy Burden (LHS) Crude oil prices (RHS) Net Realisations (RHS)


Overall, ONGC’s group production is expected to increase

at a CAGR of 2.9% from 62.1 mmtoe in FY11 to 67.7

mmtoe in FY14E


In the prevailing scenario of high crude oil prices, we expect gross under-recoveries to remain high at | 1,67,973 crore and | 1,78,469 crore in FY13E and FY14E, respectively (we assume Brent crude oil prices at US$115/barrel and exchange rate of | 50 per US$). Also, given the limited capacity of downstream companies to share subsidy burden, we assume the subsidy burden share for upstream companies to remain high at 38.7% in FY13E and FY14E. This would lead to higher subsidy burden of | 53,972.3 crore (US$73.7 per barrel) and | 57,344.9 crore (US$73 per barrel) in FY13E and FY14E, respectively. Net realisations are expected to be lower at US$44.3/barrel and US$45/barrel in FY13E and FY14E, respectively.

Exhibit 23: ONGC’s subsidy sharing burden

11555.024892.0

44588.4

53972.357344.9

15.7

35.6

64.973.7 73.0

0

12000

24000

36000

48000

60000


| Cr

ore

0

15

30

45

60

75

USD

per b

arre

l


Exhibit 24: ONGC’s oil gross and net realisations

71.7

119.5 118.0 118.0

55.9 53.8 54.644.3 45.0

89.4

0

25

50

75

100

125


USD

per b

arre

l

15

30

45

60

75

USD

per b

arre

l

Gross Realised Price Realised Price after Subsidy / DiscountSubsidy / Discount (RHS)


However, given the current situation of high gross under-recoveries, price hikes and government reforms have become inevitable. We believe ONGC would be a major beneficiary of government reforms in the pricing of petroleum products. Any reforms and price hikes in petroleum products like diesel, LPG and kerosene would add significantly to its earnings. ONGC’s EPS would increase by ~| 2.3 for | 10,000 crore reduction in under-recoveries (38.7% upstream sharing).

High crude oil prices would lead to higher subsidy burden

for ONGC of | 53,972.3 crore (US$73.7/barrel) and

| 57,344.9 crore (US$73/barrel) in FY13E and FY14E,

respectively

Net realisations are expected to be lower at US$44.3/barrel

and US$45/barrel in FY13E and FY14E, respectively


Exhibit 25: Sensitivity of EPS to change in gross under-recoveries

FY13E FY14E FY13E FY14E FY13E FY14EBase Case less | 10,000 crore 50759.2 54131.7 48.7 49.1 29.8 28.7

Base Case 53792.3 57344.9 44.3 45.0 27.5 26.3Base Case plus | 10,000 crore 57185.5 60558.0 39.9 41.0 25.3 24.0

Net Realisations (US$) EPS (|)Gross under-recoveries (| Crore)

Subsidy Burden (| Crore)

Source: ICICIdirect.com Research

The Indian government’s aim of lowering fiscal deficit to 5.1% in FY13BE and lower oil subsidy estimates of | 43,580 crore for FY13BE makes a diesel price hike imperative. This would offset the negative impact caused by increased under-recoveries.

Exhibit 26: Sensitivity of EPS to change in diesel prices

FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14EBase Case less | 1 per litre 175370.6 186517.5 56349.2 59930.9 41.0 41.8 25.8 24.4

Base Case 167973.4 178469.4 53792.3 57344.9 44.3 45.0 27.5 26.3Base Case plus | 1 per litre 160576.1 170421.2 51959.5 54758.9 47.5 48.3 29.2 28.3

EPS (|)Subsidy Burden (| Crore) Net Realisations (US$)Gross under-recoveries (| Crore)Diesel Prices


The EPS would increase by ~| 2.3 for | 10,000 crore

reduction in under-recoveries. The EPS would increase by

~| 1.8 for | 1 per litre increase in diesel prices


Financials Stable growth in consolidated revenues We expect revenues to increase from | 1,21,929.3 crore in FY11 to | 1,63,499.1 crore in FY14E at 10.2% CAGR over FY11-14E mainly on account of higher contribution from MRPL. MRPL’s revenues in the same period of FY11-14E would increase at a CAGR of 17.4% from | 39,169.2 crore in FY11 to | 63,616.1 crore in FY14E on account of higher throughput and crude oil prices. Consolidated oil revenues would increase from | 63,512 crore in FY11 to | 75,028.6 crore in FY14E at a CAGR of 5.7% mainly on account of an increase in oil sales from 34 mmt in FY11 to 36.6 mmt in FY14E (CAGR-2.5% over FY11-14E). Gas revenues would increase at 8.7% CAGR over FY11-14E from | 13,878 crore in FY11 to | 17,879.2 crore in FY14E. This would be on account of an increase in gas sales volume from 28 bcm in FY11 to 31 bcm in FY14E and increased realisations from domestic fields. Exhibit 27: Projected consolidated revenue growth

103438.9121929.3

143460.1 150958.8163499.1

0

40000

80000

120000

160000

200000


| Cr

ore


On a standalone basis, revenues would increase at slower growth rate of 5.6% CAGR over FY11-14E from | 69,165.4 crore in FY11 to | 81,692.6 crore in FY14E on account of muted growth in oil and gas production. Exhibit 28: Trend in standalone revenues

61645.569165.4

75414.4 76585.481692.6

0

20000

40000

60000

80000

100000


| Cr

ore


ONGC’s revenues are expected to increase from

| 1,21,929.3 crore in FY11 to | 1,63,499.1 crore in FY14E

at 10.2% CAGR over FY11-14E mainly on account of higher

contribution from MRPL


Exhibit 29: Standalone revenues

0

20000

40000

60000

80000

100000


| Cr

ore

Crude Oil Natural Gas Others Other Operating Income


Exhibit 30: Standalone revenue break-up

73.8 66.7 68.1 63.3 64.1

12.9 18.9 19.2 21.0 20.8

10.6 9.7 11.0 13.6 12.8

0%

20%

40%

60%

80%

100%


Crude Oil Natural Gas Others Other Operating Income

Source: Company, ICICIdirect.com Research *Others include LPG, Naphtha, C2-C3,SKO, Profit Petroleum and others

Consolidated EBITDA to increase at 3.5% CAGR over FY11-14E ONGC’s consolidated EBITDA is expected to increase from | 48,649.1 crore in FY11 to | 54,024.7 crore in FY14E at 3.5% CAGR over FY11-14E. However, the EBITDA margin is expected to decline from 39.9% in FY11 to 33% in FY14E mainly on account of higher crude oil prices.

Exhibit 31: Trend in consolidated EBITDA and EBITDA margin

48649.152960.1 50886.8

54024.746117.7

44.6 39.9

33.036.9 33.7

0

12000

24000

36000

48000

60000


| Cr

ore

0

10

20

30

40

50

EBIT

DA m

argi

n (%

)

EBITDA EBITDA margin


Exhibit 32: Raw material costs as a percentage of revenues

24.525.6

30.5

32.533.7

20

24

28

32

36


(%)


On a standalone basis, ONGC’s EBITDA is expected to be flat at | 41,018.9 crore in FY11. The EBITDA margin is expected to decline from 59.3% in FY11 to 50.1% in FY14E mainly on account of an increase in statutory levies as a percentage of revenues from 19.4% in FY11 to 29% in FY14E due to an increase in cess from | 2,500 per tonne to | 4,500 per tonne.


Exhibit 33: Trend in standalone EBITDA and EBITDA margin

37154.341018.9

43959.838406.7 40937.1

60.359.3 58.3

50.1 50.1

0

15000

30000

45000

60000


| Cr

ore

45

50

55

60

65

EBIT

DA m

argi

n (%

)

EBITDA EBITDA margin


Exhibit 34: Standalone costs as a percentage of revenues

19.4 20.1 21.4 28.9 29.0

17.7 17.8 17.7 18.0 17.9


Raw Material Costs Employees Cost Statutory Levies Other Expenditure


Exhibit 35: Standalone cost variables impacting EBITDA margins

50.1

59.3 0.1

8.90.20.0

45

50

55

60

65

EBITDAmargin(FY11)

Dec in RMcosts

Inc in EMPcosts

Inc instatutory

levies

Inc inother EXP

EBITDAmargin(FY14E)

(%)


Consolidated profits to increase marginally We expect ONGC’s consolidated net profit to increase marginally from | 22,825 crore in FY11 to | 22,903.3 crore in FY14E while ONGC’s standalone net profit will decline from | 18,924 crore in FY11 to | 16,510 crore in FY14E. This is mainly on account of an increased subsidy burden on ONGC from | 24,892 crore in FY11 to | 57,344.9 crore in FY14E.

Exhibit 36: Consolidated net profit trend

22903.323863.2

27981.2

22825.019727.6

0

5000

10000

15000

20000

25000

30000


| Cr

ore


Exhibit 37: Standalone net profit trend

16767.618924.0

22898.4

17358.0 16510.0

0

6000

12000

18000

24000

30000


| Cr

ore



OVL’s contribution towards the group’s profitability is expected to increase from 12% in FY11 to 22.2% in FY14E, mainly due to higher realisations.

Exhibit 38: Contribution of subsidiaries to consolidated PAT

83.9 82.9 81.672.4 72.1

10.6 12.0 16.223.0 22.2

5.6 5.2 2.3 4.6 5.7

0102030405060708090

100

FY10 FY11 FY12E FY13E FY14EPerc

enta

ge c

ontri

butio

n to

con

solid

ated

PAT

Standalone OVL MRPL


Return ratios to contract due to aggressive capital expenditure ONGC’s consolidated return on capital employed (RoCE) is expected to decline from 26.6% in FY11 to 19.3% in FY14E on account of high capital expenditure on exploration activities and capital projects (to sustain production from ageing fields). The return on invested capital (RoIC) is expected to decline from 32.0% in FY11 to 20.3% in FY12. The return on net worth (RoE) is expected to decrease from 19.8% in FY11 to 14.4% in FY14E.

Exhibit 39: Consolidated return ratios

25.6 26.6 25.821.3 19.319.5 19.8 21.016.3 14.4

29.832.0 31.0

23.520.3

0

7

14

21

28

35


(%)

ROCE ROE ROIC


Exhibit 40: Standalone return ratios

33.0 33.8 32.2

16.8

18.4

24.825.926.0

19.2 19.4 20.6

14.613.2

19.1

22.1

0

7

14

21

28

35


(%)

ROCE ROE ROIC


OVL’s contribution towards the group’s profitability is

expected to increase from 12% in FY11 to 22.2% in FY14E,

mainly due to higher realisations


Risk & concerns Volatility in crude oil prices has material adverse effect on business Increase in crude prices would have an adverse impact on ONGC’s revenues and profitability on account of higher subsidy burden. Any increase in oil prices would result in lower realisations and earnings for the company. Lower net realisations may reduce the economic viability of projects planned or in development. Lower net realisations may result in the impairment of higher cost reserves and other assets. This may result in decreased earnings or losses. The refining business is also susceptible to volatility in crude oil prices. Crude oil is the largest cost component for the refining business, which makes refining margins susceptible to volatile crude oil prices. Exhibit 41: Sensitivity of realisation and EPS to change in crude oil prices

FY13E FY14E FY13E FY14E90.0 60.0 60.8 30.1 29.695.0 56.9 57.6 29.6 28.9100.0 53.7 54.5 29.1 28.3105.0 50.6 51.3 28.6 27.6110.0 47.4 48.9 28.1 27.0115.0 44.3 45.0 27.5 26.3120.0 41.1 41.9 27.0 25.7125.0 38.0 38.7 26.5 25.1130.0 34.8 35.6 26.0 24.4135.0 31.7 32.4 25.5 23.8

Sensitivity to Realisation (US$) Sensitivity to EPS (|)Brent Crude Oil Prices (US$)


Adverse subsidy sharing mechanism The Indian government operates a mechanism, whereby the under-recoveries are shared among the GoI, public sector oil marketing companies (OMCs) and public sector upstream companies. There is no clarity from the government on the subsidy sharing mechanism, which is currently implemented in an ad-hoc manner. Due to the increase in crude oil under-recoveries in FY11, the share of upstream companies in subsidy sharing was increased from 31.3% in FY10 to 38.8% FY11. This resulted in a discount of US$35.6 per barrel in FY11, an increase of 126.8% over US$15.7 per barrel in FY10. Exhibit 42: Sensitivity of realisation and EPS to change in subsidy sharing mechanism

FY13E FY14E FY13E FY14E30.0 60.9 61.4 36.1 35.933.3 54.5 55.2 32.8 32.238.7 44.3 45.0 27.5 26.340.0 41.8 42.6 26.3 24.945.0 32.3 33.2 21.3 19.450.0 22.7 23.7 16.4 13.9

Sensitivity to EPS (|)Upstream Share (%)

Sensitivity to Realisation (US$)


The EPS would change by ~| 0.5 per share on a US$5 perbarrel change in Brent crude oil prices

The EPS would decrease by ~| 6.5 per share on anincrease in upstream companies’ subsidy share from 38.7%to 45%


Asset concentration The Mumbai High field in the Western Offshore basin, which accounts for ~32% of the total domestic crude oil & natural gas production, has been experiencing declining production since levels since 1990. Any catastrophic events in ONGC’s area of operations will have a material adverse effect on the business and profitability of the company.

Sensitivity to volatile exchange rates The earnings of ONGC are sensitive to volatility in exchange rates. An appreciation of the Indian rupee against the US dollar would have a positive impact on ONGC’s profitability and valuation as the decline in rate of gross under-recoveries will be more than that of net realisations.

Exhibit 43: Sensitivity of EPS to change in exchange rate

FY13E FY14E46.0 27.8 26.948.0 27.6 26.650.0 27.5 26.352.0 27.4 26.154.0 27.2 25.8

Exhange Rate (USD / INR)Sensitivity to EPS (|)


Dry wells ONGC’s future growth in oil and gas production is dependent on finding, acquiring and developing further reserves. The company’s failure to find successful wells in new exploratory blocks may lead to a decline in reserves and would also impact the profitability on account of write-offs of exploration costs.

Geopolitical risks ONGC conducts its business in countries that are subject to sanctions administered or enforced by the US Department of Treasury‘s Office of Foreign Assets Control, the United Nations Security Council, the European Union and/or Her Majesty‘s Treasury. Existing sanctions against Iran, Sudan, Cuba, Myanmar, Syria, and Libya present challenges in conducting normal business operations. Sanctions against Iran will have an adverse impact on MRPL that historically sources half of its crude requirement from Iran. The US and EU’s existing sanctions against Syria and the Syrian petroleum industry as a result of the continuing unrest in that country have already started impacting the production levels from the blocks in Syria owned by OVL. The company also faces security risk in some of its assets in Assam, Nagaland and Tripura, which are located in the North East region of India. The company has experienced interruptions in production and exploration activities due to insurgencies.

The EPS would change by ~| 0.2 per share on a | 2change in the exchange rate


Valuation We believe ONGC’s large reserves base, increasing production due to aggressive capital expenditure and price hikes/reforms from the Indian government would create value for investors, going forward. ONGC is trading at 9.7x FY13E and 10.2x FY14E EPS of | 27.5 and | 26.4, respectively. We are initiating coverage on the stock with a HOLD rating and a price target of | 287 (valuation based on average of P/BV multiple: | 301 per share and P/E multiple: | 272 per share). Exhibit 44: Valuation Table Valuation based on P / BV multipleAdjusted Book Value for FY14E (|Crore) 156806.9Adjusted number of shares (Crore) 855.6Adjusted Book Value per share (|) 183.3Multiple 1.6Value of core business (| per share) 293.3Add: Listed investments (25% discount to CMP) (| per share) 8.2Fair Value per share (|) 301

Valuation based on P / E multipleProfit after tax for FY14E (| Crore) 22903.3Less: Other Income adjusted for tax (| Crore) 498.3Adjusted profit after tax for FY14E (| Crore) 22405.0Number of shares (Crore) 855.6Adjusted EPS for FY14E (|) 26.2Multiple 10.0Fair value per share without investments (|) 261.9Add: Value of Investments (| per share)Listed investments (25% discount to CMP) 8.2Other Investments 1.8Fair value per share (|) 272

Weighted Target Price (| per share) 287


ONGC’S EPS would decrease from | 26.4 (Brent oil prices: US$115/barrel to | 25.1 in FY14E if Brent crude oil prices sustain at US$125/barrel. However, its EPS would increase to | 29.6/share in FY14E if Brent crude oil prices decline to US$90/barrel. Exhibit 45: P/E chart

0

100

200

300

400

500

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12

Shar

e Pr

ice

(|)

Price 6x 8x 10x 12x 14x


ONGC is trading at 9.9x FY14E EPS of | 26.4 against the

five-year historical average of 10.2x


Exhibit 46: P/BV chart

0

100

200

300

400

500

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12Sh

are

Pric

e (|

)Price 1x 1.4x 1.8x 2.2x 2.6x


ONGC is currently trading at EV of US$ 4.4 per boe against the global average of US$ 15 per boe for pure upstream companies and US$ 16 per barrel for integrated oil & gas companies. Exhibit 47: Global upstream players Company Market Cap (US$ mn) EV / 2P Reserves (US$/boe)Canadian Natural Resources 35860 9Encana Corp 12967 14Cnooc ltd. 91775 27Talisman Energy inc 12827 14Anadarko Petroleum corp 38543 20Apache Corp 37975 15Chesapeake Energy Corp 15377 10Devon Energy Corporation 28534 10Eog Resources inc 29365 16Average 15

Source: Bloomberg, ICICIdirect.com Research

Exhibit 48: Global integrated players

Company Market Cap (US$ mn) EV / 2P Reserves (US$/boe)Cenovus Energy inc 27112 13Continental Resources inc/ok 15254 32Imperial Oil Ltd 38319 12Petrochina Co. Ltd 278977 14Royal Dutch Shell PLC-a shs 222945 18Woodside Petroleum Ltd 29192 27BP PLC 139668 10Chevron Corp 211239 18Conocophilips 96502 14Exxon Mobil Corp 405714 17Hess Corp 19958 16Husky Energy inc 24440 23Lukoil oao 52017 3Occidental Petroleum Corp 76588 25Suncor Energy inc 50781 14TNK-BP Holding-cls 47690 6Average 16

Source: Bloomberg, ICICIdirect.com Research

ONGC is trading at 1.4x FY14E P/BV of | 185.3 against the

five-year historical average of 2.1x


Financial summary

Profit & Loss Statement (Standalone)

(| Crore)(Year-end March) FY10 FY11 FY12E FY13E FY14ERevenue 61,645.5 69,165.4 75,414.4 76,585.4 81,692.6Growth (%) -4.4 12.2 9.0 1.6 6.7(Inc.)/Dec. in stock trade -118.0 -12.9 -125.7 0.0 0.0Raw material Costs 579.5 635.3 630.6 676.0 700.0Employee Costs 1106.7 1303.2 1424.4 1566.9 1723.5Statutory Levies 11987.3 13925.3 16146.5 22143.8 23729.9Other Expenditure 10935.7 12295.7 13378.8 13792.1 14602.1Op. Expenditure 24,491.2 28,146.5 31,454.6 38,178.7 40,755.6EBITDA 37,154.3 41,018.9 43,959.8 38,406.7 40,937.1Growth (%) 16.7 10.4 7.2 -12.6 6.6Depreciation 14,658.8 15,943.0 16,584.4 16,663.2 20,053.8EBIT 22,495.5 25,075.9 27,375.4 21,743.5 20,883.3Interest 68.7 25.1 17.4 20.0 20.0Other Income 2,557.0 2,568.2 6,713.1 3,298.3 3,064.3PBT 24,983.8 27,619.0 34,071.1 25,021.8 23,927.6Growth (%) 4.3 10.5 23.4 -26.6 -4.4Tax 8,216.3 8,695.0 11,172.7 7,663.8 7,417.5Reported PAT 16,767.6 18,924.0 22,898.4 17,358.0 16,510.0Growth (%) 4.0 12.9 21.0 -24.2 -4.9

Balance Sheet (Standalone)

(| Crore)(Year-end March) FY10 FY11 FY12E FY13E FY14ESource of FundsEquity Capital 2,138.9 4,277.8 4,277.8 4,277.8 4,277.8Preference Capital 0.0 0.0 0.0 0.0 0.0Reserves & Surplus 85,143.7 93,226.7 106,865.8 114,414.3 121,164.6Shareholder's Fund 87,282.6 97,504.4 111,143.5 118,692.1 125,442.4Loan Funds 5.0 0.0 0.0 0.0 0.0Deferred Tax Liability 8,918.2 9,950.4 10,950.4 11,950.4 12,950.4Well Abandonment Sinking Fund 16,400.7 17,564.3 18,564.3 19,564.3 20,564.3Source of Funds 112606.5 125019.1 140658.2 150206.7 158957.0

Application of FundsNet Block 15,648.5 18,639.5 27,470.0 36,440.7 42,551.8Capital WIP 10,241.4 14,031.6 13,243.6 12,663.6 10,846.6Producing Properties 40,282.2 43,575.7 47,577.9 52,613.9 60,063.3Pre-Producing Properties 5,549.7 7,747.2 9,270.7 11,106.1 14,164.4Total Fixed Assets 71,721.7 83,994.0 97,562.2 112,824.2 127,626.1Investments 5,772.0 5,332.8 5,332.8 5,332.8 5,332.8Inventories 4,678.6 4,119.0 4,958.8 5,035.8 5,371.6Debtor 3,058.6 3,845.9 4,235.6 4,301.4 4,588.2Cash 18,231.0 22,446.6 25,417.6 19,689.5 15,311.2Loan & Advance, Other CA 27,803.1 28,232.2 27,057.2 25,882.2 24,707.2Total Current assets 53,771.3 58,643.6 61,669.1 54,908.8 49,978.2Current Liabilities 12,087.6 18,814.9 16,529.2 16,785.9 17,905.2Provisions 7,412.4 4,932.5 8,172.8 6,869.3 6,870.9Total CL and Provisions 19,500.0 23,747.4 24,702.0 23,655.2 24,776.2Net Working Capital 34,271.4 34,896.2 36,967.2 31,253.6 25,202.0Miscellaneous expense 841.3 796.0 796.0 796.0 796.0Application of Funds 112606.4 125019.1 140658.2 150206.7 158957.0


Cash Flow Statement (Standalone)

(| Crore)(Year-end March) FY10 FY11 FY12E FY13E FY14EProfit after Tax 16,767.6 18,924.0 22,898.4 17,358.0 16,510.0Less: Dividend Paid 8,219.8 8,701.7 9,259.3 9,509.5 9,759.8Add: Depreciation 14,658.8 15,943.0 16,584.4 16,663.2 20,053.8Add: Others 1,116.0 1,032.2 1,000.0 1,000.0 1,000.0Cash Profit 24,131.8 27,242.8 31,223.5 25,511.7 27,804.0Increase/(Decrease) in CL -1,605.2 4,247.4 954.6 -1,046.8 1,121.0(Increase)/Decrease in CA -36.5 -656.7 -54.5 1,032.2 552.3CF from Operating Activities 22490.1 30833.4 32123.7 25497.1 29477.4Purchase of Fixed Assets 23,042.9 28,215.2 30,152.6 31,925.3 34,855.7(Inc)/Dec in Investments -681.7 439.2 0.0 0.0 0.0Others 0.0 0.0 0.0 0.0 1.0CF from Investing Activities -23724.7 -27776.0 -30152.6 -31925.3 -34855.7Inc/(Dec) in Loan Funds 369.9 1,158.6 1,000.0 1,000.0 1,000.0Inc/(Dec) in Sh. Cap. & Res. -0.5 -0.5 0.0 -299.9 0.0Others 0.0 0.0 0.0 0.0 1.0CF from financing activities 369.4 1158.1 1000.0 700.1 1000.0Change in cash Eq. -865.2 4,215.6 2,971.0 -5,728.1 -4,378.3Op. Cash and cash Eq. 19,096.2 18,231.0 22,446.6 25,417.6 19,689.5Cl. Cash and cash Eq. 18231.0 22446.6 25417.6 19689.5 15311.2

Key Ratios (Standalone)

(Year-end March) FY10 FY11 FY12E FY13E FY14EPer share data (|)Book Value 102.0 114.0 129.9 138.7 146.6Cash per share 21.3 26.2 29.7 23.0 17.9EPS 19.6 22.1 26.8 19.9 19.3Cash EPS 36.7 40.8 46.1 39.4 42.7DPS 8.2 8.7 9.3 9.5 9.8Profitability & Operating RatiosEBITDA Margin (%) 60.3 59.3 58.3 50.1 50.1PAT Margin (%) 27.2 27.4 30.4 22.7 20.2Fixed Asset Turnover (x) 0.9 0.8 0.8 0.7 0.6Inventory Turnover (Days) 27.7 21.7 24.0 24.0 24.0Debtor (Days) 18.1 20.3 20.5 20.5 20.5Current Liabilities (Days) 71.6 99.3 80.0 80.0 80.0Return Ratios (%)RoE 19.2 19.4 20.6 14.6 13.2RoCE 26.0 25.9 24.8 18.4 16.8RoIC 33.0 33.8 32.2 22.1 19.1Valuation Ratios (x)PE 13.7 12.1 10.0 13.4 13.9Price to Book Value 2.6 2.4 2.1 1.9 1.8EV/EBITDA 5.7 5.0 4.6 5.5 5.2EV/Sales 3.4 3.0 2.7 2.7 2.6Leverage & Solvency RatiosDebt to equity (x) 0.0 0.0 0.0 0.0 0.0Interest Coverage (x) 327.7 998.6 1,573.3 1,087.2 1,044.2Debt to EBITDA (x) 0.0 0.0 0.0 0.0 0.0Current Ratio 2.8 2.5 2.5 2.3 2.0Quick ratio 2.5 2.3 2.3 2.1 1.8


Profit & Loss Statement (Consolidated)

(| Crore)(Year-end March) FY10 FY11 FY12E FY13E FY14ERevenue 103,438.9 121,929.3 143,460.1 150,958.8 163,499.1Growth (%) -2.9 15.6 18.8 4.7 8.5(Inc.)/Dec. in stock trade -372.9 -891.7 -658.6 0.0 0.0Raw material Costs 25711.9 32143.2 44445.6 49116.3 55130.8Employee Costs 1407.1 1715.6 2022.0 2126.9 2423.5Statutory Levies 17015.4 19684.7 22301.2 26496.8 28717.9Other Expenditure 13559.6 20628.4 22389.9 22332.1 23202.1Op. Expenditure 57,321.1 73,280.2 90,500.1 100,072.1 109,474.3EBITDA 46,117.7 48,649.1 52,960.1 50,886.8 54,024.7Growth (%) 8.4 5.5 8.9 -3.9 6.2Depreciation 18,739.1 16,522.5 17,107.1 17,733.2 21,989.8EBIT 27,378.6 32,126.6 35,852.9 33,153.5 32,035.0Interest 556.4 437.4 461.0 410.6 495.6Other Income 3,619.2 2,627.1 4,155.2 3,578.3 3,424.3PBT 30,441.4 34,316.3 42,707.2 36,321.2 34,963.6Growth (%) -2.3 12.7 24.5 -15.0 -3.7Tax 10,713.8 11,491.3 14,725.9 12,458.0 12,060.3Reported PAT 19,727.6 22,825.0 27,981.2 23,863.2 22,903.3Growth (%) -2.1 15.7 22.6 -14.7 -4.0

Balance Sheet (Consolidated)

(| Crore)(Year-end March) FY10 FY11 FY12E FY13E FY14ESource of FundsEquity Capital 2,138.9 4,277.8 4,277.8 4,277.8 4,277.8Reserves & Surplus 99,267.8 111,049.5 128,939.6 142,203.2 154,245.0Shareholder's Fund 101,406.6 115,327.2 133,217.4 146,481.0 158,522.8Loan Funds 6,266.9 6,291.2 6,594.8 10,208.8 8,061.8Abandon cost liability 17459.0 19850.4 21050.4 22250.4 23450.4Deferred Tax Liability 10,291.2 11,152.6 12,284.8 13,436.8 14,588.8Minority Interest 1,643.2 2,001.9 1,965.9 1,965.9 1,965.9Source of Funds 137067.0 154623.4 175113.2 194342.8 206589.6

Application of FundsNet Block 33,914.7 35,857.9 42,620.5 64,261.3 72,404.4Capital WIP 17,601.3 27,378.6 27,095.4 21,595.4 18,953.4Producing Properties 51,166.5 57,189.6 64,187.0 72,876.9 84,784.2Pre-Producing Properties 8,012.5 10,237.9 12,259.5 14,692.7 18,468.3Total Fixed Assets 110,695.1 130,664.1 146,162.4 173,426.2 194,610.3Investments 5,159.3 3,356.1 3,387.1 3,387.1 3,387.1Inventories 8,240.1 8,567.6 11,339.0 12,061.5 13,128.6Debtor 7,142.4 9,772.4 11,071.7 11,563.0 12,393.9Cash 14,970.2 20,562.0 23,252.0 14,924.1 8,243.6Loan & Advance, Other CA 20,216.2 20,029.8 21,578.8 21,163.6 19,891.0Total Current assets 50,568.9 58,931.8 67,241.5 59,712.2 53,657.1Current Liabilities 22,681.9 34,036.6 34,029.5 35,710.7 38,524.7Provisions 7,515.8 5,088.0 8,444.3 7,267.9 7,336.2Total CL and Provisions 30,197.7 39,124.6 42,473.7 42,978.6 45,860.9Net Working Capital 20,371.3 19,807.1 24,767.7 16,733.5 7,796.3Miscellaneous expense 841.3 796.1 796.0 796.0 796.0Application of Funds 137067.0 154623.4 175113.2 194342.8 206589.6


Cash Flow Statement (Consolidated)

(| Crore)(Year-end March) FY10 FY11 FY12E FY13E FY14EProfit after Tax 19,727.6 22,825.0 27,981.2 23,863.2 22,903.3Less: Dividend Paid 8,257.5 8,738.9 9,239.4 9,489.1 9,738.9Add: Depreciation 18,739.1 16,522.5 17,107.1 17,733.2 21,989.8Add: Others 1,109.3 128.2 0.0 0.0 0.0Cash Profit 31,318.5 31,874.0 36,945.1 33,259.3 36,306.3Increase/(Decrease) in CL 1,958.7 8,927.0 3,349.1 504.9 2,882.3(Increase)/Decrease in CA -517.2 -2,771.1 -5,619.8 -798.6 -625.4CF from Operating Activities 32760.0 38029.9 34674.5 32965.6 38563.1Purchase of Fixed Assets 29,478.7 36,491.5 32,605.4 44,997.1 43,173.9(Inc)/Dec in Investments -1,679.0 1,803.2 -31.0 0.0 0.0Others 0.0 0.0 0.0 0.0 1.0CF from Investing Activities -31157.6 -34688.3 -32636.4 -44997.1 -43173.9Inc/(Dec) in Loan Funds 21.7 2,415.6 1,503.6 4,814.0 -947.0Inc/(Dec) in Sh. Cap. & Res. -2,286.9 -165.5 -851.7 -1,110.5 -1,122.7Others 0.0 0.0 0.0 0.0 1.0CF from financing activities -2265.2 2250.1 651.9 3703.5 -2069.7Change in cash Eq. -662.9 5,591.8 2,689.9 -8,327.9 -6,680.5Op. Cash and cash Eq. 15,633.1 14,970.2 20,562.0 23,252.0 14,924.1Cl. Cash and cash Eq. 14970.3 20562.0 23252.0 14924.1 8243.6

Key Ratios (Consolidated)

(Year-end March) FY10 FY11 FY12E FY13E FY14EPer share data (|)Book Value 118.5 134.8 155.7 171.2 185.3Cash per share 17.5 24.0 27.2 17.4 9.6EPS 22.7 26.2 32.5 27.5 26.4Cash EPS 44.6 45.6 52.5 48.3 52.1DPS 8.2 8.7 9.3 9.5 9.8Profitability & Operating RatiosEBITDA Margin (%) 44.6 39.9 36.9 33.7 33.0PAT Margin (%) 19.1 18.7 19.5 15.8 14.0Fixed Asset Turnover (x) 0.9 0.9 1.0 0.9 0.8Inventory Turnover (Days) 48.8 45.2 54.9 57.5 58.7Debtor (Days) 42.3 51.6 53.6 55.1 55.4Current Liabilities (Days) 134.3 179.6 164.7 170.2 172.1Return Ratios (%)RoE 19.5 19.8 21.0 16.3 14.4RoCE 25.6 26.6 25.8 21.3 19.3RoIC 29.8 32.0 31.0 23.5 20.3Valuation Ratios (x)PE 11.8 10.2 8.2 9.7 10.2Price to Book Value 2.3 2.0 1.7 1.6 1.4EV/EBITDA 4.8 4.4 4.0 4.4 4.2EV/Sales 2.1 1.8 1.5 1.5 1.4Leverage & Solvency RatiosDebt to equity (x) 0.1 0.1 0.0 0.1 0.1Interest Coverage (x) 49.2 73.4 77.8 80.7 64.6Debt to EBITDA (x) 0.1 0.1 0.1 0.2 0.1Current Ratio 1.7 1.5 1.6 1.4 1.2Quick ratio 1.4 1.3 1.3 1.1 0.9


Annexure

MRPL refinery, a subsidiary of ONGC Mangalore Refinery and Petrochemicals (MRPL) was incorporated in 1987 by Hindustan Petroleum Corporation Limited (HPCL), a public sector company and Indian Rayon & Industries Ltd and its associate companies (AV Birla Group). In March 2003, ONGC acquired the 37.4% stake of equity held by Indian Rayon & Industries and, subsequently, increased its holding to the present level of 71.62%. In 2011, MRPL revised its nameplate capacity from 9.69 MMTPA to 11.82 MMTPA and has a Nelson index of 6.0. The refinery, located on the west coast of India, is designed to produce a whole range of products (~ 55% of middle distillates), supplying to both the domestic and export market. MRPL has been operating at an average capacity utilisation of 120% for the last five years. During FY11, the company achieved a refinery crude throughput of 12.64 MMT. MRPL reported revenues and PAT of | 39,169.2 crore and | 1,176.2 crore, respectively in FY11. MRPL is implementing various plans to improve GRM, manufacture VAP & get better distillate yield. The company is expanding its throughput capacity from 11.8 MMTPA to 15.4 MMTPA through its refinery upgradation and expansion project (Phase III refinery project) costing | 13,964 crore. This project would add 3 MMTPA and the remaining 0.6 MMTPA would come through CDU/VDU revamp in phase I refinery. After the expansion, the nelson complexity is expected to increase from 6.0 to 9.0. The Phase III refinery project is scheduled to be commissioned by March 2012.

Exhibit 49: Blocks awarded to ONGC under NELP rounds NELP rounds I II III IV V VI VII VIII Total

Blocks awarded 24 23 23 20 20 52 41 32 235

Awarded to ONGC+ ONGC consortia 9 16 13 14 8 25 19 17 121

Surrendered blocks (ONGC operated) 7 14 6 1 1 0 0 0 29

With ONGC (Operator) 2 1 6 11 3 24 18 14 79

With ONGC (Non-Operator) 0 0 0 2 3 1 1 3 10


Exhibit 50: ONGC domestic reserves break-up Fields 1P 2P 3P

Oil plus condensate

62 fields 217.6 255.2 282.6

Mumbai High 119.9 131.7 186.0

Total Oil plus condensate for 63 fields 337.5 386.9 468.5

Gas

63 fields 241.3 366.8 435.9

Mumbai High 46.5 58.3 72.6

Total Gas for 63 fields 287.8 425.0 508.6

Total Oil plus oil equivalent gas for 63 fields 625.3 811.9 977.1

Uncertified reserves (owned & operated) 98.3 173.7 234.9

Domestic JV (ONGC's share) 34.8 39.2 41.3

Grand Total 758.4 1024.7 1253.3



Exhibit 51: ONGC overseas reserves details

Blocks, Country 1P 2P 3P

Imperial, Russia 22.5 111.3 111.3

Sakhalin-1, Russia 107.0 139.6 139.6

GNOP, Sudan/South Sudan 17.4 21.9 33.1

Block 5A, South Sudan 6.6 7.5 8.5

AFPC, Syria 3.2 3.2 4.0

Block 24, Syria 1.8 3.5 3.7

Block BC-10, Brazil 6.0 6.7 6.7

MECL, Colombia 4.1 5.1 5.9

PIVSA, Venezuela 12.7 12.7 12.7

Block 06.1,Vietnam 11.2 15.3 19.5

Blocks A1, A3, Myanmar 10.3 21.8 37.3

Carabobo-1,Blocks,Venezuela 0.0 53.0 53.0

Grand Total (A+B) 202.9 401.5 435.0



Glossary & conservation factors 1P Proven2P Proven plus probable3P Proven plus probable and possiblebbls barrelsbcm billion cubic meterboepd barrels of oil equivalent per daybopd barrels of oil per dayEOR Enchanced oil recoveryIOR Improved oil recoverymmbbls million barrelsmmboe million barrels of oil equivalentmmbtu million british thermal unitmmscf million standard cubic feet of gasmmscfd million standard cubic feet of gas per daymmscmd million standard cubic meter per daymmt million metric tonneNELP New Exploartion and Licensing PolicyPSC Production sharing contract1 barrel = 5.8 mmbtu1 bcm = 6.29 mmboe1 kl = 6.293 barrels 1 metric tonne = 7.205 bbls1 mmt = 1.145 bcm


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