India Daily: August 13, 2012
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INDIA DAILY August 13, 2012 India 10-Aug 1-day1-mo 3-mo Sensex 17,558 (0.0) 2.0 7.8 Nifty 5,320 (0.0) 1.8 7.9 Contents Global/Regional indices Daily Alerts Dow Jones 13,208 0.3 3.4 3.0 Nasdaq Composite 3,021 0.1 3.9 3.0 Results FTSE 5,847 (0.1) 3.2 4.9 Oil & Natural Gas Corporation: Well done with low dry wells Nikkie 8,892 0.0 1.9 (0.7) Hang Seng 20,098 (0.2) 5.3 0.7 State Bank of India: Letdown in a few areas KOSPI 1,939 (0.4) 6.9 1.1 Siemens: Margins volatile; setback in wind business Value traded – India Reliance Communications: 1QFY13 results: No surprises Cash (NSE+BSE) 126 112 115 GMR Infrastructure: Concerns about regulatory uncertainty, fuel supply, large Derivatives (NSE) 937 1,004 1,107 equity requirement remain Deri. open interest 1,391 1,295 1,160 Bharat Forge: Revenue growth likely to remain under pressure India Infoline: Lending business drives earnings Eros International: Well begun Forex/money market Change, basis points Results, Change in Reco 10-Aug 1-day 1-mo 3-mo Rs/US$ 55.3 11 29 134 Sun Pharmaceuticals: Risk-reward turns less favourable 10yr govt bond, % 8.3 - (3) (34) Net investment (US$mn) Company 9-Aug MTD CYTD FIIs 58 698 11,233 Reliance Communications: FY2012 annual report analysis MFs (45) (93) (282) Sector Top movers -3mo basis Energy: Highest, largest, biggest (losses) Change, % Best performers 10-Aug 1-day 1-mo 3-mo Industrials: Has the investment activity bottomed out? Z IN Equity 167.5 2.1 15.9 38.3 FTECH IN Equity 805.8 0.6 8.2 38.1 DIVI IN Equity 1126.7 0.7 7.7 37.1 ACEM IN Equity 194.3 0.6 15.6 35.2 UNSP IN Equity 825.1 (1.2) 6.5 34.3 Worst performers ADE IN Equity 177.5 (0.2) (20.2) (29.4) TTMT IN Equity 232.0 (3.1) (1.7) (22.0) UNBK IN Equity 163.5 0.1 (23.0) (20.6) TPW IN Equity 154.5 (1.2) (15.0) (19.9) RCOM IN Equity 54.7 (0.4) (19.9) (19.1) For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. ADD Oil & Natural Gas Corporation (ONGC) Energy AUGUST 11, 2012 RESULT Coverage view: Neutral Well done with low dry wells. ONGC reported sharply higher net income of `60.8 bn Price (Rs): 279 (+7.7% qoq, +48.4% yoy) versus our estimate of `51.5 bn led by unexpectedly lower Target price (Rs): 310 DD&A expenses of `32 bn. Increase in fuel prices in the near term is essential to BSE-30: 17,558 manage large subsidy losses and will provide more comfort regarding FY2013E profits. We retain our ADD rating with a 12-month forward target price of `310 (`305 previously). Key downside risks stem from higher-than-expected subsidy burden. Company data and valuation summary Oil & Natural Gas Corporation Stock data Forecasts/Valuations 2012 2013E 2014E 52-week range (Rs) (high,low)304-240 EPS (Rs) 32.8 32.7 33.8 QUICK NUMBERS Market Cap. (Rs bn) 2,386.6 EPS growth (%) 33.1 (0.4) 3.3 Shareholding pattern (%) P/E (X) 8.5 8.5 8.3 • 31% burden on Promoters 69.2 Sales (Rs bn) 1,537.9 1,682.4 1,763.5 FIIs 5.3 Net profits (Rs bn) 280.9 279.8 289.0 upstream in MFs 1.6 EBITDA (Rs bn) 650.3 662.9 703.2 1QFY13; 82% share Price performance (%) 1M 3M 12M EV/EBITDA (X) 3.4 3.1 2.6 of ONGC Absolute 0.4 8.9 (2.3) ROE (%) 17.0 15.0 13.9 Rel. to BSE-30 0.7 1.9 (4.6) Div. Yield (%) 3.5 3.6 4.1 • 8.5X FY2013E earnings; 3.6% Net income boosted by lower DD&A expenses dividend yield ONGC reported 1QFY13 net income (standalone) of `60.8 bn (+7.7% qoq, +48.4% yoy) sharply higher than our estimate of `51.5 bn largely due to lower DD&A expenses of `32 bn (-34.8% qoq, • 11% upside from -22.4% yoy) versus our expected `48.5 bn. Oil sales volume declined 0.6% qoq to 5.9 mn tons current levels despite higher production from Rajasthan block reflecting a decline in production from ONGC’s own fields (-2.4% qoq). Gas sales volumes declined 2.1% qoq to 5.1 bcm. ONGC’s EBITDA was `111.3 bn (-3.9% qoq, +17.5% yoy) modestly lower than our estimate of `114.3 bn. Risk exists from higher subsidy losses; increase in fuel prices necessary We compute large gross under-recoveries of `1.9 tn for FY2013 assuming current crude oil price of US$113/bbl for the rest of the year, exchange rate of `55/US$ and unchanged retail prices. We do not rule out risk to earnings of upstream companies from a higher subsidy burden given the Government’s stretched financial condition. We believe the current situation necessitates an increase in prices of regulated fuels, particularly diesel, to restrict under-recoveries. We assume (1) moderate price increases in diesel, kerosene and LPG from mid-September 2012, and (2) lower crude oil prices, resulting in manageable gross under-recoveries of `1.2 tn in FY2013E. FY2013E consolidated EPS `33 despite higher cess burden and steady net crude realizations We estimate ONGC’s FY2013 EPS (standalone) at `29.1 versus `27.3 in FY2012 assuming (1) net realizations of US$54.6/bbl, (2) higher realizations for natural gas and VAP in Rupee terms (exchange rate of `53.75/US$), (3) higher oil production from Cairn’s Rajasthan block and (4) modest increase in gas production. We expect OVL to contribute `3.8 to ONGC’s FY2013 consolidated EPS versus adjusted EPS of `5.5 in FY2012. The modest decline in OVL’s profits for FY2013E despite likely lower production (shut-down in South Sudan and Syria) and lower crude oil prices reflect our assumption of a weaker Rupee. We fine tune earnings; maintain ADD with a revised target price of `310 We have revised our FY2013-15E EPS to `32.7 (+0.5%), `33.8 (-0.9%) and `35.7 (+2%) to reflect (1) changes in subsidy sharing assumptions, (2) higher crude price for FY2013E, (3) 1QFY13 results and (4) other minor changes. We maintain our ADD rating on the stock with a revised target price of `310 (`305 previously) based on 9X 12-month forward EPS plus value of investments. For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Oil & Natural Gas Corporation Energy Key highlights of 1QFY13 results Exhibit 1 gives key highlights of ONGC’s 1QFY13 results and compares them on a yoy and qoq basis. ONGC standalone interim results, March fiscal year-ends (` mn) (% chg.) yoy 1QFY13 1QFY13E 1QFY12 4QFY12 1QFY13E 1QFY12 4QFY12 FY2012 FY2011 (% chg.) FY2013E Net sales 201,778 209,085 164,019 193,399 (3.5) 23.0 4.3 776,504 672,674 15.4 891,992 Total expenditure (90,473) (94,782) (69,320) (77,628) (4.5) 30.5 16.5 (306,196) (281,465) 8.8 (388,860) Increase/(decrease) in stock in trade (1,196) 705 (344) 913 129 Raw materials (a) (1,498) (1,400) (1,488) (1,878) 7.0 0.6 (20.3) (6,537) (6,215) 5.2 (5,661) Trading purchase (9) — (6) (8) (25) (138) — Staff expenditure (3,304) (3,502) (3,098) (3,347) (5.6) 6.7 (1.3) (13,091) (13,032) 0.5 (14,008) Statutory levies (52,679) (55,983) (37,306) (43,641) (5.9) 41.2 20.7 (166,185) (139,253) 19.3 (233,044) Other expenditure (31,787) (33,897) (28,127) (28,410) (6.2) 13.0 11.9 (121,271) (122,957) (1.4) (136,148) EBITDA 111,305 114,303 94,700 115,771 (2.6) 17.5 (3.9) 470,308 391,209 20.2 503,132 Other income 10,385 10,557 7,270 9,930 (1.6) 42.8 4.6 44,790 25,682 74.4 45,406 Interest (293) (103) (40) (224) 184.2 630.9 30.7 (348) (251) 38.7 (538) DD&A (31,981) (48,459) (41,225) (49,064) (34.0) (22.4) (34.8) (168,390) (159,430) 5.6 (180,072) Depletion (16,950) (17,098) (14,240) (13,120) (0.9) 19.0 29.2 (60,700) (54,360) 11.7 (71,678) Depreciation (2,850) (3,986) (3,910) (3,180) (28.5) (27.1) (10.4) (14,160) (20,000) (29.2) (16,144) Dry wells written off (9,326) (22,750) (18,790) (29,820) (59.0) (50.4) (68.7) (80,930) (65,820) 23.0 (74,750) Survey expenses (2,680) (4,625) (4,270) (2,990) (42.1) (37.2) (10.4) (12,500) (17,730) (29.5) (17,500) Impairment loss and other adjustments (180) — (10) 40 (100) (1,520) — Pretax profits 89,415 76,297 60,704 76,412 17.2 47.3 17.0 346,360 257,210 34.7 367,928 Extraordinary/Prior-period adjustment — — — 4,824 26,240 19,562 — Tax (26,687) (21,306) (22,220) (16,200) 25.3 20.1 64.7 (108,896) (77,209) 41.0 (103,308) Deferred tax (1,951) (3,449) 2,465 (8,593) (12,475) (10,322) (16,067) Net income 60,777 51,543 40,949 56,444 17.9 48.4 7.7 251,229 189,240 32.8 248,554 Adjusted net income 60,777 51,543 40,949 53,185 17.9 48.4 14.3 233,537 175,865 32.8 248,554 Adjusted EPS (Rs) 7.1 6.0 4.8 6.2 27.3 20.6 29.1 Tax rate (%) 32.0 32.4 32.5 32.4 32.6 31.6 32.4 Volume data Subsidy loss 123,458 123,458 120,463 141,696 2.5 (12.9) 444,656 248,924 78.6 382,554 Crude production ex JVs ('000 tons) 5,642 5,933 5,779 (4.9) (2.4) 23,712 24,420 (2.9) Crude production - JVs ('000 tons) 901 825 808 9.2 11.5 3,213 2,860 12.3 Gas production ex JVs (mcm) 5,925 5,605 6,028 5.7 (1.7) 23,316 23,100 0.9 Gas production - JVs (mcm) 492 557 531 (11.7) (7.3) 2,194 2,230 (1.6) Crude sales ex JVs ('000 tons) 4,789 4,945 4,843 (3.2) (1.1) 19,682 20,379 (3.4) 19,400 Crude sales - JVs ('000 tons) 1,111 742 1,091 49.7 1.8 3,397 2,548 33.3 4,859 Gas sales ex JVs (mcm) 4,681 4,379 4,750 6.9 (1.5) 18,203 18,224 (0.1) 18,750 Gas sales - JVs (mcm) 435 499 476 (12.8) (8.6) 1,971 2,025 (2.7) 1,804 Crude sales ('000 tons) 5,900 5,908 5,687 5,934 (0.1) 3.7 (0.6) 23,079 22,927 0.7 24,259 Gas sales (mcm) 5,116 5,230 4,878 5,226 (2.2) 4.9 (2.1) 20,174 20,249 (0.4) 20,554 LPG (000 tons) 234 253 238 266 (7.3) (1.7) (12.0) 1,033 1,058 (2.4) 1,050 Naphtha/NGL 362 375 349 403 (3.5) 3.7 (10.2) 1,557 1,601 (2.7) 1,535 C2/C3 90 119 85 117 (24.2) 5.9 (23.1) 461 387 19.1 475 SKO 28 20 24 26 41.8 16.7 7.7 79 118 (33.1) 79 Pricing data (US$/bbl) Gross crude price realization 109.9 111.4 121.3 121.6 (1.4) (9.4) (9.7) 117.4 89.4 31.3 104.8 Subsidy discount 63.3 66.4 72.5 77.3 (4.7) (12.8) (18.2) 62.7 35.6 75.9 50.3 Net crude price realization 46.6 45.0 48.8 44.3 3.6 (4.4) 5.2 54.7 53.8 1.7 54.6 Notes: (a) Represents consumption of stores & spares.