idr_ongc_040212_51849

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March 30, 2012

nitiating Coverage

ICICI Securities Ltd|Retail Equity Research

Oil giant pushing through obstaclesOil & Natural Gas Corporation (ONGC), Indias largest national oil & gascompany, is primarily engaged in exploration, development andproduction of crude oil and natural gas in both India and abroad. ONGCscore strength lies in its strong resource base and increasing productionresulting from aggressive capex. We expect ONGC to grow at a CAGR of10.2% in revenues over FY11-14E on the back of steady growth inrevenues from oil & gas sales and growth in MRPLs revenues. ONGC isexpected to report net profit of | 22,903.3 crore in FY14E. Thegovernment reforms in pricing of petroleum products/price hikes wouldadd significantly to the earnings and valuation of the company. We areinitiating 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 gasreserves base of 961 mmtoe, 1,426 mmtoe and 1,688 mmtoe,respectively. The company has managed to maintain a diversifiedportfolio of yielding assets through its wholly owned subsidiary ONGCVidesh Ltd (OVL). We expect ONGC groups oil & gas production at 63.5mmtoe and 67.7 mmtoe in FY13E and FY14E, respectively, implyinggrowth at a CAGR of 2.9% over FY11-14E. The production growth wouldmainly 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 inevitablein the backdrop of high crude oil prices and gross under-recoveries.ONGC would be a major beneficiary of government reforms in the pricingof petroleum products. Any reforms and price hikes in petroleumproducts like diesel, LPG and kerosene would add significantly to itsearnings. ONGCs EPS would increase by ~| 2.3 for | 10,000 crorereduction in under-recoveries (38.7% upstream sharing).

ValuationsWe believe ONGCs large reserves base, increasing production due toaggressive capital expenditure and price hikes/reforms on part of theIndian 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 ratingand 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

ting Matrix

ting : Holdget : |287get Period : 12-15months

tential Upside : 7 %

Y Growth (%)

Y Growth (%) FY11 FY12E FY13E FY14E

t Sales 15.6 18.8 4.7 8.5

ITDA 5.5 8.9 -3.9 6.2

t Profit 15.7 22.6 -14.7 -4.0

rrent & target multiple

FY11 FY12E FY13E FY14E

(x) 10.2 8.2 9.7 10.2

rget PE (x) 10.9 8.8 10.4 10.9

/EBITDA (x) 4.4 4.0 4.4 4.2

BV (x) 2.0 1.7 1.6 1.4

/Sales (x) 1.8 1.5 1.5 1.4

NW (%) 19.8 21.0 16.3 14.4

CE (%) 26.6 25.8 21.3 19.3

ock Data

oomberg Code/Reuters Code ONGC IN/ ONGC.NS

nsex 17404

erage volumes 374256

arket Cap (| crore) 229289.0

week H/L 325/241

uity Capital (| crore) 4277.8

omoters Stake (%) 69.2

Holding (%) 5.3

Holding (%) 6.8

mparative return matrix (%)

mpany 1M 3M 6M 12M

NGC (8.0) (0.2) 2.7 (5.1)

India (1.7) 7.5 (3.5) (3.7)

irn India (8.6) 8.0 29.4 (0.8)

liance Industries (11.0) ( 4.1) (3.9) (28.9)

ce movement

50

100

150

200

250

300

350

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

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

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

alysts name

Mayur Matani

[email protected]

ishit Zota

[email protected]

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Page 2ICICI Securities Ltd|Retail Equity Research

Company Background

Oil & Natural Gas Corporation (ONGC) is Indias largest national oil & gascompany. Set up in 1956, ONGC is primarily engaged in the exploration,development and production of crude oil and natural gas in both Indiaand abroad. ONGC, through its wholly owned subsidiary ONGC VideshLtd (OVL), has a presence across 14 countries with participating interestsin 33 projects comprising ten producing projects, 18 exploration blocksand four development blocks for its E&P activities. The company is alsopresent in downstream refining and marketing operations in India throughits subsidiary MRPL, which operates a refinery with an installed capacityof 11.8 MMTPA. ONGC is also involved in production of LPG and othervalue added products, alternative energy projects and exploring thefeasibility of setting up a nuclear power project.

The ONGC group has large 1P, 2P and 3P crude oil and natural gasreserves 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 oiland natural gas reserves base of 986 mmtoe, 39 mmtoe and 402 mmtoe,respectively. In FY11, ONGC produced 27.3 million metric tonne (mmt) ofcrude oil and 25.3 billion cubic meters (bcm) of natural gas, representing72.4% and 48.5% of Indias total production of crude oil and natural gas,respectively. Offshore production forms majority of ONGCs total oil &natural gas production in FY11, with Mumbai High producing 10.6 mmt ofcrude oil and 4.6 bcm of natural gas. OVL produced 6.8 mmt and 2.7 bcmof crude oil and natural gas, respectively, in FY11. The ONGC groupsproduction 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 4.95.2 5.3

6.87.07.47.6

0

2

4

6

8

10

Q4FY11 Q1FY12 Q2FY12 Q3FY12

FII DII

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Investment Rationale

Large resource base; JVs, marginal fields to spearhead volume growth

ONGC is Indias largest E&P player with strong exploration and productioncapabilities 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 46offshore). ONGC has an aggressive exploration programme of | 44661.8crore in the next five years. The companys 1P, 2P and 3P crude oil &natural gas reserves base stands at 961 mmtoe, 1,426 mmtoe and 1,688mmtoe, respectively. These reserves include 758 mmtoe, 1,025 mmtoeand 1,253 mmtoe of 1P, 2P and 3P reserves, respectively, from thedomestic fields & 203 mmtoe, 402 mmtoe and 435 mmtoe of 1P, 2P and3P reserves, respectively, from international fields.

Exhibit 3:ONGC Group oil & natural gas reserves

724

35

203

961986

39

402

1426

1212

41

435

1688

0

450

900

1350

1800

ONGC JV OVL Total

mtoe

1P 2P 3P


Exhibit 4:Break-up of ONGC reserves1P 2P 3P

Oil

Domestic (inc.JV) 401 476 573

OVL 105 256 270

Total Oil (mmt) 505 733 843

Gas

Domestic (inc.JV) 358 548 680

OVL 98 145 165

Total Gas (bcm) 456 693 845

Total (mmtoe) 961 1426 1688


ONGC groups large resource and reserve base will drive

production growth and valuations

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

ONGC Groups 2P reserves

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

Exhibit 5:Reserve life (FY11)

14.4

19.523.8

21.4

42.445.9

0

5

10

15

20

25

30

35

40

4550

1P 2P 3P

reserve

life(years

)

ONGC OVL


A higher oil price (resulting in improved commercial viability) has led to astable reserve replacement ratio (RRR) in the second half of the lastdecade. ONGC reported a strong RRR of 1.8 in FY11 (five year average of1.5). Over FY08-11, ONGCs cumulative reserve accretion in FY08-11 hasbeen 299 mmtoe. ONGCs strong RRR indicates a potential for sustainablereserve accretion in future. Sustainable reserve accretion will driveproduction growth, which would eventually lead to higher earnings andvaluations.

Exhibit 6:ONGCs 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

mtoe

0.00.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

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

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Aggressive capex plans to sustain production levels

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

Exhibit 7:Aggressive capex plans

23559

2827631316

3306536163

0

8000

16000

24000

32000

40000

FY10 FY11 FY12E FY13E FY14E

(|

crore)


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

R&D

1%Integration

2%

Survey

6%

Development

drilling

18%

Exploratory

drilling

27%

Capital projects

46%


On the development side, ONGC has drilled 947 development wells inFY08-11. The company has spent | 16,513.6 crore towards development

drilling for FY08-11 and is expected to spend | 5830.6 crore and | 8,058.4crore in FY13E and FY14E, respectively. The company is planning to drill1120 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 98106

128 125

178

224 218

294

256

0

50

100

150

200

250

300

350

FY07 FY08 FY09 FY10 FY11

no

.of

we

lls

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

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Since 2000, ONGC has been implementing incremental/enhanced oilrecovery projects and redevelopment of existing fields to combat thenatural decline in these fields. This has increased the recovery factor from28% in 2000 to 33.5% in 2011. The cumulative gain through theseIOR/EOR projects has been ~ 64 MMT, with an incremental gain of 8.48MMT in FY11. ONGC has 21 IOR/EOR and redevelopment schemes in 15

major fields of which 15 have been completed and six are currently underimplementation. The total investment in these projects has been | 25,797crore (up to March, 2011) against a total planned investment of | 34,055crore. These projects have tried to keep overall production constant bysubstituting 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 projectsProject Project Cost (| crore)

IOR/ Redevelopment Projects

Heera & South Heera Redevelopment 2305

MHS Redevelopment Phase-II 8813

MHN Redevelopment Phase-II 7133

IOR Lakwa-Lakhmani 664

IOR Geleki 1674

IOR Rudrasagar 439

E&P Infrastructure development

Construction of new MHN Complex 6326

Pipeline Replacement-2 3796


Exhibit 12:Investment in new field development projectsProject Project Cost (| crore)

Development of C series Fields Phase 1 3195

Development of B-22 cluster Fields 2921



Additional Development od D-1 Field 2164

North Tapti Gas Field Development 755

G-1 & GS-15 Development 2218

Development of Cluster-7 Fields 3241

Development of WO-16 Cluster 2523

Development of BHE & BH-35 Area 372


ONGCs 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

ONGCs aggressive investment in new field development

projects (marginal fields) is expected to provide production

growth

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JVs+ marginal fields to spearhead crude oil and gas volumes

ONGC remains the largest producer of crude oil & natural gas, producing27.28 MMT of crude oil and 25.33 BCM of natural gas from domesticfields in FY11. The company contributes 72.4% of crude oil and 48.5% ofnatural gas production in India.

Exhibit 13:Area of domestic operations


We expect crude oil production from domestic fields to reach 28.2 mmtand 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 andmarginal 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 westernoffshore & G-1/GS-15 & Padmavati on the eastern offshore. A ramp-up inJV blocks would also add significantly to crude oil volumes. TheRajasthan block (Cairn-70%, ONGC-30%) would play a critical role involume addition. Production at most of the old nomination blocks isexhibiting a declining trend. We believe the production in old nominationblocks would continue to decline.

Exhibit 14:ONGCs domestic oil & gas production

24.7 24.4 23.9 24.3 26.1

1.8 2.9 3.2 3.94.2

23.1 23.1 23.2 24.626.4

2.02.12.22.22.5

0

15

30

45

60

75


mmtoe

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

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We expect gas production from domestic fields to reach 28.42 bcm byFY14E, implying a CAGR of 3.9% in FY11-14E. Most recent discoveries ofONGC happen to be gas discoveries, which could result in gas productiongrowing at a faster rate than crude oil. Most recent discoveries in theEastern 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. DamanOffshore, one of the largest discoveries in nomination blocks in recenttimes, is expected to come on stream in FY16 and contribute around 5BCM. The new and marginal fields on the western Coast-B-22, B-193, C-series, Cluster 7, North Tapti, etc. are together likely to contributesubstantially 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 withother oil & gas companies. The primary business of OVL is acquisition ofoil & gas fields in foreign countries, exploring, producing, transporting,exporting & carrying out other related functions. Currently, OVL has apresence in 14 countries, namely, Russia, Venezuela, Sudan, Myanmar,

Vietnam, Syria, Brazil, Colombia, Cuba, Libya, Nigeria, Kazakhstan, Iranand Iraq. Out of 33 projects, OVL is the operator in 11 and joint operatorin six.

OVL has 2P oil reserves of 256.5 million metric tones and 2P gas reservesof 145 billion cubic metres. It contributes ~ 28% to ONGCs consolidated2P reserves. OVLs primary assets are GNOP (Sudan), Carabobo(Venezuela) and Imperial & Sakhalin (Russia), which together account for78% of OVLs 2P reserves and 47% of its production. For FY11, theproduction for OVL amounted to 6.8 mmt of crude oil and 2.7 bcm ofnatural gas. ONGC Nile Ganga BV (ONGBV) is a wholly owned subsidiaryof OVL, engaged in E&P activities in Sudan, Syria, Venezuela, Brazil andMyanmar.

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 ONGCs

consolidated 2P reserves

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Exhibit 17:ONGC Videsh area of international operations


Exhibit 18:OVL participating interests in different producing areasCountry Project Participating Companies Current Status

Vietnam Block 06.1 (offshore) OVL 45%, BP 35% (Operator); PetroVietnam 20% Producing Gas & Condensate

Sudan GNOP OVL 25%; CNPC 40%, Petronas 30%, Sudapet 5% (GNPOC- Operator) Producing Oil

Sudan Block 5A OVL 24.125%;Petronas 67.875%;Sudapet 8%. (WNPOC-Operator) Producing Oil

Russia Sakhalin-I OVL 20%; ENL 30% (Operator) Sodeco 30%;SMNG-S 11.5% RN Astra 8.5% Producing Oil & Gas

Colombia 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 & Gas

Venezuela Sancristobal, PIVSA OVL 40%, PDVSA 60% (PIVSA - Operator) Producing Oil

Russia Imperial Energy OVL 100% Producing Oil

Brazil 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)


OVLs primary assets are GNOP (Sudan), Carabobo

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

together account for 78% of OVLs 2P reserves and 47% of

its production

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OVLs production has grown at a CAGR of 2.4% in FY08-11 againstONGCs standalone production, which remained flat for the same period.We expect OVLs production to be 8.6 mtoe and 9 mtoe in FY13E andFY14E, respectively.

Exhibit 20:OVLs oil & natural gas production

6.5 6.8 6.2 6.1 6.4

2.42.7

2.5 2.5 2.6

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0


mmtoe

Oil (MMT) Gas (BCM)


The Sakhalin Block accounts for a large share (~34%) of OVLs 2Preserve. The block is operated by Exxon (30%) and other partners Rosneft(20%), SODECO (30%) and OVL (20%). The Chavyo field has alreadyattained peak production earlier in the decade and is expected to exhibit adeclining trend, going ahead. The decline in the Chavyo field will be offsetby production from the Odoptu field, which commenced production inSeptember 2010. We expect production to rise, once production

commences in Arkutun-Dagi. The production from Arkutun-Dagi isexpected to start in FY15.

OVL holds a 100% stake in UK-listed Imperial, which mainly operates inthe Tomsk region of Western Siberia. There have been ramp-up issuesand production has declined post acquisition by OVL in January 2009.Imperials production in 2008 was 10000 bopd and it is currentlyproducing ~15000 bopd. We expect the operational issue to continue inthe near future.

Carabobo (Venezuela) is located in the heavy oil belt of Venezuela. OVLholds an 11% stake in the block. Marginal production of 20000 bopd isexpected to start in December 2012. By FY14, production is expected to

touch 50000 bopd. The license term is for 25 years and can be furtherextended 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 expectedto produce 200 mmscmd of gas from May 2013 onwards. Production isexpected to peak one year after the commencement of production. Asfaras Syria is concerned, the European Union and the US have imposedsanctions that have impacted exports. Volumes have started droppingsince Q3FY11. The ongoing dispute between North Sudan and SouthSudan has resulted in a shutdown of operations in South Sudan, This hasbrought down volumes from 1,20,000 bopd to 57,000 bopd.

OVLs production is expected to reach 8.6 mtoe and 9 mtoe

in FY13E and FY14E, respectively

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Overall, ONGCs group production is expected to increase at a CAGR of2.9% from 62.1 mmtoe in FY11 to 67.7 mmtoe in FY14E. The total oilproduction is expected to increase at a CAGR of 2.5% from 34.0 mmt inFY11 to 36.6 mmt in FY14E. Total gas production is expected to increaseat 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 3.94.2

6.8 6.6 6.5 6.8 6.2 6.16.4

22.3 22.5 23.1 23.1 23.2 24.626.4

2.8 3.0 2.5 2.2 2.22.1

2.02.6

2.52.52.72.42.22.0

0

15

30

45

60

75

FY08 FY09 FY10 FY11 FY12E FY13E FY14E

mmtoe

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 increasedover the past few years due to the increase in crude oil prices. This hasled to an increase in the subsidy burden for ONGC from | 2,690 crore inFY04 to | 24,892 crore in FY11.

Exhibit 22:Impact of gross under-recoveries on ONGC

9,27420,146

40,000 49,387

77,123

103,292

46,051

78,193

139,824

167,973178,469

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E FY14E

|Crore

0

30

60

90

120

150

US$perbarrel

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


Overall, ONGCs group production is expected to increase

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

mmtoe in FY14E

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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 inFY13E and FY14E, respectively (we assume Brent crude oil prices atUS$115/barrel and exchange rate of | 50 per US$). Also, given the limitedcapacity of downstream companies to share subsidy burden, we assumethe 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 perbarrel) in FY13E and FY14E, respectively. Net realisations are expected tobe lower at US$44.3/barrel and US$45/barrel in FY13E and FY14E,respectively.

Exhibit 23:ONGCs 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


|Crore

0

15

30

45

60

75

USDperbarrel


Exhibit 24:ONGCs oil gross and net realisations

71.7

119.5 118.0 118.0

55.9 53.8 54.6

44.3 45.0

89.4

0

25

50

75

100

125


USDper

barre

l

15

30

45

60

75

USDper

barre

l

Gross Realised Price Realised Price after Subsidy / Discount

Subsidy / Discount (RHS)


However, given the current situation of high gross under-recoveries,price hikes and government reforms have become inevitable. Webelieve ONGC would be a major beneficiary of government reforms inthe pricing of petroleum products. Any reforms and price hikes in

petroleum products like diesel, LPG and kerosene would addsignificantly to its earnings. ONGCs 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

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Exhibit 25:Sensitivity of EPS to change in gross under-recoveriesFY13E FY14E FY13E FY14E FY13E FY14E

Base 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 26.3

Base 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 governments aim of lowering fiscal deficit to 5.1% in FY13BEand lower oil subsidy estimates of | 43,580 crore for FY13BE makes adiesel price hike imperative. This would offset the negative impact causedby increased under-recoveries.

Exhibit 26:Sensitivity of EPS to change in diesel pricesFY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E

Base 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 26.3

Base 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

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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 onaccount of higher contribution from MRPL. MRPLs revenues in the same

period of FY11-14E would increase at a CAGR of 17.4% from | 39,169.2crore in FY11 to | 63,616.1 crore in FY14E on account of higherthroughput and crude oil prices. Consolidated oil revenues wouldincrease from | 63,512 crore in FY11 to | 75,028.6 crore in FY14E at aCAGR of 5.7% mainly on account of an increase in oil sales from 34 mmtin FY11 to 36.6 mmt in FY14E (CAGR-2.5% over FY11-14E). Gas revenueswould increase at 8.7% CAGR over FY11-14E from | 13,878 crore in FY11to | 17,879.2 crore in FY14E. This would be on account of an increase ingas sales volume from 28 bcm in FY11 to 31 bcm in FY14E and increasedrealisations from domestic fields.

Exhibit 27:Projected consolidated revenue growth

103438.9

121929.3

143460.1150958.8

163499.1

0

40000

80000

120000

160000

200000


|Crore


On a standalone basis, revenues would increase at slower growth rate of5.6% CAGR over FY11-14E from | 69,165.4 crore in FY11 to | 81,692.6crore in FY14E on account of muted growth in oil and gas production.

Exhibit 28:Trend in standalone revenues

61645.569165.4

75414.4 76585.4 81692.6

0

20000

40000

60000

80000

100000


|Crore


ONGCs 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

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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


*Others include LPG, Naphtha, C2-C3,SKO, Profit Petroleum and others

Consolidated EBITDA to increase at 3.5% CAGR over FY11-14E

ONGCs consolidated EBITDA is expected to increase from | 48,649.1crore 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 FY11to 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

33.0

36.9 33.7

0

12000

24000

36000

48000

60000


|Cro

re

0

10

20

30

40

50

EBITDAma

rgin(%)

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, ONGCs EBITDA is expected to be flat at | 41,018.9crore in FY11. The EBITDA margin is expected to decline from 59.3% inFY11 to 50.1% in FY14E mainly on account of an increase in statutorylevies as a percentage of revenues from 19.4% in FY11 to 29% in FY14Edue to an increase in cess from | 2,500 per tonne to | 4,500 per tonne.

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Exhibit 33:Trend in standalone EBITDA and EBITDA margin

37154.341018.9

43959.8

38406.740937.1

60.3

59.3

58.3

50.1 50.1

0

15000

30000

45000

60000


|Cro

re

45

50

55

60

65

EBITDAma

rgin(%)

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 18.017.9


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

EBITDA

margin

(FY11)

Dec in RM

costs

Inc in EMP

costs

Inc in

statutory

levies

Inc in

other EXP

EBITDA

margin

(FY14E)

(%)


Consolidated profits to increase marginally

We expect ONGCs consolidated net profit to increase marginally from| 22,825 crore in FY11 to | 22,903.3 crore in FY14E while ONGCsstandalone net profit will decline from | 18,924 crore in FY11 to | 16,510crore in FY14E. This is mainly on account of an increased subsidy burdenon 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


|Crore


Exhibit 37:Standalone net profit trend

16767.618924.0

22898.4

17358.0 16510.0

0

6000

12000

18000

24000

30000


|Crore


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OVLs contribution towards the groups profitability is expected toincrease from 12% in FY11 to 22.2% in FY14E, mainly due to higherrealisations.

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

0

10

20

30

40

50

60

70

80

90

100

FY10 FY11 FY12E FY13E FY14EPercentagecontr

ibutiontoconso

lidate

dPAT

Standalone OVL MRPL


Return ratios to contract due to aggressive capital expenditure

ONGCs consolidated return on capital employed (RoCE) is expected todecline from 26.6% in FY11 to 19.3% in FY14E on account of high capitalexpenditure on exploration activities and capital projects (to sustainproduction from ageing fields). The return on invested capital (RoIC) isexpected 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% inFY14E.

Exhibit 39:Consolidated return ratios

25.6 26.6 25.8

21.319.319.5 19.8

21.0

16.314.4

29.832.0 31.0

23.520.3

0

7

14

21

28

35


(%)

ROCE ROE ROIC


Exhibit 40:Standalone return ratios33.0 33.8 32.2

16.8

18.4

24.825.926.0

19.2 19.420.6

14.613.2

19.1

22.1

0

7

14

21

28

35


(%)

ROCE ROE ROIC


OVLs contribution towards the groups profitability is

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

mainly due to higher realisations

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Risk & concerns

Volatility in crude oil prices has material adverse effect on business

Increase in crude prices would have an adverse impact on ONGCsrevenues and profitability on account of higher subsidy burden. Anyincrease in oil prices would result in lower realisations and earnings for

the company. Lower net realisations may reduce the economic viability ofprojects planned or in development. Lower net realisations may result inthe impairment of higher cost reserves and other assets. This may resultin decreased earnings or losses. The refining business is also susceptibleto volatility in crude oil prices. Crude oil is the largest cost component forthe refining business, which makes refining margins susceptible tovolatile crude oil prices.

Exhibit 41:Sensitivity of realisation and EPS to change in crude oil pricesFY13E FY14E FY13E FY14E

90.0 60.0 60.8 30.1 29.6

95.0 56.9 57.6 29.6 28.9

100.0 53.7 54.5 29.1 28.3105.0 50.6 51.3 28.6 27.6

110.0 47.4 48.9 28.1 27.0

115.0 44.3 45.0 27.5 26.3

120.0 41.1 41.9 27.0 25.7

125.0 38.0 38.7 26.5 25.1

130.0 34.8 35.6 26.0 24.4

135.0 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 marketingcompanies (OMCs) and public sector upstream companies. There is noclarity from the government on the subsidy sharing mechanism, which iscurrently implemented in an ad-hoc manner. Due to the increase in crudeoil under-recoveries in FY11, the share of upstream companies in subsidysharing was increased from 31.3% in FY10 to 38.8% FY11. This resultedin a discount of US$35.6 per barrel in FY11, an increase of 126.8% overUS$15.7 per barrel in FY10.

Exhibit 42:Sensitivity of realisation and EPS to change in subsidy sharing mechanismFY13E FY14E FY13E FY14E

30.0 60.9 61.4 36.1 35.9

33.3 54.5 55.2 32.8 32.2

38.7 44.3 45.0 27.5 26.3

40.0 41.8 42.6 26.3 24.9

45.0 32.3 33.2 21.3 19.4

50.0 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%

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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 beenexperiencing declining production since levels since 1990. Anycatastrophic events in ONGCs area of operations will have a materialadverse 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. Anappreciation of the Indian rupee against the US dollar would have apositive impact on ONGCs profitability and valuation as the decline inrate of gross under-recoveries will be more than that of net realisations.

Exhibit 43:Sensitivity of EPS to change in exchange rateFY13E FY14E

46.0 27.8 26.9

48.0 27.6 26.6

50.0 27.5 26.3

52.0 27.4 26.1

54.0 27.2 25.8

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


Dry wells

ONGCs future growth in oil and gas production is dependent on finding,acquiring and developing further reserves. The companys failure to findsuccessful wells in new exploratory blocks may lead to a decline inreserves 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 sanctionsadministered or enforced by the US Department of Treasurys Office ofForeign Assets Control, the United Nations Security Council, theEuropean Union and/or Her Majestys Treasury. Existing sanctions againstIran, Sudan, Cuba, Myanmar, Syria, and Libya present challenges inconducting normal business operations. Sanctions against Iran will havean adverse impact on MRPL that historically sources half of its cruderequirement from Iran. The US and EUs existing sanctions against Syria

and the Syrian petroleum industry as a result of the continuing unrest inthat country have already started impacting the production levels fromthe blocks in Syria owned by OVL. The company also faces security risk insome of its assets in Assam, Nagaland and Tripura, which are located inthe North East region of India. The company has experiencedinterruptions in production and exploration activities due to insurgencies.

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

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ValuationWe believe ONGCs large reserves base, increasing production due toaggressive capital expenditure and price hikes/reforms from the Indiangovernment would create value for investors, going forward. ONGC istrading 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 ratingand 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 TableValuation based on P / BV multiple

Adjusted Book Value for FY14E (|Crore) 156806.9

Adjusted number of shares (Crore) 855.6

Adjusted Book Value per share (|) 183.3

Multiple 1.6

Value of core business (| per share) 293.3

Add: Listed investments (25% discount to CMP) (| per share) 8.2

Fair Value per share (|) 301

Valuation based on P / E multipleProfit after tax for FY14E (| Crore) 22903.3

Less: Other Income adjusted for tax (| Crore) 498.3

Adjusted profit after tax for FY14E (| Crore) 22405.0

Number of shares (Crore) 855.6

Adjusted EPS for FY14E (|) 26.2

Multiple 10.0

Fair value per share without investments (|) 261.9

Add: Value of Investments (| per share)

Listed investments (25% discount to CMP) 8.2

Other Investments 1.8

Fair value per share (|) 272

Weighted Target Price (| per share) 287


ONGCS EPS would decrease from | 26.4 (Brent oil prices: US$115/barrelto | 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 crudeoil 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

SharePrice(|)

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

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Exhibit 46:P/BV chart

0

100

200

300

400

500

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

SharePric

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 globalaverage of US$ 15 per boe for pure upstream companies and US$ 16 perbarrel for integrated oil & gas companies.

Exhibit 47:Global upstream playersCompany Market Cap (US$ mn) EV / 2P Reserves (US$/boe)

Canadian Natural Resources 35860 9

Encana Corp 12967 14

Cnooc ltd. 91775 27

Talisman Energy inc 12827 14

Anadarko Petroleum corp 38543 20

Apache Corp 37975 15

Chesapeake Energy Corp 15377 10

Devon Energy Corporation 28534 10

Eog Resources inc 29365 16

Average 15

Source: Bloomberg, ICICIdirect.com Research

Exhibit 48:Global integrated playersCompany Market Cap (US$ mn) EV / 2P Reserves (US$/boe)

Cenovus Energy inc 27112 13

Continental Resources inc/ok 15254 32

Imperial Oil Ltd 38319 12

Petrochina Co. Ltd 278977 14

Royal Dutch Shell PLC-a shs 222945 18Woodside Petroleum Ltd 29192 27

BP PLC 139668 10

Chevron Corp 211239 18

Conocophilips 96502 14

Exxon Mobil Corp 405714 17

Hess Corp 19958 16

Husky Energy inc 24440 23

Lukoil oao 52017 3

Occidental Petroleum Corp 76588 25

Suncor Energy inc 50781 14

TNK-BP Holding-cls 47690 6

Average 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

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Financial summary

Profit & Loss Statement (Standalone)

(| Crore)

(Year-end March) FY10 FY11 FY12E FY13E FY14E

Revenue 61,645.5 69,165.4 75,414.4 76,585.4 81,692.6

Growth (%) -4.4 12.2 9.0 1.6 6.7

(Inc.)/Dec. in stock trade -118.0 -12.9 -125.7 0.0 0.0

Raw material Costs 579.5 635.3 630.6 676.0 700.0

Employee Costs 1106.7 1303.2 1424.4 1566.9 1723.5

Statutory Levies 11987.3 13925.3 16146.5 22143.8 23729.9

Other Expenditure 10935.7 12295.7 13378.8 13792.1 14602.1

Op. Expenditure 24,491.2 28,146.5 31,454.6 38,178.7 40,755.6

EBITDA 37,154.3 41,018.9 43,959.8 38,406.7 40,937.1

Growth (%) 16.7 10.4 7.2 -12.6 6.6

Depreciation 14,658.8 15,943.0 16,584.4 16,663.2 20,053.8

EBIT 22,495.5 25,075.9 27,375.4 21,743.5 20,883.3

Interest 68.7 25.1 17.4 20.0 20.0Other Income 2,557.0 2,568.2 6,713.1 3,298.3 3,064.3

PBT 24,983.8 27,619.0 34,071.1 25,021.8 23,927.6

Growth (%) 4.3 10.5 23.4 -26.6 -4.4

Tax 8,216.3 8,695.0 11,172.7 7,663.8 7,417.5

Reported PAT 16,767.6 18,924.0 22,898.4 17,358.0 16,510.0

Growth (%) 4.0 12.9 21.0 -24.2 -4.9

Balance Sheet (Standalone)

(| Crore)


Source of Funds

Equity 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 0.0

Reserves & Surplus 85,143.7 93,226.7 106,865.8 114,414.3 121,164.6

Shareholder's Fund 87,282.6 97,504.4 111,143.5 118,692.1 125,442.4

Loan Funds 5.0 0.0 0.0 0.0 0.0

Deferred Tax Liability 8,918.2 9,950.4 10,950.4 11,950.4 12,950.4

Well Abandonment Sinking Fund 16,400.7 17,564.3 18,564.3 19,564.3 20,564.3

Source of Funds 112606.5 125019.1 140658.2 150206.7 158957.0

Application of Funds

Net Block 15,648.5 18,639.5 27,470.0 36,440.7 42,551.8

Capital WIP 10,241.4 14,031.6 13,243.6 12,663.6 10,846.6

Producing Properties 40,282.2 43,575.7 47,577.9 52,613.9 60,063.3

Pre-Producing Properties 5,549.7 7,747.2 9,270.7 11,106.1 14,164.4

Total Fixed Assets 71,721.7 83,994.0 97,562.2 112,824.2 127,626.1

Investments 5,772.0 5,332.8 5,332.8 5,332.8 5,332.8

Inventories 4,678.6 4,119.0 4,958.8 5,035.8 5,371.6

Debtor 3,058.6 3,845.9 4,235.6 4,301.4 4,588.2

Cash 18,231.0 22,446.6 25,417.6 19,689.5 15,311.2

Loan & Advance, Other CA 27,803.1 28,232.2 27,057.2 25,882.2 24,707.2

Total Current assets 53,771.3 58,643.6 61,669.1 54,908.8 49,978.2

Current Liabilities 12,087.6 18,814.9 16,529.2 16,785.9 17,905.2

Provisions 7,412.4 4,932.5 8,172.8 6,869.3 6,870.9

Total CL and Provisions 19,500.0 23,747.4 24,702.0 23,655.2 24,776.2

Net Working Capital 34,271.4 34,896.2 36,967.2 31,253.6 25,202.0

Miscellaneous expense 841.3 796.0 796.0 796.0 796.0

Application of Funds 112606.4 1 25019.1 140658.2 150206.7 158957.0

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Cash Flow Statement (Standalone)

(| Crore)


Profit after Tax 16,767.6 18,924.0 22,898.4 17,358.0 16,510.0

Less: Dividend Paid 8,219.8 8,701.7 9,259.3 9,509.5 9,759.8

Add: Depreciation 14,658.8 15,943.0 16,584.4 16,663.2 20,053.8

Add: Others 1,116.0 1,032.2 1,000.0 1,000.0 1,000.0

Cash Profit 24,131.8 27,242.8 31,223.5 25,511.7 27,804.0

Increase/(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 1,032.2 552.3

CF from Operating Activities 22490.1 30833.4 32123.7 25497.1 29477.4

Purchase 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 0.0

Others 0.0 0.0 0.0 0.0 1.0

CF from Investing Activities -23724.7 -27776.0 -30152.6 -31925.3 -34855.7

Inc/(Dec) in Loan Funds 369.9 1,158.6 1,000.0 1,000.0 1,000.0

Inc/(Dec) in Sh. Cap. & Res. -0.5 -0.5 0.0 -299.9 0.0

Others 0.0 0.0 0.0 0.0 1.0

CF 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 -4,378.3

Op. Cash and cash Eq. 19,096.2 18,231.0 22,446.6 25,417.6 19,689.5

Cl. Cash and cash Eq. 18231.0 22446.6 25417.6 19689.5 15311.2

Key Ratios (Standalone)


Per share data (|)

Book Value 102.0 114.0 129.9 138.7 146.6

Cash per share 21.3 26.2 29.7 23.0 17.9

EPS 19.6 22.1 26.8 19.9 19.3

Cash EPS 36.7 40.8 46.1 39.4 42.7

DPS 8.2 8.7 9.3 9.5 9.8

Profitability & Operating Ratios

EBITDA Margin (%) 60.3 59.3 58.3 50.1 50.1

PAT Margin (%) 27.2 27.4 30.4 22.7 20.2

Fixed Asset Turnover (x) 0.9 0.8 0.8 0.7 0.6

Inventory Turnover (Days) 27.7 21.7 24.0 24.0 24.0

Debtor (Days) 18.1 20.3 20.5 20.5 20.5

Current Liabilities (Days) 71.6 99.3 80.0 80.0 80.0

Return Ratios (%)

RoE 19.2 19.4 20.6 14.6 13.2

RoCE 26.0 25.9 24.8 18.4 16.8

RoIC 33.0 33.8 32.2 22.1 19.1

Valuation Ratios (x)PE 13.7 12.1 10.0 13.4 13.9

Price to Book Value 2.6 2.4 2.1 1.9 1.8

EV/EBITDA 5.7 5.0 4.6 5.5 5.2

EV/Sales 3.4 3.0 2.7 2.7 2.6

Leverage & Solvency Ratios

Debt to equity (x) 0.0 0.0 0.0 0.0 0.0

Interest Coverage (x) 327.7 998.6 1,573.3 1,087.2 1,044.2

Debt to EBITDA (x) 0.0 0.0 0.0 0.0 0.0

Current Ratio 2.8 2.5 2.5 2.3 2.0

Quick ratio 2.5 2.3 2.3 2.1 1.8

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Profit & Loss Statement (Consolidated)

(| Crore)


Revenue 103,438.9 121,929.3 143,460.1 150,958.8 163,499.1

Growth (%) -2.9 15.6 18.8 4.7 8.5

(Inc.)/Dec. in stock trade -372.9 -891.7 -658.6 0.0 0.0

Raw material Costs 25711.9 32143.2 44445.6 49116.3 55130.8

Employee Costs 1407.1 1715.6 2022.0 2126.9 2423.5

Statutory Levies 17015.4 19684.7 22301.2 26496.8 28717.9

Other Expenditure 13559.6 20628.4 22389.9 22332.1 23202.1

Op. Expenditure 57,321.1 73,280.2 90,500.1 100,072.1 109,474.3

EBITDA 46,117.7 48,649.1 52,960.1 50,886.8 54,024.7

Growth (%) 8.4 5.5 8.9 -3.9 6.2

Depreciation 18,739.1 16,522.5 17,107.1 17,733.2 21,989.8

EBIT 27,378.6 32,126.6 35,852.9 33,153.5 32,035.0

Interest 556.4 437.4 461.0 410.6 495.6

Other Income 3,619.2 2,627.1 4,155.2 3,578.3 3,424.3

PBT 30,441.4 34,316.3 42,707.2 36,321.2 34,963.6

Growth (%) -2.3 12.7 24.5 -15.0 -3.7Tax 10,713.8 11,491.3 14,725.9 12,458.0 12,060.3

Reported PAT 19,727.6 22,825.0 27,981.2 23,863.2 22,903.3

Growth (%) -2.1 15.7 22.6 -14.7 -4.0

Balance Sheet (Consolidated)

(| Crore)


Source of Funds

Equity Capital 2,138.9 4,277.8 4,277.8 4,277.8 4,277.8

Reserves & Surplus 99,267.8 111,049.5 128,939.6 142,203.2 154,245.0

Shareholder's Fund 101,406.6 115,327.2 133,217.4 146,481.0 158,522.8

Loan Funds 6,266.9 6,291.2 6,594.8 10,208.8 8,061.8

Abandon cost liability 17459.0 19850.4 21050.4 22250.4 23450.4

Deferred Tax Liability 10,291.2 11,152.6 12,284.8 13,436.8 14,588.8

Minority Interest 1,643.2 2,001.9 1,965.9 1,965.9 1,965.9

Source of Funds 137067.0 154623.4 175113.2 194342.8 206589.6

Application of Funds

Net Block 33,914.7 35,857.9 42,620.5 64,261.3 72,404.4

Capital WIP 17,601.3 27,378.6 27,095.4 21,595.4 18,953.4

Producing Properties 51,166.5 57,189.6 64,187.0 72,876.9 84,784.2

Pre-Producing Properties 8,012.5 10,237.9 12,259.5 14,692.7 18,468.3

Total Fixed Assets 110,695.1 130,664.1 146,162.4 173,426.2 194,610.3

Investments 5,159.3 3,356.1 3,387.1 3,387.1 3,387.1

Inventories 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 12,393.9

Cash 14,970.2 20,562.0 23,252.0 14,924.1 8,243.6

Loan & Advance, Other CA 20,216.2 20,029.8 21,578.8 21,163.6 19,891.0

Total Current assets 50,568.9 58,931.8 67,241.5 59,712.2 53,657.1

Current Liabilities 22,681.9 34,036.6 34,029.5 35,710.7 38,524.7

Provisions 7,515.8 5,088.0 8,444.3 7,267.9 7,336.2

Total CL and Provisions 30,197.7 39,124.6 42,473.7 42,978.6 45,860.9

Net Working Capital 20,371.3 19,807.1 24,767.7 16,733.5 7,796.3

Miscellaneous expense 841.3 796.1 796.0 796.0 796.0

Application of Funds 137067.0 154623.4 175113.2 194342.8 206589.6

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Cash Flow Statement (Consolidated)

(| Crore)


Profit after Tax 19,727.6 22,825.0 27,981.2 23,863.2 22,903.3

Less: Dividend Paid 8,257.5 8,738.9 9,239.4 9,489.1 9,738.9

Add: Depreciation 18,739.1 16,522.5 17,107.1 17,733.2 21,989.8

Add: Others 1,109.3 128.2 0.0 0.0 0.0

Cash Profit 31,318.5 31,874.0 36,945.1 33,259.3 36,306.3

Increase/(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 -625.4

CF from Operating Activities 32760.0 38029.9 34674.5 32965.6 38563.1

Purchase 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 0.0

Others 0.0 0.0 0.0 0.0 1.0

CF from Investing Activities -31157.6 -34688.3 -32636.4 -44997.1 -43173.9

Inc/(Dec) in Loan Funds 21.7 2,415.6 1,503.6 4,814.0 -947.0

Inc/(Dec) in Sh. Cap. & Res. -2,286.9 -165.5 -851.7 -1,110.5 -1,122.7

Others 0.0 0.0 0.0 0.0 1.0

CF 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 -6,680.5

Op. Cash and cash Eq. 15,633.1 14,970.2 20,562.0 23,252.0 14,924.1

Cl. Cash and cash Eq. 14970.3 20562.0 23252.0 14924.1 8243.6

Key Ratios (Consolidated)


Per share data (|)

Book Value 118.5 134.8 155.7 171.2 185.3

Cash per share 17.5 24.0 27.2 17.4 9.6

EPS 22.7 26.2 32.5 27.5 26.4

Cash EPS 44.6 45.6 52.5 48.3 52.1

DPS 8.2 8.7 9.3 9.5 9.8

Profitability & Operating Ratios

EBITDA Margin (%) 44.6 39.9 36.9 33.7 33.0

PAT Margin (%) 19.1 18.7 19.5 15.8 14.0

Fixed Asset Turnover (x) 0.9 0.9 1.0 0.9 0.8

Inventory Turnover (Days) 48.8 45.2 54.9 57.5 58.7

Debtor (Days) 42.3 51.6 53.6 55.1 55.4

Current Liabilities (Days) 134.3 179.6 164.7 170.2 172.1

Return Ratios (%)

RoE 19.5 19.8 21.0 16.3 14.4

RoCE 25.6 26.6 25.8 21.3 19.3

RoIC 29.8 32.0 31.0 23.5 20.3

Valuation Ratios (x)

PE 11.8 10.2 8.2 9.7 10.2Price to Book Value 2.3 2.0 1.7 1.6 1.4

EV/EBITDA 4.8 4.4 4.0 4.4 4.2

EV/Sales 2.1 1.8 1.5 1.5 1.4

Leverage & Solvency Ratios

Debt to equity (x) 0.1 0.1 0.0 0.1 0.1

Interest Coverage (x) 49.2 73.4 77.8 80.7 64.6

Debt to EBITDA (x) 0.1 0.1 0.1 0.2 0.1

Current Ratio 1.7 1.5 1.6 1.4 1.2

Quick ratio 1.4 1.3 1.3 1.1 0.9

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Annexure

MRPL refinery, a subsidiary of ONGC

Mangalore Refinery and Petrochemicals (MRPL) was incorporated in 1987by 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 ofequity held by Indian Rayon & Industries and, subsequently, increased itsholding to the present level of 71.62%. In 2011, MRPL revised itsnameplate capacity from 9.69 MMTPA to 11.82 MMTPA and has a Nelsonindex of 6.0. The refinery, located on the west coast of India, is designedto produce a whole range of products (~ 55% of middle distillates),supplying to both the domestic and export market. MRPL has beenoperating at an average capacity utilisation of 120% for the last five years.During FY11, the company achieved a refinery crude throughput of 12.64MMT. MRPL reported revenues and PAT of | 39,169.2 crore and | 1,176.2crore, respectively in FY11.

MRPL is implementing various plans to improve GRM, manufacture VAP &get better distillate yield. The company is expanding its throughputcapacity from 11.8 MMTPA to 15.4 MMTPA through its refineryupgradation and expansion project (Phase III refinery project) costing| 13,964 crore. This project would add 3 MMTPA and the remaining 0.6MMTPA would come through CDU/VDU revamp in phase I refinery. Afterthe expansion, the nelson complexity is expected to increase from 6.0 to9.0. The Phase III refinery project is scheduled to be commissioned byMarch 2012.

Exhibit 49:Blocks awarded to ONGC under NELP roundsNELP 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-upFields 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


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Exhibit 51:ONGC overseas reserves detailsBlocks, 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


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Glossary & conservation factors

1P Proven

2P Proven plus probable

3P Proven plus probable and possible

bbls barrels

bcm billion cubic meter

boepd barrels of oil equivalent per day

bopd barrels of oil per day

EOR Enchanced oil recovery

IOR Improved oil recovery

mmbbls million barrels

mmboe million barrels of oil equivalent

mmbtu million british thermal unit

mmscf million standard cubic feet of gas

mmscfd million standard cubic feet of gas per day

mmscmd million standard cubic meter per day

mmt million metric tonne

NELP New Exploartion and Licensing PolicyPSC Production sharing contract

1 barrel = 5.8 mmbtu

1 bcm = 6.29 mmboe

1 kl = 6.293 barrels

1 metric tonne = 7.205 bbls

1 mmt = 1.145 bcm

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[email protected]

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