Bharat Petroleum Corporation (BPCL)
For the 2nd quarter of FY14, BPCL's revenue was below street expectation while EBITDA and PAT were broadly in line. The company's revenue increased 8.6 percent YoY to Rs 61,757 crore led by 12 percent rupee depreciation and 2 percent growth in crude throughput. Although the top-line came below street estimates due to lower-than-estimated retail sales, the EBITDA and bottom-line were above estimates due to higher than estimated GRM of USD4.7/bbl and inventory gain of Rs 861 crore.
So far investments in E&P business are ~Rs 5,500 crore (Mozambique Rs 2,000 crore and Brazil Rs 3,500 crore). BPCL's superior operational performance over other OMCs and its E&P assets in Mozambique and Brazil looks positive for the stock. Additionally, the company's investments in high return projects such as its JV with LG Chemicals plus in upstream (primarily in Mozambique and Brazil assets) should drive growth further. At a CMP of Rs.333 the stock is trading at a 12.3x and 10.6x for FY14E and FY15E estimated earnings. We recommend HOLD on the stock.
Oil and Natural Gas Corporation (ONGC)
For Q2FY14, Oil and Natural Gas Corporation Ltd (ONGC) results were inline with the street estimates. Revenues witnessed a growth of 12.8 percent YoY to Rs 22,312 crore. EBITDA for the quarter stood at Rs 10,032 crore, up by 21 percent YoY (+45 percent QoQ) and PAT came in at Rs 6063.9 crore, a growth of 3 percent YoY (+51 percent QoQ). The key triggers driving this growth were higher crude oil prices, which grew by 6 percent QoQ to USD109/bbl, and the rupee depreciation of 12 percent.
In Brazil BC-10, company has 15 percent PI (participating interest) and planning to acquire 12 percent additional stake. A1 & A3 Myanmar started production in July' 13 and expect 0.5 bcm production in FY15. However it has maintained capex guidance of Rs. 35,000 crore for FY14. On Gas pricing the company has stated that till date they have not yet received any formal notification from Government.
Key triggers to drive growth in upcoming quarters are continuation of diesel reforms, clarity on gas pricing, subsidy sharing and visibility on production growth. At the CMP of Rs. 251 the stock is trading at a 8.9x and 7.3x for FY14E and FY15E estimated earnings. We recommend HOLD on the stock.
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