Upstream PSU Sector Report

Systematix
Institutional
Research
November
3,
2007
Upstream PSU Sector Report
Sector Report
November 19, 2014
Oil & Gas
Industry
Declining fuel under-recoveries: A win-win for GoI and Upstream PSUs

Sector Rating - ATTRACTIVE
Price performance - BSEOIL vs. Sensex
We initiate coverage on upstream PSUs with positive stance given huge scope for
reform-driven earnings growth [15%/22% EPS CAGR for Oil and Natural Gas
Corporation (ONGC)/Oil India Limited (OIL) over FY14-FY16E on the back of gas price
hike and lower subsidy burden]. Given losses for oil business (see Table 6 on page 6) of
upstream PSUs at current crude price of USD78/bbl and subsidy of USD56/bbl, we are
hopeful of rationalization of subsidy sharing at 50:50 between Government of India
(GoI) and upstream PSUs. A lower upstream share (vs our assumption of 65%) would
further strengthen our conviction on ONGC and OIL. Hence, valuations of ONGC/OIL
seem attractive at 9.6x/8x FY16E EPS vs average of 14.1x one-year forward earnings for
pure E&P peers (see Table 2 on page 3) and we initiate our coverage on ONGC and OIL
with BUY rating.
Sweeping oil & gas sector reforms; clear focus to reduce under-recoveries
Upstream PSUs CMP (`)
TP (`)
+/(-) (%)
ONGC
391
461
18.0
OIL
588
734
24.7
Source: Systematix Institutional Research

Note: Prices as on 18th Nov 2014
ONGC Consolidated
Financials (`Mn)
Net Sales
EBIDTA
PBT
PAT
EPS (`)
EBIDTA Mar gin (%)
PAT margin (%)
Price/Earnings (x)
EV/EBIDTA (x)
ROE (%)
ROCE (%)
FY14
FY15E
FY16E
1,744,771 1,832,542 1,962,370

582,131
661,266
728,676
394,134
480,959
526,558
265,065
317,193
348,655
31.0
37.1
40.8
33.4%
36.1%
37.1%
15.2%
17.3%
17.8%
12.6
6.1
16.3%
18.5%
10.5
5.3
17.3%
19.7%
9.6
4.7
16.8%
19.6%
OIL India Standalone

Financials (`Mn)
FY14
FY15E
FY16E
Net Sales
EBIDTA
PBT
PAT
EPS (`)
EBIDTA Mar gin (%)
PAT margin (%)
91,267
35,416
44,104
29,813
49.6
38.8%
32.7%
114,397
53,462
50,078
32,782
54.5
46.7%
28.7%
138,988
70,855
66,996
44,217
73.6
51.0%
31.8%
Price/Earnings (x)
EV/EBIDTA (x)
ROE (%)
ROCE (%)
11.9
9.5
14.9%
16.8%
10.8
6.0
15.3%
16.3%
8.0
4.5
19.2%
20.5%
The Cabinet Committee of Economic Affairs (CCEA) has recently announced crucial oil &
gas sector reforms: 1) market-linked diesel price, 2) gas price hike to USD5.6/mmbtu on
net calorific value (NCV) basis, 3) premium gas price (still to be decided) for discoveries in
ultra-deep water, deep-water and high pressure-high temperature areas, and 4) modified
direct benefit transfer (DBTL) for LPG subsidy. Given GoIs intention to reduce underrecoveries and our estimate of losses for oil business of upstream PSUs at current crude
price and fixed subsidy of USD56/bbl , we believe GoI would change subsidy sharing
mechanism (50:50 sharing ratio as proposed by Oil Ministry) in favor of upstream PSUs.
Lower upstream subsidy burden to increase net crude oil realisation
Given declining fuel under-recoveries (our estimate of `663bn in FY16 vs `1,399bn in
FY14) on the back of diesel de-regulation and fall in crude oil price, we see strong case for
lower subsidy burden and consequently higher net crude realisation for ONGC and OIL.
Hence, we model FY15E/FY16E blended upstream subsidy burden at USD52.7/USD42.3
per barrel and net realisation at USD49.9/USD57.7 per barrel.
Crude oil price could increase on potential oil supply cut from Saudi Arabia
Brent crude oil prices have declined to USD78/bbl from USD110/bbl since June 2014 due
to abundant supply, slowing demand growth and appreciation of the US dollar. We
expect oil price to increase as Saudi Arabia has scope to reduce oil supply by around
2mbpd (million barrels per day) given ramp-up in Libyan and Non-OPEC oil supply. Hence,
we model crude price of USD100/bbl in FY16 vs current level of USD78/bbl .
Higher gas price to boost earnings (add ` 4.1/share to ONGCs FY16E EPS and ` 6.7/share
to OILs FY16E EPS)
st
GoI has announced new gas price of USD5.6/mmbtu (on NCV basis) with effect from 1
st
November 2014 with next reset date as 1 April 2015. We expect FY16E EPS of ONGC and
OIL to increase by `4.1/share and `6.7/share, respectively from the gas price hike.
Valuations
ONGC: We value ONGC at `461/share (11x FY16E EPS + `13/share for investments).
Rationalisation of subsidy sharing would increase our target price to `508/share (an
upside potential of 30% from CMP).
Abhijeet Bora
a bhijeetbora@systematixshares.com
(+91 22 6704 8067)
OIL: We value OIL at `734/share (9x FY16E EPS + `72/share for investments).
Rationalisation of subsidy sharing would increase our target price to `812/share (an
upside potential of 38% from CMP).
Nov 2014 Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters
SYSTEMATIX SHARES & STOCKS (I) LTD.
SYSTEMATIX
Page 2
Institutional Research
Table of Contents
Key Investment Arguments ................................................................................................................................................. 5
Sweeping oil & gas sector reforms; clear focus to reduce under-recoveries........................................................................... 5
Lower upstream subsidy burden to increase net crude oil realisation ................................................................................... 6
Crude oil price could increase on potential oil supply cut from Saudi Arabia ......................................................................... 8
Higher gas price to boost earnings (add `4.1/share to ONGCs FY16E EPS and `6.7/share to OILs FY16E EPS)...................... 10
Companies Section
ONGC (Valuation not factoring in upside from reforms) ..................................................................................................... 12
OIL (Favorable reforms; rising production) ........................................................................................................................ 15
Nov 2014
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters
SYSTEMATIX SHARES & STOCKS (I) LTD. 2
SYSTEMATIX
Page 3
VALUATIONS
Table 1: Valuation snapshot of ONGC and OIL
`/Share
ONGC
OIL
41
11
74
9
448
662
13
8
3
72
57
0
2
0
0
461
391
18%
0
8
7
734
588
25%
FY16E EPS
P/E multiple ascribed
Value of core business
Investments
IOCL
GAIL
Petronet LNG
NRL
Others
Target price
CMP
Upside/(Downside)
Comments
Value OIL at discount to ONGC as royalty on gross realisation on onshore oil production to
severely impact OILs earnings (see Table 23 on page 17)
20% holding-company discount at CMP

20% holding-company discount at CMP
20% discount to CMP
1x Book Value of `4,837mn
1x Book Value of `4,010mn
Table 2: Global Oil & Gas Peer Valuation

P/E (x)
EV/EBITDA (x)
CY14E
CY15E
CY14E
CY15E
Exxon Mobil
Suncor Energy
Marathon Oil Corp
12.8
11.0
12.5
13.9
11.7
16.1
5.8
5.0
4.3
6.4
5.0
4.8
BP PLC
Royal Dutch Shell
China Petroleum
Imperial Oil
Chevron Corp
Eni Spa
9.7
9.2
8.9
12.7
11.5
13.7
9.5
9.9
9.0
13.0
12.3
12.5
4.1
4.0
5.1
7.7
4.8
3.8
4.0
4.2
4.7
8.2
5.0
3.7
Integrated average
11.3
12.0
5.0
5.1
Occidental Petroleum
Hess Corp
ConocoPhillips
CNOOC Ltd
13.6
17.6
12.2
7.6
15.7
22.7
13.5
7.8
5.3
4.1
4.6
3.2
6.0
4.4
4.6
3.1
Apache Corp
Anadarko Petroleum
Southwestern Energy Corp
ONGC
OIL
E&P average
12.3
18.4
14.7
10.5
10.8
13.1
15.0
20.2
14.6
9.6
8.0
14.1
4.1
5.0
5.9
5.3
6.0
4.8
4.2
5.2
5.1
4.7
4.5
4.6
Total average
12.2
13.1
4.9
4.9
Source: Bloomberg, Systematix Institutional Research
Nov 2014
SYSTEMATIX
Page 4
Table 3: Comparison of per boe (barrels of oil equivalent) profitability of ONGC and OIL
OIL
FY12
Revenues
Statutory le vies
Total expenses
EBITDA
Other income
DD&A
48.1
12.1
26.7
21.4
8.9
4.5
Interest
0.0
Tax
8.4
PAT
17.4
PAT excluding other income 8.5
` /USD rate
48.0
RoCE
27.8%
FY13
FY14
FY15 E
FY16E
39.2
12.4
24.0
15.2
9.1
5.1
48.0
13.1
25.6
22.5
5.9
6.1
56.4
14.7
27.7
28.8
5.7
6.1
0.0
0.3
7.8
6.1
16.5 12.8
7.6
3.7
54.4 60.5
26.1% 16.7%
1.2
7.3
13.8
7.8
60.5
16.3%
1.2
9.2
18.0
12.3
60.0
20.1%
43.8
14.0
24.5
19.3
8.9
3.8
ONGC - Standalone
FY12
FY13
FY14
FY15 E
FY16E
Revenues
Statutory le vies
Total expenses
54.0
11.7
21.6
50.8
13.4
24.1
46.5
12.7
22.0
51.7
13.6
22.7
56.5
14.5
24.6
EBITDA
Other income
DD&A
Interest
Tax
PAT
32.4
3.1
11.9
0.0
8.1
15.5
26.7
3.3
11.3
0.0
5.9
12.9
24.5
4.2
10.5
0.0
5.8
12.4
29.0
2.8
11.6
0.0
6.5
13.7
32.4
2.8
12.8
0.0
7.1
15.0
PAT excluding other income 12.4

` /USD rate
48.0
RoCE
28.3%
9.5
54.5
22.9%
8.2
60.5
22.1%
10.9
60.5
22.1%
12.2
60.0
22.1%
Source: ONGC, OIL, Systematix Institutional Research

Note:1) ONGC financials also includes sales of value added products
2) For RoCE calculation of ONGC and OIL, EBIT includes other income
3) All figures in USD/boe except for ` /USD rate and RoCE
Table 4: Exxon Mobil (upstream business) per boe analysis over CY09-CY13
ONGC/OIL i s tra ding a t 32%/43% dis count
to a vera ge valuation of pure E&P pl a yers
on one-yea r forwa rd P/E ba s i s .
Wi th l ikely i mprovement i n profi ta bi l i ty
a nd return ra tios, we expect the va luation
ga p wi th global peers to na rrow down to
s ome extent
Nov 2014
Oil production (kbpd)

Gas production (mcfpd)
Oil + Gas (mn boe)
PAT (USD/boe)
RoCE
CY09
CY10
CY11
CY12
CY13
2,387
9,273
1416
12.1
23.4%
2,422
12,148
1601
15.1
23.3%
2,312
13,162
1622
21.2
26.5%
2,185
12,322
1526
19.6
21.4%
2,202
11,836
1503
17.9
17.5%
Source: Exxon Mobil CY13 Annual Report, Systematix Institutional Research
SYSTEMATIX
Page 5
KEY INVESTMENT ARGUMENTS

Sweeping oil & gas sector reforms; clear focus to reduce under recoveries
Di esel de-regulation to elimi na te a nnua l

di es el under-recoveri es of `628bn
Next l eg of s ubs i dy reducti on to come
from i mpl ementa ti on of DBTL for LPG
s ubs i dy
The CCEA has recently announced crucial oil & gas sector reforms: 1) market-linked
diesel price with effect from 18th Oct 2014, 2) gas price hike to USD5.6/mmbtu on
st
NCV basis with effect from 1 Nov 2014, 3) premium gas price (still to be decided) for
discoveries in ultra-deep water, deep-water and high pressure-high temperature
areas, and 4) modified direct benefit transfer (DBTL) for LPG subsidy (crucial for next
leg of subsidy reduction). The above initiatives clearly signal towards GoIs focus to
reduce fuel under-recoveries.
Given GoIs intention to reduce under-recoveries and our estimate of losses for oil
business of upstream PSUs at current crude price and fixed subsidy at USD56/bbl, we
are hopeful that GoI would change subsidy sharing mechanism (50:50 sharing ratio as
proposed by Oil Ministry) in the favor of upstream PSUs so that ONGC and OIL also
benefits from falling under-recoveries.
Table 5: Recent oil & gas sector reforms

Reforms announced
What changes with implementation of reform
Diesel price de-regulation
Market-linked diesel price
Gas price hike
To USD5.6/mmbtu from USD4.2/mmbtu
Premium gas price for ultra-deep water,

deep water and high-pressure/hightemperature areas
Premium from new gas price but premium would be

decided latter
To help monetization of high capex

gas discoveries
Modified DBTL for LPG subsidy
Fixed domestic LPG subsidy per cylinder (quantum not

fixed yet)
Control over distribution of subsidies

LPG and thus would reduce LPG
under-recoveries
Flexible E&P Policy

Expected reforms
Clarity on fuel subsidy mechanism
Implementation of DBTL for LPG
subsidy
Direct cash transfers to be made to customers bank

account or by linking Aadhar number to LPG and bank
database
All LPG consumers are required to compulsorily open
bank account to get LPG subsidy by April-2015 or pay
market-linked LPG price
Provides relaxation in timelines for submission of
Declaration of Commerciality (DoC) and Field
Development Plan (FDP)
Expected announcements
Oil Ministry has suggested for 50:50 subsidy sharing
between GoI and upstream vs adhoc basis currently
Clarity on LPG subsidy quantum. Nation-wide
implementation by April-2015 for all LPG customers
seems aggressive to us
Impact
Reduction in diesel under-recoveries
of `628bn on annualized basis
Incremental PAT of `35bn for ONGC
and `4bn for OIL in FY16
Resolution of pending operational

issues with DGH and monetization of
discoveries
Impact
To reduce subsidy burden on ONGC
and OIL
To reduce LPG subsidy in the
medium to long term
Source: MoPNG, Systematix Institutional Research
Nov 2014
SYSTEMATIX
Page 6
Table 6: Upstream PSUs oil business would report losses at current crude price and
at fixed subsidy at USD56/bbl
USD/bbl
Ups tream PSUs oil busi nes s woul d i ncur
l oss (a round USD10.8/bbl for ONGC a nd
USD5.7/bbl for OIL) a t crude pri ce of
USD78bbl a nd s ubsidy s hare a t USD56/bbl
Opex a nd DD&A expens es a s s umed on
bl ended basis bas ed on a ctua l numbers
reported by ONGC a nd OIL i n FY14
Current crude price

Gross realisation
Fixed subidy
Net realisation
Cess
Royalty
Opex
EBITDA
DD&A
EBIT/PBT
Tax
PAT
ONGC
OIL
77.7
77.7
62.3
15.4
10.3
1.7
9.4
(5.9)
10.5
(16.4)
(5.6)
(10.8)
77.7
77.7
56.0
21.7
10.3
3.4
11.6
(3.5)
5.1
(8.6)
(2.9)
(5.7)
Lower upstream subsidy burden to increase net crude oil realisation

We expect net realisation of ONGC/OIL to increase substantially in FY16 with support
of decline in the fuel under-recoveries (our estimate of `663bn for FY16 vs `1,399bn
in FY14) on the back of diesel de-regulation and fall in crude oil prices.
We base our FY15E/FY16E upstream subsidy share conservatively at 65% (See Table
14 on page 8) based on fuel subsidy budget estimate of `634bn for FY15 and
adjustment for `350bn for carry-forward of 4QFY14 under-recoveries. With declining
under-recoveries, we model FY15E/FY16E blended upstream subsidy burden at
USD52.7/USD42.3 per barrel and net realisation at USD49.9/USD57.7 per barrel.
With rationalisation of subsidy sharing at 50:50 between GoI and upstream, the
FY16E upstream subsidy burden could further decline to USD32.6/bbl and net
realisation would increase to USD67.4/bbl.
Table 7: Under-recoveries and subsidy sharing among GoI, upstream and OMCs
We expect gross under-recoveries to halve

down to `663bn i n FY16 vs `1,399bn FY14
on ba ck of di es el de -regul a ti on
Cons equentl y FY16E ups trea m s ubs i dy

burden woul d a l s o decl i ne by 36% to
`431bn vs FY14 ups trea m s ha re even a t
hi gher s ubsidy s hare at 65% vs only 48% in
FY14
In `bn
FY13
FY14
FY15 E
Brent Crude (USD/bbl)

`/USD
Diesel
LPG
Kerosene
Total Under-recoveries
Subsidy sharing
Upstream
ONGC
OIL
Gail
111
54.2
921
396
294
1,610
108
60.2
628
465
306
1,399
102
60.5
117
428
286
831
601
494
79
28
670
564
87
19
540
455
70
15
431
363
56
12
332
279
43
9
GoI
OMCs
Subsidy sharing (%)
Upstream
ONGC
OIL
Gail
GoI
OMCs
1,000
9
708
21
291
0
232
0
332
0
37%
82%
13%
5%
62%
1%
48%
84%
13%
3%
51%
1%
65%
84%
13%
3%
35%
0%
65%
84%
13%
3%
35%
0%
50%
84%
13%
3%
50%
0%
FY16E
Upstream
Upstream
share at 65% share at 50%
100
100
60.0
60.0
0
0
393
393
271
271
663
663
Source: PPAC, ONGC, OIL, Systematix Institutional Research
Nov 2014
SYSTEMATIX
Page 7
Table 8: Sensitivity of FY16E gross under-recoveries to crude price and `/USD

Crude price (USD/bbl)
For every USD5/bbl decline in crude pri ce
a nd a t `/USD ra te of `60, FY16E gros s
under-recoveries decl i nes by `65bn a nd
vi ce-vers a
58
59
60
61
62
`/USD rate
90
95
100
105
110
502
518
533
549
564
565
582
598
615
631
628
646
663
681
699
691
710
728
747
766
754
774
793
813
833
Table 9: For every `5/cly/month hike in LPG price FY16E LPG under-recovery
reduces by `32bn
Quantum of price hike
LPG Under-recoveries
FY16 Base case

Scenario 1
No LPG price hike

Hike of `5/cyl/month
393
361
Scenario 2
Scenario 3
Scenario 4
329
297
265
Table 10: Upstream net realisation to increase with decline in under-recoveries

USD/bbl
FY13
FY14
FY15 E
FY16E
Upstream
Upstream
share at 65% share at 50%
Led by l ower s ubsidy burden ONGCs net

rea l i s a ti on i s expected to i ncrea s e to
USD56.3/bbl in FY16 vs USD41/bbl i n FY14
Producti on growth a nd l ower s ubs i dy
woul d i ncrea s e OILs net rea l i s a ti on to
USD64.7/bbl i n FY16 vs USD47.1/bbl i n
FY14
Gross Realisation
ONGC
OIL
Subsidy
ONGC
OIL
Net Realisation
ONGC
OIL
Oil Sales (mmt)
ONGC
OIL
110.7
109.6
106.7
106.4
102.9
102.4
100.0
100.0
100.0
100.0
62.9
56.0
65.8
59.3
52.9
47.1
43.7
35.3
33.6
27.2
47.9
53.6
41.0
47.1
50.0
55.3
56.3
64.7
66.4
72.8
19.2
3.6
18.9
3.4
19.1
3.4
19.0
3.6
19.0
3.6
Table 11: Upstream subsidy sharing mechanism suggested by Kirit Parikh (KP)
Committee (in October-2013)
<80
80-120
>120
% of contribution
% retained by
of upstream PSUs
upstream PSUs
40% of price
25% of incremental price
60% of price
Source: Ministry of Petroleum and Natural Gas
Table 12: Upstream subsidy sharing mechanism suggested by ONGC

<80
80-120
>120
% of contribution
% retained by
of upstream PSUs
upstream PSUs
40% of price
60% of price
Source: ONGC
Nov 2014
SYSTEMATIX
Page 8
Table 13: Crude realisation for upstream players under the two mechanisms
ONGC s uggested formula provides stability

i n crude realis a ti on a t va ri ous crude oi l
pri ces a nd hence more fa vora bl e for
ups tream PSUs vs formula suggested by KP
commi ttee.
Mechanism by ONGC ( USD/bbl)
Mechanism by KP (USD/bbl)
Subsidy
Net realisation
Subsidy
Net realisation
65
75
85
95
0.0
8.5
17.0
25.5
65.0
66.5
68.0
69.5
26
30
33.3
35.8
39.0
45.0
51.8
59.3
105
115
125
135
145
155
34.3
43.3
52.3
61.3
70.3
79.3
70.8
71.8
72.8
73.8
74.8
75.8
38.3
40.8
44.5
49.5
54.5
59.5
66.8
74.3
80.5
85.5
90.5
95.5
Table 14: FY15 upstream subsidy sharing hinges on upon fiscal deficit target
`bn
Ba s ed upon FY15BE of fuel subsidy `634bn

a nd a djus tment of `350bn rel a ted to
ca rry-forwa rd of under-recoveri es from
4QFY14, we deri ve a t ups trea m s ubs i dy
s ha re a t `547bn or 66% of gros s underrecoveri es
FY15BE*
Total revenue receipts

Food subsidy
12,637
1,150
Fertiliser subsidy
Fuel subsidy
Total subsidy
Other expenditure
Total expenditure
Fiscal deficit
730
634
2,514
15,435
17,949
(5,312)
Fiscal deficit as % of GDP

FY15E fuel under-recoveries (A)
FY15BE fuel subsidy (B)
Roll over from 4QFY14 (C)
Balance available for FY15 i.e. GoI share (D = B-C)
Likely burden of upstream (A-D)
4.1%
832
634
350
284
547
Upstream subsidy share

GoI subsidy share
66%
34%
Source: Budget documents; Systematix Institutional Research

Note: *FY15 budget estim ates
Hi gher OPEC a nd Non-OPEC oil s upply a nd

a ppreciation of the US dollar led to a sharp
decl i ne i n Brent oi l pri ce to USD78/bbl
Lower l evel of crude prices does not seem
s us tainable as we believe that Saudi Arabia
woul d play a bala nci ng a ct by cutti ng oi l
s uppl y by a round 2mbpd
Nov 2014
Crude oil price could increase on potential oil supply cut from Saudi
Arabia
Brent crude oil price have declined to USD78/bbl from USD110/bbl since June-2014
due to abundant supply (OPEC + Non-OPEC oil supply has increased by almost 2mbpd
since Sep-2013) in the scenario of slowing demand growth. The appreciation of the
US dollar has also led to a fall in commodity prices in the last four months.
We expect oil price to increase as Saudi Arabia has scope to reduce oil supply by
around 2mbpd given ramp-up in Libyan and Non-OPEC oil supply and hence model
crude price of USD100/bbl in FY16 vs current level of USD78/bbl.
SYSTEMATIX
Page 9
Chart 1: Brent crude price declined to USD78/bbl (at four year low) on the back of
higher OPEC and Non-OPEC oil supply
Source: Bloomberg; Systematix Institutional Research
Chart 2: OPEC oil supply increased by 1mbpd since Nov-2013

led by production ramp-up at Libya
Chart 3: Non-OPEC oil supply also improves by 1.6mbpd

since Sep-2013
Chart 4:Libyan oil supply increased by 0.64mbpd since Nov-2013
Chart 5: Saudi Arabian oil supply hiked by 0.1mbpd since

Nov-2013
Nov 2014
SYSTEMATIX
Page 10
Higher gas price to boost earnings (add `4.1/share to ONGCs FY16E EPS
and `6.7/share to OILs FY16E EPS)
Every USD1/mmbtu increase i n ga s pri ce

woul d ra ise ONGCs EPS by `2.9/s hare and
tha t of OIL by `4.8/s ha re
GoI has announced new gas price of USD5.6/mmbtu (on NCV basis) with effect from
1st November 2014 with next reset date on 1st April 2015. The new formula considers
volume weighted annual average of North American, EU & FSU (excl. Russia) and
Russian gas prices with a quarter lag. We expect FY16E EPS of ONGC and OIL to
increase by `4.1/share and `6.7/share, respectively from gas price hike .
Table 15: Domestic gas price calculation (November 2014 to March 2015)
USD/mmbtu
Volume Weights
Price
Wt.avg.
42%
31%
21%
5%
4.2
9.4
10.9
3.8
1.8
2.9
2.3
0.2
Henry Hub
NBP
Russia
Canada
Gas price
Adjustments (Transport and processing charges)
7.1
1.5
Net gas price on NCV basis
5.6
Source: PIB, British Petroleum, Systematix Institutional Research
Table 16: Gas price hike to add `4.1/share to ONGC FY16E EPS and `6.7/share to
OILs FY16E EPS
Unit
Current gas price New gas price
Gas price
Royalty assumed @ 12.5%
Gas realisation net of royalty
Incremental gas realisation
Impact on ONGC's EPS
FY16E natural gas sales
Incremental revenue from gas price hike
Income tax
Incremental PAT
Incremental EPS
O/S shares
Impact on OIL's EPS
USD/mmbtu
USD/mmbtu
USD/mmbtu
USD/mmbtu
4.2
0.5
3.7
5.6
0.7
4.9
1.23
bcm
`mn
`mn
`mn
`/share
Mn
20
53,313
18,126
35,187
4.1
8,555
FY16E natural gas sales

Incremental revenue from gas price hike
Income tax
Incremental PAT
Incremental EPS
O/S shares
bcm
`mn
`mn
`mn
`/share
Mn
2
6,081
2067
4,013
6.7
601
Nov 2014
SYSTEMATIX
Page 11
COMPANIES SECTION
Nov 2014
SYSTEMATIX
Systematix
Page 12
Institutional
Research
November
3,
2007
ONGC (ONGC IN)
Initiating Coverage
Industry
Oil & Gas
Valuation not factoring in upside from reforms
BUY (CMP: `391)
) bn; USD 54.1bn

Mkt Cap: `3,342
Oil and Natural Gas Corp. (ONGC)s valuation at 9.6x FY16E EPS is not factoring in
earnings upside from higher crude realisation led by fuel pricing reform. We
highlight here that the companys oil business would report loss of around
USD10.8/bbl at current crude price and fixed subsidy at USD56/bbl. Given the
tough situation, we expect GoI to clarify subsidy sharing mechanism by end of this
fiscal year, which would provide earnings visibility for upstream PSUs. Hence, we
initiate coverage on ONGC with a BUY rating and a target price of `461/share.
Price
Target Price
Expected share pric e return
Expected dividend yield
Expected total return
391
461
18.0%
2.4%
20.4%
Market Data
`3,342bn/US$ 54.1bn
8,555
`472/`264
24mn
Market Cap.
Share Cap. (mn)
52 Wk High/Low
Avg. Vol. (Weekly)
(Price Performance (RIC: ONGC.BO, BB:

ONGC IN)
Net crude realisation expected to increase to USD56.3/bbl in FY16 vs USD41/bbl in

FY14
Given our expectation of decline in under-recoveries to `831bn/`663bn in
FY15E/FY15E on the back of diesel price de-regulation and lower crude oil prices, we
expect a strong case for lower subsidy burden for upstream PSUs. Despite
conservatively assuming upstream subsidy sharing at 65% (based on FY15 budgeted
fuel subsidy of `634an and adjustment of `350bn for 4QFY14), we expect ONGCs
subsidy burden to fall to USD52.9/bbl in FY15 and USD43.7/bbl in FY16.
Consequently, we model net oil realisation at USD50/USD56.3 per barrel for
FY15E/FY16E vs only USD41/bbl in FY14.
Gas price hiked to USD5.6/mmbtu (to add `4.1/share to FY16E EPS)
The new gas price formula (based on volume weighted annual average of North
American, EU & FSU (excl. Russia) and Russian gas prices with a quarter lag) approved
by GoI would increase ONGCs gas price to USD5.6/mmbtu (from USD4.2/mmbtu
currently) with effect from 1st November-2014. We expect incremental PAT of `35bn
(or `4.1/share) for ONGC from gas price hike in FY16.
Poor track record to meet production guidance
Shareholding Pattern
(As on Sept 30 th, 2014)
(%)
ONGC has a poor track record of meeting its annual production guidance (FY13/FY14
standalone oil production was at 22.6mmt/22.2mmt vs management guidance of
23.6mmt/24.1mmt). Hence, we model flat standalone oil production of
22.2mmt/22.3mmt for FY15E/FY16E. We expect decline in standalone gas production
to 22.7bcm in FY15E (to factor poor show in H1FY15) and then improve to 23.5bcm
for FY16E.
Initiate coverage with a BUY rating
Financials (`Mn)
Net Sales
EBIDTA
PBT
PAT
EPS (`)
EBIDTA Mar gin (%)
PAT margin (%)
Price/Earnings (x)
EV/EBIDTA (x)
ROE (%)
ROCE (%)
Nov 2014
FY14
FY15E
FY16E
1,744,771 1,832,542 1,962,370

582,131
661,266
728,676
394,134
480,959
526,558
265,065
317,193
348,655
31.0
37.1
40.8
33.4%
36.1%
37.1%
15.2%
17.3%
17.8%
12.6
6.1
16.3%
18.5%
10.5
5.3
17.3%
19.7%
We value ONGC at `461/share (11x FY16E EPS + `13/share for investments). On the
back of reform-led increase in oil & gas realisation, we expect ONGCs EPS to grow at
a CAGR of 15% over FY14-FY16E with marked improvement in RoCE to 20% in FY16E
vs 18.5% in FY14. Rationalisation of subsidy sharing at 50:50 between GoI and
upstream would raise our FY16E EPS for ONGC to `45/share and consequently our
target price to `508/share (an upside potential of 30% from CMP).
9.6
4.7
16.8%
19.6%
SYSTEMATIX
Page 13
Table 17: SOTP based target price of `461/Share
SOTP
P/E
FY16E EPS
40.8
Multiple (x)
Value per share (`/share)
Investments (`/share)
Target price (`/share)
CMP
Upside
11
448
13
461
391
18%
Table 18: Sensitivity of ONGCs target price to gas price and `/USD
Oil realisation (USD/bbl)
Every USD5/bbl i ncrea s e i n net crude

rea lisation ONGCs ta rget price i ncrea s es
by `23/s ha re a t fi xed ga s pri ce of
USD5.6/mmbtu a nd `/USD ra te of `60
Gas price (USD/mmbtu)
2.6
3.6
4.6
5.6
6.6
41.3
313
339
365
391
417
46.3
336
362
388
414
441
51.3
359
385
412
438
464
56.3
383
409
435
461
487
61.3
406
432
458
484
510
66.3 71.3
429 452
455 478
481 504
507 530
533 557
7.6
8.6
443
470
467
493
490
516
513
539
536
562
559
586
583
609
Table 19: Key model assumptions
Net crude oi l rea l i s a ti on to i ncrea s e

s ubs ta nti a l l y to USD56.3/bbl i n FY16 vs
onl y USD41/bbl i n FY14
Sta nda l one oi l producti on expected to

rema in flat a t 22.2mmt over FY15E-FY16E
Sta ndalone ga s producti on expected to
decl ine i n FY15 to 22.7mmt based on poor
s how i n H1FY15 (-5% YoY decl i ne)
OVL oi l & ga s production could s urprise vs
our a s s umpti on of fl a t producti on over
FY15E-FY16E
Gross Realisation (USD/bbl)

Subsidy (USD/bbl)
Net realisation (USD/bbl)
`/USD rate
Net realisation (`/bbl)
FY13
FY14
FY15 E
FY16E
110.7
62.9
47.9
54.5
2,606
106.7
65.8
41.0
60.5
2,478
102.9
52.9
50.0
60.5
3,028
100.0
43.7
56.3
60.0
3,381
Subsidy (`bn)
Production volume
Oil (mmt)
ONGC
JV
494
4.2
564
4.2
455
4.6
363
5.6
30.47
20.49
3.57
31.48
20.44
3.75
31.40
20.57
3.77
31.62
20.51
3.92
Condensate
OVL
Gas (bcm)
ONGC
JV
OVL
2.08
4.34
28.25
23.55
1.79
2.92
1.81
5.49
27.72
23.28
1.57
2.87
1.63
5.42
27.18
22.74
1.53
2.9
1.77
5.42
28.05
23.53
1.61
2.9
23.68
19.21
4.47
23.60
18.87
4.74
23.89
19.13
4.76
23.95
18.97
4.98
20.16
19.58
18.85
19.60
18.60
1.56
18.26
1.32
17.59
1.26
18.26
1.34
Sales volume
Oil (mmt)
ONGC
JV
Condensate
Gas (bcm)
ONGC
JV
Source: Company and Systematix Institutional Research
Nov 2014
SYSTEMATIX
Page 14
CONSOLIDATED FINANCIALS
Profit & Loss Statement
Y/E March (`mn)
Net Sales
FY13
FY14
FY15 E
FY16E
1,624,032 1,744,771 1,832,542 1,962,370
Sales Growth (%)
Balance Sheet
Y/E March (`mn)
Share Capital
FY13
FY14
FY15 E
FY16E
42,778
42,778
42,778
42,778
Reserves
1,482,502 1,678,732 1,905,534 2,165,001
Net Worth
1,525,280 1,721,510 1,948,311 2,207,779
10.2
7.4
5.0
7.1
24,585
25,309
24,440
26,222
Statutory Levies
256,835
261,893
288,468
306,213
Debt
204,508
Other Expenses
793,855
875,438
858,368
901,258
Total Current Liabilities
804,785 1,071,717 1,019,571 1,059,187
EBITDA
548,757
582,131
661,266
728,676
Total Equity & Liabilities
2,534,573 3,249,108 3,406,891 3,695,975
Net Block
1,249,653 1,557,756 1,720,557 1,905,809
Employee cost
EBITDA (%)
33.8
33.4
36.1
37.1
Depreciation
231,399
250,690
228,176
251,802
54,900
68,937
63,559
62,124
Investments
4,838
6,243
12,768
12,441
127,519
130,476
159,074
172,006
35
33
33
33
239,901
266,530
321,886
354,552
2,295
(1,465)
(4,693)
(5,896)
Other Income
Interest
Tax
Tax Rate (%)
Adj usted PAT
Extraordinary/prior period Items
Reported PAT
PAT Growth (%)
Cash Flow Statement

Y/E March (`mn)
CWP
538,270
462,737
47,459
47,459
47,459
Other non-current asset s
214,307
365,234
362,303
362,303
Curr. Assets
651,935
740,389
813,836
892,668
Debtors
153,956
160,284
196,880
207,618
Cash & Bank Balance
196,191
244,801
272,292
332,497
Inventory
127,804
148,015
137,071
144,936
Loans and advances
173,985
187,290
207,594
207,617
265,065
317,193
348,655
(13.9)
9.4
19.7
9.9
Total Assets
FY14
FY15 E
FY16E
Ratio
Y/E March
PAT
243,164
288,467
321,886
354,552
Depreciation
213,321
233,219
180,810
196,684
CEPS (`per share)
2,227
-31,014
-68,072
-27,612
BV (`per share)
458,713
490,673
434,624
523,624
DPS (`per share)
Cash Flow from Operation
Payout %
4.7
EV/Sales
2.1
2.0
1.9
1.8
Price/Book Value
2.2
1.9
1.7
1.5
109,711
EV/EBITDA
Debt Raised
-2,678
247,223
-16,872
Investment
7,966
651
-110,021
-97,624
-95,084
-95,084
55,579
60,206
Opening Cash Bal.
278,914
196,191
244,801
272,292
Add: Net Cash
-82,724
48,611
27,490
60,206
Closing Cash Bal.
Nov 2014
196,191
244,801
272,292
332,497
9.5
9.6
81,032
27,490
9.5
5.3
-82,922
58,414
9.5
10.5
P/E
24,373
48,611
9.5
6.1
-406,936
-18,718
63.7
258.1
12.6
-268,077
-2,364
58.2
227.7
6.1
-615,626
-82,724
58.2
201.2
13.8
-422,630
Net Cash Flow
53.2
178.3
23.3
Capex
Misc Expense & others
40.8
FY16E
Valuation (x)
Dividend Paid
FY16E
37.1
25.6
516,647
FY15 E
31.0
FY15 E
-6,977
349,110
-10,000
FY14
28.3
30.7
-85,514
532,704
FY13
FY14
42,031
447,003
2,534,573 3,249,108 3,406,891 3,695,975
33.6
-11,710
Operating Cash Flow
Equity Raised
487,737
FY13
Inc/(Dec) in WC
Free Cash Flow
429,009
21,282
EPS (`per share)
Others
439,009
397,397
242,196
FY13
455,881
Dividend Yield (%)
2.4
2.4
2.4
2.4
FY13
FY14
FY15 E
FY16E
RoE
16.8
16.3
17.3
16.8
RoCE
20.8
18.5
19.7
19.6
Profitability Ratio (%)
Turnover Ratios
FY13
FY14
FY15 E
FY16E
Debtors (Days)
34
33
39
Fixed Asset Turnover (x)
0.9
0.8
0.7
0.7
SYSTEMATIX
Page 15
Systematix
Institutional
Research
November
3,
2007
Oil India (OINL IN)
Initiating Coverage
Industry
Oil & Gas
Favorable reforms; rising production
BUY (CMP: ` 588)

Mkt Cap `354bn; USD5.7bn
Price
Target Price
Expected share pric e return
Expected dividend yield
Expected total return
588
734
24.7%
4.6%
29.3%
Market Data
`354bn/US$ 5.7bn
601
`669/ `439
2mn
Market Cap.
Share Cap. (mn)
52 Wk High/Low
Avg. Vol. (Weekly)
(Price Performance (RIC: OIL.BO, BB:

OINL IN)
Oil India Limited (OIL)s valuation at 8x FY16E EPS is not factoring in earnings upside
from higher crude realisation led by fuel pricing reforms and increase in oil & gas
production. We highlight here that the companys oil business would report loss of
around USD5.7/bbl at current crude price and fixed subsidy at USD56/bbl. Given
the alarming situation, we expect GoI to clarify subsidy haring mechanism by end
of this fiscal year, which would provide earnings visibility for upstream PSUs.
Hence, we initiate coverage on OIL with a BUY rating and target price of
`734/share.
Net crude realisation expected to increase to USD64.7/bbl in FY16 vs USD47/bbl in
FY14
Given our expectation of decline in under-recoveries to `831bn/`663bn in
FY15E/FY15E on the back of diesel price de-regulation and lower crude oil prices, we
expect a strong case for lower subsidy burden for upstream PSUs. Despite
conservatively assuming upstream subsidy sharing at 65% (based on FY15 budgeted
fuel subsidy of `634an and adjustment of `350bn for 4QFY14), we expect OILs
subsidy burden to fall to USD47.1/bbl in FY15 and USD35.3/bbl in FY16.
Consequently, we model net oil realisation at USD55.3/USD64.7 per barrel for
FY15E/FY16E vs only USD47/bbl in FY14.
Gas price hiked to USD5.6/mmbtu (to add `6.7/share to FY16E EPS)
The new gas price formula (based on volume weighted annual average of North
American, EU & FSU (excl. Russia) and Russian gas prices with a quarter lag) approved
by GoI would increase OILs gas price to USD5.6/mmbtu (from USD4.2/mmbtu
currently) with effect from November 2014. We expect incremental PAT of `4bn (or
`6.7/share) for OIL from gas price hike in FY16.
Oil & gas production expected to grow at CAGR of 3% over FY14-FY16E
Shareholding Pattern
(As on Sept 30 th, 2014)
(%)
The blockades in Assam has severely impacted oil & gas drilling and production
activities of OIL over FY12-FY14. Consequently, the oil production has declined to
3.5mmt in FY14 (vs 3.9mmt in FY12, which is a decline of 9.8% over the same period).
With normalization of situation in the region, we expect oil and gas production to
grow at CAGR of 3% over FY14-FY16. Hence, we model oil production of
3.5mmt/3.7mmt and gas production of 2.8bcm/2.8bcm for FY15E/FY16E.
Initiate coverage with a BUY rating
Financials (`Mn)
FY14
FY15E
FY16E
Net Sales
EBIDTA
PBT
PAT
EPS (`)
EBIDTA Mar gin (%)
PAT margin (%)
91,267
35,416
44,104
29,813
49.6
38.8%
32.7%
114,397
53,462
50,078
32,782
54.5
46.7%
28.7%
138,988
70,855
66,996
44,217
73.6
51.0%
31.8%
Price/Earnings (x)
EV/EBIDTA (x)
ROE (%)
ROCE (%)
11.9
9.5
14.9%
16.8%
10.8
6.0
15.3%
16.3%
8.0
4.5
19.2%
20.5%
Nov 2014
We value OIL at `734/share (9x FY16E EPS + `72/share for investments). On the back
of reform-led increase in oil & gas realisation, we expect OILs EPS to grow at CAGR of
22% over FY14-16E with marked improvement in RoCE to 20.5% in FY16E vs 16.8% in
FY14. Rationalisation of subsidy sharing at 50:50 between GoI and upstream would
increase our FY16E EPS for OIL to `82/share and consequently our target price to
`812/share (an upside potential of 38% from CMP).
Royalty issue: ONGC is contesting case vs Gujarat governments plea to pay royalty
on gross realisation. If Supreme Court asks upstream companies to pay royalty on
onshore production at gross realisation it would impact OIL's FY16E PAT by 14%.
SYSTEMATIX
Page 16
Table 20: SOTP based target price of `734/Share
SoTP
P/E
FY16E EPS
73.6
Multiple (x)
Value per share (`/share)
Investments (`/share)
Target price (`/share)
CMP
Upside
9
662
72
734
588
25%
Table 21: Sensitivity of OILs target price to gas price and `/USD rate
57
58
59
60
61
2.6
586
603
621
639
657
3.6
616
634
652
670
689
4.6
646
665
683
702
721
5.6
676
695
714
734
753
6.6
706
726
746
765
785
7.6
736
756
777
797
817
8.6
766
787
808
829
849
62
63
674
692
707
725
740
758
772
792
805
825
838
858
870
891
FY13
FY14
FY15 E
FY16E
109.6
56.0
53.6
54.4
2,915
106.4
59.3
47.1
60.5
2,850
102.4
47.1
55.3
60.5
3,346
100.0
35.3
64.7
60.0
3,879
79
3.7
87
3.7
70
4.7
56
5.6
3.70
3.64
0.04
3.50
3.45
0.04
3.51
3.46
0.04
3.72
3.66
0.04
Condensate
Gas (bcm)
OIL
JV
Sales volume
Oil (mmt)
0.02
2.64
2.64
0.00
0.02
2.63
2.63
0.00
0.02
2.76
2.76
0.0
0.02
2.78
2.78
0.0
3.68
3.47
3.47
3.69
OIL
JV
Condensate
Gas (bcm)
OIL
JV
3.62
0.04
0.02
2.08
2.08
0.00
3.42
0.04
0.02
2.09
2.09
0.00
3.42
0.04
0.02
2.23
2.23
0.00
3.63
0.04
0.02
2.24
2.24
0.00
Every USD1/mmbtu increase i n ga s pri ce

woul d ra ise OILs target price i ncreases by
`32/s ha re a t `/USD ra te of `60
`/USD rate
Table 22: Key model assumptions

Net crude realisation expected to increase
to USD64.7/bbl in FY16 vs USD47.1/bbl i n
FY14 l ed by l ower s ubs i dy burden a nd
hi gher crude producti on
Oi l & ga s producti on to grow a t CAGR of

3% over FY14E-FY16E wi th norma l i za ti on
of s i tua ti on i n As s a m (key produci ng
regi on for OIL)
Gross Realisation (USD/bbl)

Subsidy (USD/bbl)
Net realisation (USD/bbl)
`/USD rate
Net realisation (`/bbl)
Subsidy (`bn)
Production volume
Oil (mmt)
OIL
JV
Source: Company and Systematix Institutional Research
Nov 2014
SYSTEMATIX
Page 17
Table 23: Impact of royalty on gross realisation on OILs PAT

Unit
If pa i d on gros s rea l i s a ti on, roya l ty

pa yment would have 14% negative impact
on FY16E PAT of OIL a nd would l ower our
ta rget pri ce to `664/s ha re
FY15 E
FY16E
Gross realisation
Subsidy
Net realisation
Royalty on net @ 15.5%
Royalty on gross @ 15.5%
USD/bbl
USD/bbl
USD/bbl
USD/bbl
USD/bbl
102.4
47.1
55.3
8.4
15.9
100.0
35.3
64.7
9.8
15.5
Incremental royalty payout

Oil sales
Revenue loss
Tax @ 34%
Negative impact on PAT
Negative impact on EPS
USD/bbl
mn bbls
`mn
`mn
`mn
`/share
7.5
25
11415
3881
7534
13
5.7
27
9146
3109
6036
10
Base case EPS

% negative impact on EPS
`/share
%
55
-23%
74
-14%
Nov 2014
SYSTEMATIX
Page 18
STANDALONE FINANCIALS
Profit & Loss Statement
Y/E March (`mn)
FY14
FY15 E
95,252
91,267
114,397 138,988
0.1
-4.2
25.3
21.5
Employee cost
13,106
14,732
16,809
Statutory Levies
30,439
28,789
Other Expenses
10,001
12,331
EBITDA
41,707
Net Sales
Sales Growth (%)
EBITDA (%)
Depreciation
FY13
FY16E
Balance Sheet
Y/E March (`mn)
Share Capital
FY13
FY14
FY15 E
FY16E
6,011
6,011
6,011
6,011
Reserves
186,103
201,070
214,675 233,025
18,763
Net Worth
192,115
207,082
220,686 239,036
31,263
36,166
Debt
10,578
97,827
97,827
97,827
12,863
13,204
Total Current Liabilities and others
45,128
43,836
65,327
71,230
35,416
53,462
70,855
Total Equity & Liabilities
247,821
348,745
43.8
38.8
46.7
51.0
Net Block
49,949
54,787
383,840 408,093
54,182
53,257
30,772
42,772
8,376
11,770
14,605
14,925
CWIP
17,690
20,772
Other Income
19,528
21,146
14,155
14,000
Investments
18,571
114,566
114,566 114,566
Tax
16,939
14,291
17,296
22,778
Curr. Assets
161,611
158,620
184,320 197,498
32.1
32.4
34.5
34.0
9,027
4,657
35,893
29,813
32,782
44,217
121,329
115,437
6,443
9,687
6,268
7,616
35,893
29,813
32,782
44,217
24,812
28,839
35,496
42,907
4.1
-16.9
10.0
34.9
247,821
348,745
FY14
FY15 E
FY16E
Ratios
Y/E March
FY13
FY14
FY15 E
FY16E
59.7
49.6
54.5
73.6
98.4
Tax Rate (%)

Adj usted PAT
Extraordinary/prior period Items
Reported PAT
PAT Growth (%)
Cash Flow Statement

Y/E March (`mn)
PAT
FY13
Deferred Tax & others
Cash & Bank Balance

Inventory
Loans & advances and others
Total Assets
9,402
11,424
133,154 135,552
383,840 408,093
26,023
32,782
44,217
EPS (` per share)
5,671
11,770
14,605
14,925
CEPS (` per share)
69.1
61.5
78.8
-14,062
-10,331
BV (`per share)
320
344
367
398
30.0
21.5
27.3
36.8
28,244
Depreciation
Debtors
Cash Flow from Operation
19,853
27,463
47,387
59,142
DPS (` per share)
Inc/(Dec) in WC
-8,808
-876
13,507
-4,877
Payout %
Operating Cash Flow
11,045
26,587
60,894
54,265
Valuation (x)
-12,515
-19,279
-24,000
-26,000
-1,470
7,308
36,894
28,265
10,477
87,249
7,571
50.2
43.4
50.0
50.0
FY13
FY14
FY15 E
FY16E
P/E
9.9
11.9
10.8
8.0
EV/EBITDA
5.8
9.5
6.0
4.5
EV/Sales
2.5
3.7
2.8
2.3
Price/Book Value
1.8
1.7
1.6
1.5
-95,995
Dividend Yield (%)
5.1
3.7
4.6
6.3
-19,562
-20,894
-19,177
-25,867
FY13
FY14
FY15 E
FY16E
Misc Expense & others
14,959
16,439
RoE
19.4
14.9
15.3
19.2
Net Cash Flow
11,975
-5,893
17,717
2,398
RoCE
26.2
16.8
16.3
20.5
109,355
121,329
FY13
FY14
FY15 E
FY16E
11,975
-5,893
121,329
115,437
34.6
18.6
30.0
30.0
0.4
0.3
0.3
0.4
Capex
Free Cash Flow
Equity Raised
Debt Raised
Investment
Dividend Paid
Opening Cash Bal.

Add: Net Cash
Closing Cash Bal.
Nov 2014
115,437 133,154
17,717
2,398
133,154 135,552
Profitability Ratio (%)
Turnover Ratios
Debtors (Days)
Fixed Asset Turnover (x)
SYSTEMATIX
Page 19
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Upstream PSU Sector Report - Big Bang Reforms - Positive For Upstream PSUs - Nov 19, 2014

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Systematix

November 19, 2014

Oil & Gas

Declining fuel under-recoveries: A win-win for GoI and Upstream PSUs

Price performance - BSEOIL vs. Sensex

Upstream PSUs CMP (`)

Source: Systematix Institutional Research

1,744,771 1,832,542 1,962,370

OIL India Standalone

SYSTEMATIX SHARES & STOCKS (I) LTD.

SYSTEMATIX SHARES & STOCKS (I) LTD. 2

20% holding-company discount at CMP

Source: Systematix Institutional Research

Table 2: Global Oil & Gas Peer Valuation

Source: Bloomberg, Systematix Institutional Research

SYSTEMATIX SHARES & STOCKS (I) LTD. 3

PAT excluding other income 12.4

Source: ONGC, OIL, Systematix Institutional Research

Oil production (kbpd)

Source: Exxon Mobil CY13 Annual Report, Systematix Institutional Research

SYSTEMATIX SHARES & STOCKS (I) LTD. 4

KEY INVESTMENT ARGUMENTS

Di esel de-regulation to elimi na te a nnua l

Table 5: Recent oil & gas sector reforms

What changes with implementation of reform

Diesel price de-regulation

Market-linked diesel price

Gas price hike

To USD5.6/mmbtu from USD4.2/mmbtu

Premium gas price for ultra-deep water,

Premium from new gas price but premium would be

To help monetization of high capex

Modified DBTL for LPG subsidy

Fixed domestic LPG subsidy per cylinder (quantum not

Control over distribution of subsidies

Flexible E&P Policy

Direct cash transfers to be made to customers bank

Resolution of pending operational

Source: MoPNG, Systematix Institutional Research

SYSTEMATIX SHARES & STOCKS (I) LTD. 5

Current crude price

Source: ONGC, OIL, Systematix Institutional Research

Lower upstream subsidy burden to increase net crude oil realisation

We expect gross under-recoveries to halve

Cons equentl y FY16E ups trea m s ubs i dy

Brent Crude (USD/bbl)

Source: PPAC, ONGC, OIL, Systematix Institutional Research

SYSTEMATIX SHARES & STOCKS (I) LTD. 6

Table 8: Sensitivity of FY16E gross under-recoveries to crude price and `/USD

Source: Systematix Institutional Research

FY16 Base case

No LPG price hike

Source: Systematix Institutional Research

Table 10: Upstream net realisation to increase with decline in under-recoveries

Led by l ower s ubsidy burden ONGCs net

Source: ONGC, OIL, Systematix Institutional Research

Source: Ministry of Petroleum and Natural Gas

Table 12: Upstream subsidy sharing mechanism suggested by ONGC

SYSTEMATIX SHARES & STOCKS (I) LTD. 7

ONGC s uggested formula provides stability

Mechanism by ONGC ( USD/bbl)

Source: Systematix Institutional Research