20150112-高盛-Lower_oil_to_impact_upstream,_prefer_downstream__cut_ONGC_to_Neutral_11页_439kb

Summary of Document Analysis

Core Content

The document outlines the impact of lower oil prices on Indian upstream oil and gas companies, particularly ONGC, and provides updated forecasts, financial models, and investment ratings. It also discusses the effects of reduced oil prices on domestic gas prices and the broader implications for the energy sector in India.

Main Points

• Oil Price Forecast: Goldman Sachs has revised its global Brent price forecasts for CY15 and CY16 to US$50/bl and US$70/bl, respectively. This leads to a lower oil price realization for Indian upstream companies such as ONGC and OIL.

• Impact on ONGC: The new oil price forecast results in a lower net oil realization for ONGC, reducing its earnings potential. The company is downgraded from "Buy" to "Neutral" with a revised 12-month target price of Rs400 (from Rs500). The lower oil price also reduces the company's EPS by 11-20% for FY15-17E.

• Gas Price Decline: The domestic gas price is expected to decline from US$5.6/mmbtu to US$4.8/mmbtu in FY16 due to reduced oil-linked UK NBP gas prices and ruble depreciation affecting Russian gas prices. This decline is further expected to continue to US$4.6/mmbtu by October 2015.

• Downstream Companies: Downstream companies, especially oil marketing companies (OMCs), are better positioned to benefit from lower oil prices due to increased oil product demand and better marketing margins. HPCL is highlighted as a top pick with a "Buy" rating.

• Sector Consolidation: The lower oil price environment and deflation are expected to drive consolidation in the oil sector, with companies having strong balance sheets but poor asset portfolios likely to acquire low-cost projects from more highly leveraged E&Ps.

• Earnings and Financials: The document provides detailed financial forecasts for ONGC, including revenue, EPS, and various financial ratios, showing a decline in earnings due to lower oil prices. It also includes a breakdown of under-recovery and the share of it among different stakeholders.

• Investment Profile: The investment profile for ONGC is compared to its peers, showing changes in growth, returns, multiples, and volatility. The company's valuation ratios, such as P/E and EV/EBITDA, are provided.

• Key Risks and Upsides: Key risks for ONGC include lower oil/gas prices, while potential upsides are higher oil prices or lower subsidy burdens. The document also mentions the importance of monitoring the cash return profile from any acquisitions.

Key Information

• New Oil Price Forecasts:

  • Brent: US$50/bl for CY15, US$70/bl for CY16
  • WTI: US$47/bl for CY15, US$65/bl for CY16

• ONGC's Financial Impact:

  • EPS for FY15-17E reduced by 11-20%
  • Target price reduced to Rs400 (from Rs500)
  • Net income pre-preferred dividends projected to be Rs260,460.3 (FY15E), Rs273,843.9 (FY16E), and Rs349,323.7 (FY17E)

• Gas Price Forecast:

  • Expected to decline from US$5.6/mmbtu to US$4.8/mmbtu in FY16
  • Further decline to US$4.6/mmbtu from October 2015

• Downstream Performance:

  • OMCs are better placed to benefit from lower oil prices
  • Marketing margins have a buffer from excise duty
  • HPCL remains a "Buy" recommendation

• Sector Outlook:

  • Consolidation is expected due to lower oil prices and deflation
  • Companies with strong balance sheets may acquire low-cost projects

• Valuation Metrics:

  • P/E: 9.7 (3/14), 11.0 (3/15E), 9.2 (3/16E), 8.6 (3/17E)
  • EV/EBITDA: 5.0 (3/14), 5.4 (3/15E), 4.6 (3/16E), 4.3 (3/17E)
  • ROE: 17.3 (3/14), 16.3 (3/15E), 17.6 (3/16E), 17.2 (3/17E)

• Key Risks:

  • Downside: Lower oil/gas prices
  • Upside: Higher oil prices, lower subsidy burden

• Disclosure:

  • The report is subject to potential conflicts of interest due to Goldman Sachs' relationships with covered companies
  • Analysts are certified to reflect their personal views on the subject companies

Summary of Ratings and Target Price Changes

Investment Profile Summary

Summary of Under-Recovery

Conclusion

The document highlights the negative impact of lower oil prices on Indian upstream companies, particularly ONGC, and suggests that downstream companies are better positioned to benefit. It provides updated forecasts, financial models, and investment ratings, emphasizing the need to monitor changes in the subsidy sharing mechanism and the potential for sector consolidation. The analysis concludes with a detailed investment profile and disclosure of potential conflicts of interest.