X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
ONGC: One time gains boost profits - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

ONGC: One time gains boost profits
Feb 17, 2014

Oil and Natural Gas Corporation Ltd (ONGC) has announced results for the third quarter of financial year 2013-14 (3QFY14). The topline registered 1.1% year on year (YoY) decline during the quarter while bottomline was up by 28.1% YoY. Here is our analysis of the results.

Performance summary
  • Topline for the quarter declined by 1.1% year on year (YoY). For the nine months ending December 2013 (9MFY14), the revenues were up 2.3% YoY.
  • The operating profits for the quarter were up 13.3% YoY with margins at 50.4% (versus 44.0% in 3QFY13). For 9MFY14, the operating profits declined marginally by 1.1% YoY with margins at 43.9%, down from 45.0% in 9MFY13.
  • The firm registered a growth of 28.1% YoY in the bottomline during the quarter with net profit margins at 34.2% versus 26.4% in 3QFY13. For 9MFY14, the net profits declined by 1.9% YoY, with net profit margins at 27.5%, down from 28.7% in 9MFY13.

Standalone financial performance summary
Rs m 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Sales 210,932 208,522 -1.1% 611,561 625,758 2.3%
Expenditure 118,210 103,444 -12.5% 336,645 351,149 4.3%
Operating profit (EBDITA) 92,722 105,078 13.3% 274,916 274,609 -0.1%
Operating profit margin (%) 44.0% 50.4%   45.0% 43.9%  
Other income 12,812 26,623 107.8% 42,208 53,414 26.6%
Interest 12 0 -98.3% 336 3 -99.0%
Depreciation 23,417 25,884 10.5% 59,873 73,474 22.7%
Profit before tax (before exceptional items) 82,105 105,818 28.9% 256,915 254,546 -0.9%
Profit before tax margins (%) before exceptional items 38.9% 50.7%   42.0% 40.7%  
Exceptional items            
Profit before tax 82,105 105,818 28.9% 256,915 254,546 -0.9%
Profit before tax margins (%) 38.9% 50.7%   42.0% 40.7%  
Tax 26,478 34,558 30.5% 81,545 82,488 1.2%
Profit after tax 55,627 71,260 28.1% 175,370 172,058 -1.9%
Net profit margin (%) 26.4% 34.2%   28.7% 27.5%  
No. of shares         8,555  
Diluted earnings per share (Rs)*         24.1  
P/E ratio (x)**         11.5  
(* on trailing twelve months earnings)

What happened during 3QFY14?
  • The net sales for the quarter declined by 1.1% YoY due to high under recovery burden, offset by the weakness in the domestic currency. In terms of volumes, the crude oil production and natural gas output declined on an annual basis. The gross realization for crude in the quarter stood at US$ 108.18 per barrel versus US$ 110.13 per barrel in 3QFY13. Post subsidies, the net realizations for the quarter stood at US$ 45.98 per barrel, down from US$ 47.94 per barrel in 3QFY13. However, a decline in net realizations was offset by rupee depreciation.

  • ONGC’s discount to state run oil marketing companies stood at around Rs 138 bn during the quarter, up 10.7% YoY. The operating profits for the quarter registered a growth of 13.3% YoY, with margins expanding by 643 basis points (BPS) YoY to 50.4%. The expansion in margins was mainly on account of decline in exploration costs written off and decline in other expenses. The company implemented revised guidance on oil and gas producing activities leading to one off gain in other income and decline in other expenses.

  • ONGC's net profits grew by 28.1% YoY mainly on account of rupee depreciation and more than twofold increase in other income . However, it was slightly offset by increase in depreciation expense for the quarter. The subsidies during the quarter dragged the bottomline by around Rs 76.5 bn (versus a net impact of Rs 72.6 bn in 3QFY13).

    Cost break-up...
    Rs m 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
    Cost of materials consumed 1,788 1,348 -24.6% 4,532 3,327 -26.6%
    as a % of sales 0.8% 0.6%   0.7% 0.5%  
    Employee benefit expenses 3,461 4,489 29.7% 12,214 14,812 21.3%
    as a % of sales 1.6% 2.2%   2.0% 2.4%  
    Statutory levies 57,108 57,402 0.5% 165,640 171,364 3.5%
    as a % of sales 27.1% 27.5%   27.1% 27.4%  
    Other costs 35,157 22,101 -37.1% 100,765 107,151 6.3%
    as a % of sales 16.7% 10.6%   16.5% 17.1%  
    Exploration costs w/off 20,697 18,106 -12.5% 53,495 54,495 1.9%
    as a % of sales 9.8% 8.7%   8.7% 8.7%  
    Total costs 118,210 103,444 -12.5% 336,645 351,149 4.3%
    as a % of sales 56.0% 49.6%   55.0% 56.1%  
What to expect?
While the growth in the bottomline looks impressive during the quarter, it was mainly on account of rupee depreciation and one off items. The high subsidy burden remains a major concern for the company.

Recently, the Government increased the limit of no of domestic LPG cylinders which is a negative for ONGC (wrt to under recovery compensation). A hike in the domestic gas prices from April is likely to benefit ONGC. However, the benefit of increase in diesel and gas price may not be completely realized by the company in case the Government increases its share of under recovery burden. There is further concern regarding the ageing fields. Going forward, a pick up in the production is likely to be the growth catalyst.

There is further an overhang on ONGC‘s stock as the company may have to pay royalty to Gujarat Government at market prices, instead of net realizations that company has been considering since April 2008.

At current price of Rs 277, the stock of ONGC is trading at a PE (price to earnings ratio) of 11.5x. While long term prospects of ONGC are bright, the decline in production rate from mature fields remains a concern. There is further concern regarding adhoc nature of subsidies. We maintain Sell recommendation on the stock.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

ONGC SHARE PRICE


Feb 23, 2018 01:29 PM

TRACK ONGC

ONGC - CONOCOPHILLIPS COMPARISON

COMPARE ONGC WITH

MARKET STATS