ONGC: Overtakes HLL - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

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

ONGC: Overtakes HLL

Apr 9, 2002

The sale of Videsh Sanchar Nigam Ltd. (VSNL) and Indo-Burmah Petroleum (IBP) sparked off a dramatic rally in the once untouchable public sector (PSU) stocks. Oil & Natural Gas Corporation (ONGC), the largest oil exploration & production (E&P) company in the country, has considerably outperformed the BSE Sensex year-to-date (YTD). The scrip is trading higher by 159% over the concerned period compared to 7.2% rise in the Sensex. The rise in ONGC though is not due to expectations of privatisation. The Government, earlier, has classified ONGC as a strategic asset. With dismantling of the administered pricing mechanism (APM) the Government also linked indegeniously produced crude oil to international parity prices. This has sparked the buying frenzy in the stock. Prior to the phased deregulation in the sector, ONGC was being compensated on cost plus basis. From FY99, the terms of payment were converted to a step-up linkage mechanism with FOB import prices. However, as oil prices strengthened over FY00 and FY01, the Government put a ceiling on indegeniously produced oil by PSUs at $16 / barrel.

ONGC: Taxing windfall gains
 Case 1Case 2% change
Oil price ($/barrel) 20.0 25.0 25.0%
Oil price ($/tonne) 147.4 184.3 25.0%
Oil price (Rs/tonne) 7,148.9 8,936.1 25.0%
Cess (Rs/tonne) 900.0 1,800.0 100.0%
Net realisations 6,248.9 7,136.1 14.2%
* numbers are estimates

Consequently, decontrol in prices is likely to lead to a spurt in turnover for ONGC. Eating into the windfall gains, which could have been registered by ONGC, the Finance Minister in the recent budget increased the cess on crude produced by PSUs to 1,800/ metric tonne (MT) from Rs 900/ MT. This move, it seems, is largely to fund the subsidies on LPG and kerosene.

At Rs 357 the ONGC stock trades on a multiple of 8.4x 9mFY02 annualised earnings. E&P business offers value in the form of strong cash flows and high profitability. The operating cost of drilling crude is estimated at $8-$10/ barrel. E&P business tends to be the cash cow for integrated energy players. Valuations of ONGC have reached levels commanded by international peers. In terms of market capitalisation, ONGC is the highest valued company. As per reports, global oil demand is growing at 2% annually while reserves are depleting at 6%. This could keep upward pressure on oil prices.

Value realised
(Rs m)ONGCPetrobras
CMP 357 1,265
Sales* 223,582 1,208,677
EBITDA* 118,936 486,856
PAT* 60,702 200,414
EPS 42.6 184.5
OPM53.2%40.3%
NPM27.1%16.6%
Book value 212.6 455.1
No. of shares 1,426 1,086
M.Cap 508,401 1,373,959
EV 532,653 1,574,708
P/E 8.4 6.9
CMP/Book value 1.7 2.8
EV/EBITDA 4.5 3.2
* 9 month annualised

Equitymaster requests your view! Post a comment on "ONGC: Overtakes HLL". Click here!

  

More Views on News

5 Green Energy Stocks to Watch as India Readies for a Revolution (Views On News)

Oct 13, 2021

The excitement around green energy stocks has opened up a huge contrarian opportunity in the traditional energy space.

Top Performing PSU Stocks over the Past One Year (Views On News)

Oct 1, 2021

After a decade of underperformance, PSU stocks have woken up. Here are the best performing PSUs of past twelve months.

Linde India Shares Hits New High. Up 230%+ in One Year (Views On News)

Aug 26, 2021

Linde India shares have surged sharply in the past few trading sessions. What's causing the rally?

ONGC Logs Massive Jump in Net Profit as Crude Oil Prices Double (Views On News)

Aug 16, 2021

Rising crude oil prices compensate ONGC's fall in production.

HPCL Shares Under Pressure After Profit Declines in June Quarter (Views On News)

Aug 5, 2021

Rising crude oil prices and forex woes weigh on HPCL's quarterly numbers.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

6 Penny Stocks that Rallied 1,000%+ in One Year (Views On News)

Dec 6, 2021

These penny stocks shed their penny status by surging 1,000% or more in the last one year.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE OIL & GAS


Dec 8, 2021 12:07 PM

S&P BSE OIL & GAS 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS