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ONGC: Expansion mode - Views on News from Equitymaster
 
 
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  • Aug 4, 2003

    ONGC: Expansion mode

    ONGC, India's largest public sector company announced its 1QFY04 results recently. The company reported a 12% growth in its topline whereas bottomline was up by about 8%. Let's take a detailed look at the results.

    (Rs m) 1QFY03 1QFY04 Change
    Sales 70,562 78,669 11.5%
    Other Income 5,555 2,679 -51.8%
    Expenditure 34,187 33,790 -1.2%
    Operating Profit (EBDIT) 36,376 44,880 23.4%
    Operating Profit Margin (%) 51.6% 57.0%  
    Interest 848 41 -95.2%
    Depreciation 9,515 11,204 17.8%
    Profit before Tax 31,568 36,313 15.0%
    Tax 11,760 14,968 27.3%
    Profit after Tax/(Loss) 19,808 21,345 7.8%
    Net profit margin (%) 28.1% 27.1%  
    No. of Shares 1,425.9 1,425.9  
    Diluted Earnings per share* 55.6 59.9  
    P/E Ratio   7.8  
    *(annualised)      

    Though ONGC reported a 2% dip in its crude oil production, it succeeded in exceeding its target by about 3% during the quarter. In case of natural gas, its production was up by about 2% YoY. Higher realisations led to a growth in its topline by about 12% during the same period.

    During the June quarter, ONGC witnessed a 540 basis points growth in its operating profit margins. This is on account of the fact that though the topline increased by about 12%, total expenses declined during the same period. As a percentage of sales also, expenses declined from 48% in 1QFY03 to 43% during the current quarter. As a result, operating profits increased by a higher rate and led to an increase in operating margins.

    If one were to look at segmental break-up, ONGC witnessed higher increase in PBIT margins in case of on shore exploration. PBIT margins of on shore exploration increased by about 390 basis points, while that from off shore exploration increased by about 240 basis points during the same period. On an overall basis, PBIT margin improved by about 240 basis points.

    Segmental snapshot
    (Rs m) 1QFY03 1QFY04
    Offshore 54745.9 58,601.1
    PBIT margin 49.4% 51.8%
    Onshore 18,798.10 21,632.2
    PBIT margin 20.2% 24.1%
    Total revenues 73,544.00 80,233.30
    Overall PBIT margin 41.9% 44.3%

    The company managed to reduce its interest outgo significantly during June quarter thus aiding bottomline growth. However, higher rate of growth in depreciation and taxes limited bottomline growth. Consequently, net profit was up only 8% during the quarter.

    At Rs 469, the stock is trading at a P/E multiple of 7.8x its annualised 1QFY04 earnings. ONGC has aggressive capex plans during current financial year. It plans to invest about Rs 100 bn for domestic exploration while another Rs 60 bn is planned for acquiring equity investments abroad. It has recently appointed two firms for deep-sea exploration and plans to start the same by the month of September. Its various foreign investments have actually started bearing fruit. Though deep-sea exploration poses risk, any success in this front will significantly add to its revenues. This apart, expected deregulation in natural gas is also a positive for the company.

     

     

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