Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 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: Giant awakens - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Aug 22, 2002

    ONGC: Giant awakens

    Oil & Natural Gas Corporation (ONGC) has followed up 4QFY02 with an even better performance in the quarter ended June '02. While other industries have struggled to report topline growth, the oil & gas upstream major, operating in amongst the dullest of industries, has reported exciting financials. Investor interest in the stock has increased considerably since beginning of the year with dismantling of administered pricing (APM) and PSU scrips attracting attention.

    (Rs m) 1QFY02 1QFY03 Change
    Sales 55,614 70,562 26.9%
    Other Income 2,621 5,555 111.9%
    Expenditure 26,001 34,187 31.5%
    Operating Profit (EBDIT) 29,613 36,376 22.8%
    Operating Profit Margin (%) 53.2% 51.6%  
    Interest 612 848 38.5%
    Depreciation 8,647 9,515 10.0%
    Profit before Tax 22,975 31,568 37.4%
    Tax 8,209 11,760 43.3%
    Profit after Tax/(Loss) 14,766 19,808 34.1%
    Net profit margin (%) 26.6% 28.1%  
    No. of Shares 1,425.9 1,425.9  
    Diluted Earnings per share* 41.4 55.6  
    P/E Ratio   6.6  

    ONGC stock has risen from Rs 150 levels to Rs 370 levels. With dismantling of APM in the petroleum sector, ONGC, technically, is expected to be compensated at international prices for crude oil supplies. Consequently, the stock has reflected change in business fundamentals. The reported rise in sales for 1QFY03 is led by better realisations. That said, production of oil and gas for the quarter, encouragingly, increased YoY by an estimated 8.5% and 6.1% respectively, which is likely to be reflected in sale volumes, as India is a net importer of energy sources. The company has been experiencing decline in production over the past five years with output falling from an estimated 30 m metric tonnes per annum (MMTPA) to 26 MMTPA. The company states that improved volumes is through advanced drilling techniques at Mumbai offshore, which could be reflection of efforts to increase yields at Bombay High field to 40%.

    As mentioned in our FY02 report, prior to APM dismantling, ONGC was compensated at a ceiling rate of $16/ barrel on crude oil supplies. International crude oil average price (Brent blend) for 1QFY03 was at $ 25/ barrel, which is an estimated 56% above earlier realisation rates. To ensure a smooth transition to market-determined pricing mechanism, we reckon, ONGC crude oil realisations are not completely linked to international rates. That said, while realisations have increased, the Government has doubled cess on public sector produced crude oil to Rs 2,000/ tonne to prevent any windfall gains from de-control. As a result, statutory levies, the largest cost component, has risen by 59% YoY. Consequently, operating margins have declined. Operating profits have been lifted by growth in turnover.

    Interest expense had been on a decline over the past three years, as the company repaid debt from excess cash. As per earlier reports, the company planned to become debt free by FY04. However, it seems, the company is likely to bring forward the target date. As per the press release, ONGC repaid World bank and Asian Development Bank loans amounting to Rs 25.1 bn. Surprisingly though, interest expense has increased during the quarter.

    Recognising the need of reserve accretion, the company is becoming aggressive on new exploration. Also, as per reports, the company is implementing a plan to boost production yields at Bombay High fields. Over the next two years, the company plans to double reserve accretion. However, the exploration stage is risky with wide variations in anticipated reserves. The company, through a subsidiary, ONGC Videsh Ltd. (OVL), is scouting for opportunities in foreign fields. However, besides Sakhalin - I, OVL has not met with much success. The company has extended an interest free loan of Rs 21 bn to OVL. for exploring and developing fields. As per recent reports, OVL is likely to acquire stakes in two more projects.

    A positive for the company, is that with dismantling of APM, it is a matter of time before gas prices are deregulated. As per reports, the Government, in two phases, could link international and domestic prices by FY04. Domestic gas prices are estimated to be ruling at half the international rates. Natural gas accounts for an estimated 21% of revenues. Consequently, deregulation in gas price could be a strong trigger. An important development has been purchase of A.V. Birla group stake of 37.4% in Mangalore Refinery & Petrochemicals Ltd. (MRPL) at beginning of August '02 for an estimated consideration of Rs 594 m. As per reports, ONGC is likely to infuse fresh equity of Rs 10 bn leading to management control of MRPL. Also, financial institutions are likely to convert a portion of debt to equity and accept moratorium of interest to allow for project rehabilitation. ONGC will be the first domestic integrated oil company with upstream & downstream operations. However, clarity is lacking on merger of MRPL with ONGC. Among the considerations for merger is the off set of MRPL's accumulated losses against current tax liability. At Rs 367, the scrip is trading on a multiple of 6.6x 1QFY03 annualised earnings.



    Equitymaster requests your view! Post a comment on "ONGC: Giant awakens". Click here!


    More Views on News

    ONGC: Higher Realisations on Crude Support Performance (Quarterly Results Update - Detailed)

    Mar 17, 2017

    ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.

    ONGC: Lower Write-offs Support Performance (Quarterly Results Update - Detailed)

    Nov 3, 2016

    ONGC has announced results for the quarter ended September 2016. The company has reported 10.3 % year on year (YoY) decline in sales, while bottom-line grew 6.3% YoY.

    GAIL: A Good Show (Quarterly Results Update - Detailed)

    Mar 27, 2017

    GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.

    ONGC: Impairment Loss Drags Profits (Quarterly Results Update - Detailed)

    Mar 1, 2016

    ONGC Ltd has reported 1.7% year on year (YoY) decline in the topline for the quarter ended December 2015 while the bottomline for the quarter declined 64% YoY

    ONGC: Low subsidy burden improves realizations (Quarterly Results Update - Detailed)

    Nov 26, 2015

    ONGC has reported 1.0% year on year (YoY) growth in the topline for the quarter ended September 2015 while the bottomline for the quarter declined by 11.4% YoY.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 22, 2017 02:35 PM



    Detailed Financial Information With Charts