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: The black gold rush… - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 29, 2004

    ONGC: The black gold rush…

    Introduction to results
    India’s largest oil exploration and production major, ONGC, has announced its 2QFY05 results. The company has recorded an impressive topline growth of 36% during the quarter while the bottomline has improved by 20% YoY. The growth numbers for the topline and bottomline are 34% and 15% respectively for 1HFY05.

    What is the company’s business?
    ONGC is the country’s largest oil exploration company accounting for over 80% of the oil production and 90% of gas production in the country. The company has been eyeing the global markets now for oil equity abroad through its subsidiary ONGC Videsh and is well on track to secure 20 MMTPA (million metric tonnes per annum) of oil and oil equivalent gas abroad by 2020. Having said that, it also has downstream refining interests through subsidiary MRPL, which has witnessed a major turnaround in fortunes since the takeover by ONGC.

    (Rs m) 2QFY04 2QFY05 Change 1HFY04 1HFY05 Change
    Net sales 86,616 118,162 36.4% 165,285 221,105 33.8%
    Expenditure 36,447 54,575 49.7% 68,870 105,990 53.9%
    Operating profit (EBDITA) 50,169 63,587 26.7% 96,415 115,115 19.4%
    EBDITA margin (%) 57.9% 53.8%   58.3% 52.1%  
    Other income 4,639 4,731 2.0% 7,400 7,751 4.7%
    Interest 101 23 -77.4% 142 105 -26.4%
    Depreciation 12,980 15,335 18.1% 25,633 31,569 23.2%
    Profit before tax 41,727 52,961 26.9% 78,040 91,192 16.9%
    Tax 13,477 19,122 41.9% 28,445 34,271 20.5%
    Profit after tax/(loss) 28,250 33,839 19.8% 49,595 56,921 14.8%
    Net profit margin (%) 32.6% 28.6%   30.0% 25.7%  
    No. of shares (m) 1,425.9 1,425.9   1,425.9 1,425.9  
    Diluted earnings per share (Rs)* 79.2 94.9   69.6 79.8  
    Price to earnings ratio (x)   8.4     10.0  
    (* annualised)            

    What has driven performance in 1QFY05?
    Sales:  Post-dismantling of APM in FY02, ONGC has been able to sell its crude oil at import parity prices. Although the company was subject to subsidies on gas and crude oil, the realizations have improved dramatically. Given the current spike in crude oil prices, the topline growth of 36% is largely due to higher prices of crude. As per our estimates, the realizations are likely to be about US$ 40 per barrel (after accounting for the subsidies) in the current quarter as against US$ 29 in FY04. But for the subsidy burden of Rs 17.8 bn during the quarter, the topline could have been much better.

      2QFY04 2QFY05 1HFY04 1HFY05
    Purchases 0.0% 9.9% 0.0% 11.3%
    Consumption of Raw materials 0.5% 0.3% 0.6% 0.2%
    Staff expenditure 3.2% 2.4% 3.0% 2.7%
    Statutory levies 24.6% 21.6% 25.4% 22.0%
    Other expenditure 13.7% 12.0% 15.7% 11.7%

    Operating margins:  The operating margins have actually declined by over 400 basis points during 2QFY05 as compared to the corresponding period last fiscal. This could be attributed to the under-recoveries on LPG and kerosene, while at the same time, high drilling activity (encouraged by high crude oil prices) resulted in higher expenditure.

    Net profit:  The bottomline growth of 20% during 2QFY05 is largely a trickle down impact of a strong topline on the back of high product prices. Also the company was able to reduce its interest obligations by a sharp 77%.

    Quarterly trend 3QFY04 4QFY04 1QFY05 2QFY04
    Sales 72,277 83,077 102,943 118,162
    (%) YoY growth   14.9% 23.9% 14.8%
    Op. profits 37,739 42,474 51,527 63,587
    (%) YoY growth   12.5% 21.3% 23.4%
    Net profits 17,185 19,864 23,082 33,839
    (%) YoY growth   15.6% 16.2% 46.6%

    Over the last four quarters:  The last four quarters have seen a consistent rise in the topline, while the bottomline has also shown a similar trend. This can be attributed to the fact that crude prices have witnessed a rise during the same period in the international markets and ONGC has been a beneficiary of the same. But for the subsidy sharing arrangement, the numbers would have been more impressive.

    What to expect?
    At Rs 799, the stock is trading at a price to earnings multiple of 10x 1HFY05 annualized earnings. Given that the company is aggressively eyeing international oil fields and is also investing in redevelopment of its aging Bombay High and Cambay fields, the company is on the right track, given its limitations. Further, huge investments have been lined up for deep-water exploration. Although, the first well dug over 3,000 meters was a dry well, the company is optimistic about its success in the deep-water exploration. Also, investments have been lined up for MRPL, while the Sakhalin project is likely to commence production from next fiscal, which would boost the company’s share of energy in the country. However, given the huge capex plans, execution risks do exist.



    Equitymaster requests your view! Post a comment on "ONGC: The black gold rush…". 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

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    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.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    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.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    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 18, 2017 11:26 AM



    Detailed Financial Information With Charts