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ONGC: Lower Write-offs Support Performance - Views on News from Equitymaster
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ONGC: Lower Write-offs Support Performance
Nov 3, 2016

Oil and Natural Gas Corporation Ltd has announced results for the quarter ended September 2016. The topline for the quarter declined 10.3% year on year (YoY) while bottomline grew by 6.3% YoY, on a standalone basis.

Performance Summary
  • Revenues for the quarter declined 10.3% YoY. In terms of physical volumes, crude production for the quarter declined 2.8% YoY while gas production volumes and value added products (VAP) volumes were up 1.8% YoY and 14.7% YoY respectively.
  • For the nominated fields, gross realisations on crude stood at US$ 47.92 per barrel (down 6.6% YoY) during the quarter. The company did not pay any discount to state run oil marketing companies . In rupee terms, the realisation per barrel declined 3.7% YoY. Gas price during the quarter stood at US$3.06 per mmbtu, down 34% YoY.
  • Operating profit margin for the quarter stood at 49.2% YoY, up from 42.9% in 2QFY16 . This was mainly driven by decline in the exploratory costs written off (as a % of sales). Net profit margin too, improved to 27.2% (23.0% in 2QFY16) as bottomline grew 6.3% YoY . Net profit growth was on account of growth in operating profits, weaker rupee, and lower depreciation , interest and tax expense.
  • For the half year ended September 2016, the revenue declined 16.2% YoY. Crude oil and gas production volumes were down 2.5% YoY and 1.9% YoY respectively while production of value added products grew 17.6% YoY.
  • Gross realisation on crude during the half year stood at US$47 per barrel, down 18.1% YoY. The subsidy burden was nil during the half year versus a burden of Rs 11 bn in 1HFY16. As such, net realisation stood at US$ 47 per barrel (down 14.7% YoY). Net realisation in rupee terms was down 17.7% YoY. Gas price for half year stood at US$ 3.08 per mmbtu in 1HFY17, down 34% YoY.
  • For the half year, operating profit margin stood at 48.1%, versus 44.9% in 1HFY16, driven by lower exploratory costs written off. Low oil and gas price realisations led to net profit decline of 8.4% YoY while net profit margin stood at 25.6% (23.4% in 1HFY16).
  • The Board of Directors has declared an interim dividend of Rs 4.5 per share (record date 5th November) and has recommended issue of bonus shares in the ratio of 1:2, i.e., one for existing two equity shares (of Rs 5 each ), which is subject to approval by the members of the Company.

    Standalone Financial Performance
    Rs m 2QFY16 2QFY17 Change (%) 1HFY16 1HFY17 Change (%)
    Net sales 203,958 182,866 -10.3% 428,945 359,570 -16.2%
    Other operating income 1,164 1,084 -6.8% 2,458 2,228 -9.4%
    Total income 205,121 183,950 -10.3% 431,403 361,798 -16.1%
    Expenditure 116,444 92,950 -20.2% 236,380 186,493 -21.1%
    Operating profit (EBDITA) excl OI 87,514 89,917 2.7% 192,566 173,077 -10.1%
    Operating profit margin (%) 42.9% 49.2% 44.9% 48.1%
    Other income 11,864 11,836 -0.2% 20,493 21,361 4.2%
    Interest 3,280 3,034 -7.5% 6,445 5,954 -7.6%
    Depreciation 29,335 29,055 -1.0% 59,038 56,452 -4.4%
    Profit before tax 67,927 70,748 4.2% 150,034 134,260 -10.5%
    Profit before tax margins (%) 33.3% 38.7% 35.0% 37.3%
    Tax 21,113 20,999 -0.5% 49,536 42,185 -14.8%
    Profit after tax (excluding exceptional items) 46,814 49,749 6.3% 100,497 92,075 -8.4%
    Net profit margin (%) 23.0% 27.2% 23.4% 25.6%
    No. of shares 8,555
    Diluted earnings per share (Rs)* 17.43
    P/E ratio (x)* 15.4

    *On trailing 12 months basis


    Cost breakup
    Rs m 2QFY16 2QFY17 Change (%) 1HFY16 1HFY17 Change (%)
    Cost of materials consumed 4,288 2,005 -53.3% 4,664 4,801 2.9%
    as a % of sales 2.1% 1.1% 1.1% 1.3%
    Employee benefit expenses 4,530 5,067 11.9% 9,286 9,744 4.9%
    as a % of sales 2.2% 2.8% 2.2% 2.7%
    Statutory levies 51,099 44,239 -13.4% 105,756 85,304 -19.3%
    as a % of sales 25.1% 24.2% 24.7% 23.7%
    Other costs 39,245 36,165 -7.8% 83,903 71,569 -14.7%
    as a % of sales 19.2% 19.8% 19.6% 19.9%
    Exploration costs w/off 17,282 5,474 -68.3% 32,771 15,075 -54.0%
    as a % of sales 8.5% 3.0% 7.6% 4.2%
    Total costs 116,444 92,950 -20.2% 236,380 186,492 -21.1%
    as a % of sales 57.1% 50.8% 55.1% 51.9%

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