ONGC
 
  

 
 

SHARETIPSINFO >>Research Reports >> ONGC (10-07-2009)

 

LISTING
CMP
Rs 987
52 WEEK HIGH/LOW

Rs 1220/Rs 580

Face Value
Rs 10
PE Ratio

13.8

P/BV

3.52

Div%
140%
Div Yield
1.4%

 

COMPANY OVERVIEW:
In April 1956, the government of India adopted the Industrial Policy Resolution, which placed mineral oil industry among schedule ‘A’ industries, the future development of which was to be the sole and exclusive responsibility of the state.

Soon, after the formation of the Oil and Natural Gas Directorate, it became apparent that it would not be possible for the Directorate with its limited financial and administrative powers as subordinate office of the Government, to function efficiently. So in August, 1956, the Directorate was raised to the status of a commission with enhanced powers, although it continued to be under the government. In October 1959, the Commission was converted into a statutory body by an act of the Indian Parliament, which enhanced powers of the commission further.

The main functions of the Oil and Natural Gas Commission subject to the provisions of the Act, were "to plan, promote, organize and implement programs for development of Petroleum Resources and the production and sale of petroleum and petroleum products produced by it, and to perform such other functions as the Central Government may, from time to time, assign to it ". The act further outlined the activities and steps to be taken by ONGC in fulfilling its mandate.
The liberalized economic policy, adopted by the Government of India in July 1991, sought to deregulate and de-license the core sectors (including petroleum sector) with partial disinvestments of government equity in Public Sector Undertakings and other measures. As a consequence thereof, ONGC was re-organized as a limited Company under the Company's Act, 1956 in February 1994.

After the conversion of business of the erstwhile Oil & Natural Gas Commission to that of Oil & Natural Gas Corporation Limited in 1993, the Government disinvested 2 per cent of its shares through competitive bidding. Subsequently, ONGC expanded its equity by another 2 per cent by offering shares to its employees.

PRODUCT MIX:


PRODUCT NAME

SALES VALUE

% OF TOTAL SALES VALUE

OIL CRUDE

Rs38680 crore

64.32%

GAS NATURAL

Rs7178 crore

11.94%

HSD

Rs4860 crore

8.08%

AROMATIC RICH NAPHTHA

Rs4384 crore

7.3%

LIQUEFIED PETROLEUM GAS

Rs2016 crore

3.35%

C2/C3(ETHANE/PROPANE)

Rs929 crore

1.54%

MOTOR SPIRIT

Rs915 crore

1.52%

SUPERIOR KEROSENE OIL

Rs740 crore

1.23%

SUPERIOR KEROSENE OIL

Rs337 crore

0.56%

LSFS

Rs41 crore

0.06%

KEROSENE/ATF

Rs39 crore

0.06%

OTHERS

Rs11 crore

0.01%

HSD

Rs1.5 crore

0%

REASON TO AVOID STOCK AT THIS LEVEL:
Rising cost in aging domestic fields.
Lower price and limited upside from oil price rebound.
Overseas investment is also a concern.
Subsidy burden is expected to increase in FY2010.
Government hands on the oil sector limits the growth of the company.

KEY RISK TO OUR AVOID STOCK AT THIS LEVEL:
New finding of Oil & natural gas.
Government de regulating the oil sector.
ONGC has made substantial investment in overseas blocks, through its subsidiary ONGC Videsh, in Sudan, Vietnam and Russia. ONGC remains aggressive in search for oil equity overseas. Value accretive overseas acquisition poses upside risk to our estimate.
Rupee depreciation benefits ONGC through higher domestic realization.

SHAREHOLDING PATTERN:

 

 

NO. OF SHARES

% OF TOTAL

PROMOTER

1585740673

 

74.14%

 

INSTITUTION

257808683

 

12.05%

 

GENERAL PUBLIC

295323174

 

13.81%

 

GRAND TOTAL

2138872530

 

100.00%

 

FINANCIAL:

 

 

31/03/06

31/03/07

31/03/08

31/03/09

TOTAL INCOME

50555.86

61146.8

65147.92

69118.7

EXPENDITURE

-20855

-28430.7

-30056.4

-32999.86

OPERATING PROFIT

29700.84

32716.08

35091.49

36118.84

DEPRECIATION

-8457.28

-9499.44

-9797.92

-12084.92

PBIT

 

21243.56

23216.64

25293.57

24033.92

INTEREST

 

-46.97

-21.5

-58.98

-118.96

PBT

 

21196.59

23195.14

25234.59

23914.96

TAX

 

-7313.74

-8027.29

-8920.05

-8386.08

EXTRA ORD INCOME

640.52

475.06

0

43.41

PAT

 

14523.37

15642.91

16314.54

15572.29

 

CHANGE IN TOTAL INCOME: CAGR IN TOTAL INCOME IS 10.9%.
CHANGE IN OPERATING INCOME: CAGR IN OPERATING INCOME IS 6.73%.
CHANGE IN NET PROFIT: CAGR IN NET PROFIT IS 2.35%.

RATIO:

 

 

31/03/06

31/03/07

31/03/08

31/03/09

EPS

 

67.90429

73.13872

76.27894

72.80854

OPM

 

58.74856

53.50416

53.86433

52.25625

NPM

 

28.72737

25.58255

25.0423

22.52978

INTEREST COVER

451.9906

1079.844

428.7046

201.9657

KEY HIGHLIGHTS:
EPS increased merely at CAGR rate of 6.73%.
OPM declined over 3 year period from 58.7% to 52.25%.
NPM declined over 3 year period from 28.72% to 22.5%.
Interest cover remained very high at 201.96. This shows company remains debt free.

COMPARISION OF Q4FY2009 WITH Q4FY2008:

 

 

Q4FY2008

% CHANGE

Q4FY2009

TOTAL INCOME

17762.05

-14.30%

 

15223.85

EXPENDITURE

-9951.68

 

 

-8034.75

OPERATING PROFIT

7810.37

-8%

 

7189.1

DEPRECIATION

-3844.48

 

 

-4244.44

PBIT

 

3965.89

 

 

2944.66

INTEREST

 

-12.34

 

 

-13.6

PBT

 

3953.55

 

 

2931.06

TAX

 

-1326.96

 

 

-993.5

EXTRA ORD INCOME

0

 

 

0

PAT

 

2626.59

-26.20%

 

1937.56

KEY HIGHLIGHTS:
Total Income decline by 14.3% due to the decline in the crude oil price.
Operating profit came down by 8% due pressure on operating profit margin.
PAT came down by 26.2% due to decline crude oil and subsidy burden.


VALUATION:
We value the company at 10X to the FY2010E EPS. We feel the FY2010E EPS to almost remain same there won’t `be any significant improvement due to subdued crude oil price and government intervention in regulating the oil industry. The EPS for FY2010E will be at Rs72 this translate the fair value of Rs720 per share. We maintain avoid or sell on the counter.

CONCLUSION:
We remain negative on the counter. Investors should avoid the counter for now. They can enter below Rs800. The stock looks expensive at this stage.

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