Welcome to Sana Securities! Login | Subscribe Now.

ONGC Equity Research

HomeCompanyONGC Equity Research

Date of Research – 20 January 2016

Price – Rs. 212.05

About the Company

Oil & Natural Gas Corporation Limited (“ONGC” or the “Company”) is the second largest oil and gas exploration and production Company in the world and ranks 23rd among leading global energy majors. Headquartered in Dehradun, the Company’s primary business includes exploration and production of crude oil, natural gas, LPG and other value-added petroleum products. ONGC has also set up a subsidiary, Oil Videsh Limited (OVL), for overseas oil exploration and production. OVL is operating in 15 countries with 30 projects with cumulative investment worth over USD 15 billion, to source equity oil & gas for energy security of the country.

The Company operates with 27 crews, manages 240 onshore production installations, 202 offshore installations, 77 drilling and 58 work-over, owns and operates more than 26,598 kms of pipeline in India, including 4,500 kms of sub-sea pipelines.

*ONGC split its equity in the ratio of 10:2 on 8 February 2011. EPS and P/E numbers are adjusted to reflect the effect of split.

*ONGC issued bonus share in the ratio of 1:1 on 8 February 2011. EPS and P/E numbers are adjusted to reflect the effect of issue.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 1,62,386.33 1,74,466.56 1,60,894.87 1,31,517.33  1,42,148.96 
Expenses 1,18,577.11 1,24,747.86 1,18,562.37 90,255.31  1,00,296.43  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 43,809.22 49,718.70 42,332.50 41,262.02  41,852.53  
Depreciation 12,100.46 16,588.78 18,027.72 18,044.42  17,435.45  
Finance Costs 485.04 658.71 2,923.21 2,157.32  2,953.44  
Other income 5,518.45 6,942.20 5,988.79 7,847.02  7,915.25  
Exceptional items 6,189.39  (591.01) 
PBT 36,742.17 39,413.41 27,370.36 22,717.91  29,969.90  
Tax 12,751.91 12,760.39 9,697.41 8,416.98  9,561.73  
Extraordinary items –  – 
PAT (before Minority Interest and share of Associates) 23,990.26 26,653.02 17,672.95 14,300.93  20,408.17  
Profit/ (loss) attributable to Minority Interest (225.59) 158.30 (630.26) 189.72  – 
Share of profit / (loss) of Associates (3.79) (11.81) (30.31) (12.59)  (1,070.17) 
Consolidated Profit / (Loss) for the year 24,219.64 26,506.53 18,333.52 14,123.80  21,478.34  

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 26.98 28.50 26.31 31.37  29.44 
Net Profit Margin Ratio 14.77 15.28 10.98 10.87  14.36

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 4,277.76 4,277.76 4,277.76 4,277.76 4,277.76 
Reserves & Surplus 1,32,161.37 1,48,250.25 1,67,873.23 1,76,176.64 1,80,466.57 
Net worth (shareholders funds) 1,36,439.13 1,52,528.01 1,72,150.99 1,80,454.40 1,84,744.33 
Minority Interest 2,208.43 1,946.65 2,912.54 2,473.13 2,506.71 
Long term borrowings 5,208.6 8,842.75 31,680.86 47,582.75 46,271.93 
Current liabilities 50,361.71 48,372.208 67,351.96 53,802.02 63,869.61 
Other long term liabilities and provisions 25,228.06 26,918.718 32,262.34 34,609.06 37,271.62 
Deferred Tax Liabilities 12,203.78 14,849.01 18,552.11 18,761.31 21,547.04 
Total Liabilities 2,316,49.7 2,53,457.34 3,24,910.80 3,37,682.68 3,56,211.25 

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 1,41,242.96 1,64,704.95 2,09,602.62 2,23,201.27 2,36,529.11 
Noncurrent Investments 2,041.17 2,045.28 4,720.46 4,746.99 5,694.13 
Current assets 60,050.31 55,819.242 63,154.92 56,922.69 58,767.28 
Long term advances and other noncurrent assets 20,498.53 21,938.49 28,389.72 32,086.43 36,385.73 
Deferred Tax Assets 19.14 623.89 688.60 585.41 1,191.77 
Goodwill on consolidation (net) 7,797.57 8,325.49 18,354.49 20,139.89 17,643.24 
Total assets 2,31,649.7 2,53,457.34 3,24,910.80 3,37,682.68 3,56,211.25 

Efficiency Analysis

 
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 33.49 26.82 24.05 18.36 17.67 
ROE / RONW 20.84 15.88 15.40 10.16 7.74 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 1,62,386.33 174,466.56 1,60,894.87 1,31,517.33  1,42,148.96 
Growth (%) 10.24 % 7.44 % (7.78 %) (18.26 %)  8.08 % 
PAT (Rs. Cr.) 23,990.26 26,653.02 17,672.95 14,300.93  20,408.17  
Growth (%) (15.61 %) 11.10 % (33.69 %) (19.08 %)  42.71 % 
Earnings Per Share – Basic (Rs. ) 28.31 30.98 21.43 16.51  15.97 
Earning Per Share – Diluted (Rs. ) 28.31 30.98 21.43 16.51  15.97 
Price to Earnings 11.00 12.89 15.12 13.01  10.82 

Dividend History

The Company has maintained an average dividend yield of 4.55 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. ONGC’s average current ratio over the last 5 financial years has been 1.11 times which indicates that the Company is well placed to pay for its short term obligations.

Long term Debt to Equity Ratio

 

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

ONGC’s average long term debt to equity ratio over the last 5 financial years has been 0.11 times which indicates that the Company is operating with low level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

ONGC’s average interest coverage ratio over the last 5 financial years has been 82.33 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, ONGC reported a promoter holding of 68.07 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 17.49 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

Leave a Comment