New Delhi: Subsidy-induced under realisation is capping the growth potential of ONGC -- country’s most valued state-run oil and gas firm -- leading to heavy undervaluation of its shares, company’s chairman and managing director R. S. Sharma said on Wednesday.
“Our enterprise value is about nine dollars per barrel as against $13-14 for Cairn Energy, while the global average for a company of size equivalent to us is $15-16,” Sharma told reporters here.
The enterprise value is determined on the basis of oil and gas reserves of a company and is equal to the market capitalisation (about $70 billion for ONGC) divided by proven reserves (eight billion barrels of oil and oil-equivalent of gas in the case of ONGC).
ONGC has a market capitalisation of about Rs2,76,000 crore, which is only next to private sector petrochemicals major Reliance Industries in India.
Even though ONGC used to be bigger than RIL some months ago, currently RIL has a market cap over Rs1,25,000 crore higher than ONGC. RIL has a market cap of over Rs4,00,000 crore at present.
ONGC’s shares were trading 0.5% down at Rs1,294.75 at the Bombay Stock Exchange in late afternoon trade, after hitting an intra-day high of Rs1,345. The stock had scaled a peak of Rs 1,386.90 on November 2.
In comparison, shares of RIL were trading 4.3% up at Rs2,769 after hitting the day’s high of Rs 2,803. It had scaled a life-time high of Rs2,850 on October 30.
“Markets have realised that ONGC would not be able to get a high price realisation as it has to provide subsidised rates for cooking oil and LPG,” Sharma said while talking about the undervaluation of the company’s shares.
“In the second quarter we had to give $22 a barrel towards subsidy by selling crude at about $55 a barrel to state-run refiners,” Sharma said.
“If we do not produce any (gas) we would make more profits,” he noted.
The company’s subsidy bill in the July-September quarter stood at about Rs3,800 crore.