ONGC Q2 results may turn attention back to HPCL deal
Oil and Natural Gas Corp. Ltd’s (ONGC’s) September quarter earnings were in line with analysts’ estimates. Its Ebitda of Rs10,469 crore was close to estimates polled by analysts at Kotak Institutional Equities and Prabhudas Lilladher Pvt. Ltd. That translates into an 8.5% year-on-year growth in ONGC’s Ebitda for the September quarter, helped by a decline in other expenses and comes on the back of a 3% growth in revenue to Rs18,965 crore. Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of profitability.
However, net profit growth slowed to 3% to Rs5,131 crore due to an increase in depreciation, write off of exploration costs and finance costs. Note that net profit growth would have been further hit if it wasn’t for the sharp 63% rise in other income and a largely flat tax outgo.
ONGC’s crude oil price realization at $51.22 a barrel is a marginal increase on a sequential basis albeit slightly lower than some analysts’ expectations.
On the brighter side, production numbers have been encouraging, especially on the gas front. For the half year to September, ONGC’s total gas output increased 8.4% over a year ago and total crude oil production increased 1.2%. Sustaining and further improvement in these trends will augur well for the stock, which hasn’t offered much joy to investors for a while now.
ONGC shares have been a laggard, underperforming the S&P BSE Oil and Gas index substantially so far this year—ONGC stock has declined 0.8%, whereas the BSE Oil and Gas index has jumped 21%. ONGC’s underperformance is mainly on account of low oil prices and uncertainty around the acquisition price of Hindustan Petroleum Corp. Ltd (HPCL). The good news is that the sharp underperformance makes valuations cheaper and offers room for catching up.
Given that recent media news reports suggest that the ONGC-HPCL deal may happen around HPCL’s market price, it should augur well for ONGC shares post that, said Nitin Tiwari, an analyst at Antique Stock Broking Ltd.
It goes without saying that news flow on the deal will be a crucial measure to follow for the stock. It helps ONGC’s outlook that domestic gas prices have been raised for the second half of this year, though the rise was on expected lines.
“Further, crude prices are strengthening, which should support ONGC’s realizations, earnings and valuations,” added Tiwari. Nonetheless, a drastic improvement in global crude prices is not on the cards anytime soon.
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