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Post-results, ONGC shares need a correction

Post-results, ONGC shares need a correction
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First Published: Wed, Jun 24 2009. 11 10 PM IST

Updated: Wed, Jun 24 2009. 11 10 PM IST
Exploration firm Oil and Natural Gas Corp. Ltd’s (ONGC) results for the March quarter were worse than expected, with net profit falling by 16%, against a consensus forecast that profits would rise. Things were better on the operating profit front, with profit rising by about 1% despite the 12% drop in revenues, but even at the operating profit level, the results were lower than expected.
According to an analyst, depreciation, depletion and amortization charges have increased at an unexpectedly high rate. Besides, a provision has been made on account of a profit-sharing dispute. The company has made this provision despite the fact that the dispute has not concluded. The strike by ONGC officers during the March quarter would also have disrupted operations.
The results should cause the company’s shares to correct, especially since they have outperformed the market by a substantial margin in recent months.
One of the reasons for the rally in ONGC shares is the expectation that pricing of auto fuels will get deregulated, and thereby the subsidy burden would disappear. The company’s revenues were hit by Rs28,225 crore and profit by Rs15,798 crore last year as a result of the subsidy burden. But this now seems to be a far-fetched idea. At best, there may be some increase in the prices of petrol and diesel.
Having said that, the rise in crude price of late is still a positive for the company as it increases its realizations, and as a result, there could be takers for the shares in the event of a correction post-results.
Write to us at marktomarket@livemint.com
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First Published: Wed, Jun 24 2009. 11 10 PM IST