Oil and Natural Gas Corp. Ltd’s (ONGC’s) financial results for the quarter ended December are better than estimates, but the subsidy sharing woes for the sector continue to persist.
This time around, a lower-than-expected subsidy payment helped the company surpass expectations. For the December quarter, ONGC’s subsidy at Rs.12,432 crore is a bit higher sequentially, but lower than the same period last year.
The good thing is that net price realization at $47.97 (around Rs.2,575 today) per barrel is better both sequentially as well as from the year earlier.
Unfortunately, sharing the subsidy means ONGC doesn’t benefit when global crude oil prices are increasing.
Nevertheless, the December quarter numbers are better than the September quarter ones. For instance, revenue growth of about 16% from a year ago is better than the 12.5% decline in the September quarter. But then, ONGC’s September quarter performance was adversely affected on account of a huge subsidy burden.
At the profit before tax level, too, ONGC performed better in the last quarter.
Profit before tax rose about 10% in the December quarter to Rs.8,210 crore against a 30% decline in the September quarter. Still, year-on-year Ebitda performance was relatively slower than revenue growth, due to higher statutory levies and other expenditure, and the slower pace of other income growth. Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of profitability.
What of the future then? Generally, the fourth quarter’s results reflect the suspense of the subsidy share burden for the entire year, and so, in that sense, the earnings numbers are critical.
Other than that, the sentiments for companies in the space are fiercely tied to the reforms that the government has been announcing. One reform being talked about is an increase in domestic gas prices, which is expected to be positive. On the production front, the situation remains grim.
The good thing is that total crude oil production has improved a bit sequentially. But for the nine months ended December, it’s lower on a year-on-year basis. Current valuations at nine times estimated earnings for the next fiscal are hardly demanding. Investors would do well to keep a tab on news flow on reforms.