ONGC’s results for the March quarter were disappointing as a jump in expenses and provisioning took away all the benefit accruing from a reduced subsidy. Long-term investors may still term the company attractive, but the share price is likely to cool off a bit after the latest results. ONGC’s subsidy burden dropped 13% year-on-year to . 12,312 crore in the March quarter, enabling it to earn . 2,755 for every barrel of crude oil it produced — a whopping 23.6% growth over the year-ago period. However,the company witnessed a strong jump in almost all its expenses. Staff costs more than doubled, depreciation and amortisation jumped 77%, while other expenses were higher by 66% year-onyear. The company’s write-off towards exploration costs also rose 33% to . 4,739 crore.
One reason for this was a . 1,850-crore provision towards the last seven years’ employer’s contribution towards employee superannuation benefits. The company also provided for . 1,585 crore towards deductions made by petroleum refineries for taxes on discounts. The resultant net profit was nearly 40% lower y-o-y.
ONGC has long been suffering from stagnation in output. In the last five years, its production has fallen at an annualised rate of 0.9% to 46.1 million tonnes of oil equivalent in FY13. The next few years are expected to be better for the company as its investments start paying off. For long-term investors, the company may remain attractive due to the expected growth in production, likely fall in subsidies and possibility of a natural gas price hike. However,one can wait for some cool-off in its share price before investing.
One reason for this was a . 1,850-crore provision towards the last seven years’ employer’s contribution towards employee superannuation benefits. The company also provided for . 1,585 crore towards deductions made by petroleum refineries for taxes on discounts. The resultant net profit was nearly 40% lower y-o-y.
ONGC has long been suffering from stagnation in output. In the last five years, its production has fallen at an annualised rate of 0.9% to 46.1 million tonnes of oil equivalent in FY13. The next few years are expected to be better for the company as its investments start paying off. For long-term investors, the company may remain attractive due to the expected growth in production, likely fall in subsidies and possibility of a natural gas price hike. However,one can wait for some cool-off in its share price before investing.
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