ONGC to clock windfall profits

Despite Output Stagnation, Soaring Crude May Help Co Post Rs 20,000-Cr FY08 Profit

SCALING a major milestone, ONGC — India’s largest oil and gas producing company — is expected to report a net profit in excess of Rs 20,000 crore for the year ended March 2008 — a feat no other Indian company has enjoyed so far. ONGC will be publishing its results for FY08 on June 25, 2008.

While ONGC’s production of oil and gas continues to stagnate, its performance will get a boost from higher crude oil prices. “Crude oil price moved up to $100/barrel in Q4FY2008 from $60/barrel a year ago, which more than offset the negative impact of 10% Y-o-Y appreciation in rupee against dollar,” noted a research report by Karvy Stock Broking. The brokerage house expects ONGC to post net profit of Rs 20,755 crore for the financial year ended March 2008.

Another factor which will boost the company’s performance is the improving performance of its subsidiaries. Thanks to improved business environment, MRPL — a 72% subsidiary of ONGC — reported 142% spurt in profits for FY08 to Rs 1,272 crore Similarly, net profit of its wholly-owned subsidiary ONGC Videsh (OVL) jumped 44% to Rs 2,397 crore in FY08 assisted by higher production. OVL’s crude oil production jumped 18% to 6.81 million tonne during FY08 as against 5.77 million tonne in previous year. However, OVL has not benefited fully from the rising crude oil prices. “In the regions where OVL operates, the governments take away a significant chunk of the price benefit. That’s why OVL is not able to draw full benefit of the high crude oil prices,” said a senior research analyst with an international broking firm. The firm projects per share earnings (EPS) of Rs 95 for ONGC for the whole year, which is 14.5% higher on Y-o-Y basis.
At ONGC’s current market price of Rs 845, this will translate in a price-to-earnings multiple (P/E) of 8.9 — a level last seen four years back in June 2004. The company has already paid interim dividend of Rs 18 per share and considering the Rs 31 dividend paid last year, is likely to declared another Rs 13 as final dividend.

ONGC has to share the burden of subsidy to the oil marketing companies by way of discounts on sale of crude oil. During the year ended March 2008, discounts offered by the company increased 29% to Rs 22,000 crore.