ONGC hits lowest level since Oct 2008 on weak operational performance in Q3

ONGC's standalone pre-tax profit (PBT) halved to Rs 5,999 crore in Q3FY20

Shares of Oil and Natural Gas Corporation (ONGC) slipped over 3 per cent to hit an over 11-year low of Rs 99.35 on the BSE on Monday after reporting a weak operational performance for the quarter ended December 2019 (Q3FY20).

The stock of the state-owned oil exploration & production firm was trading at its lowest level since October 27, 2008, when it touched Rs 89.68 in intra-day trade.

ONGC, on Friday, reported that its of its standalone pre-tax profit (PBT) halved to Rs 5,999 crore in Q3FY20, against Rs 12,063 crore during the same period previous year. The company’s net profit also halved to Rs 4,153 crore in the quarter from Rs 8,263 crore in the previous year quarter.

The standalone gross revenue during the quarter under review declined 14.4 per cent year-on-year (YoY) at Rs 23,710 crore against Rs 27,694 crore in the year-ago quarter. The YoY decline primarily was due to lower oil price realization. The firm got 10 per cent lower price at $59.73 for the crude oil it produced and 4 per cent lower rate for natural gas at $3.23 per million British thermal unit.

The management guided that a large part of the capex is on account of milestone payments which have been delayed along with delayed production from KG basin.

ONGC reported lower than expected Q3 earnings due to lower-than-expected crude and gas sales volume though production was in line; and lower-than-expected oil and gas realization; lower-than-expected other income and higher-than-expected depletion cost, analysts at SBICAP Securities said.

“The government has created a reasonable FY21 cooking fuel subsidy budgetary provision of Rs 40,900 crore, which implies NIL burden on upstream PSUs as long as Brent averages under $65/bbl. However, ONGC’s share price is discounting net crude realization of only around $42/bbl (vs. $45-60/bbl earned over the past decade) – hence, we maintain BUY,” the brokerage firm said in result review.

However, a potential stake sale by the government to meet its FY21 disinvestment target of Rs 2.1 trillion is a key overhang, it said.

Although gas production has been delayed, brokerage firm Motilal Oswal Securities expects a significant jump in the next 2-3 years led by the 13 projects the company has been working upon. Oil production is expected to remain flat.
 

Analysts at JP Morgan have ‘overweight’ rating on ONGC on its organic gas growth outlook. The company’s volume growth should pick up in gas, while range-bound oil prices should allow for reasonable dividend payouts, the brokerage firm said in recent note.

In the near term, admittedly the government stake sale is an overhang, but given the stronger 2020 oil price outlook and attractive dividend yield (around 6 per cent), we believe the stock’s underperformance versus crude should narrow, it said.

In the past month, ONGC has underperformed the market by falling 20 per cent, as compared to 2 per cent decline in the S&P BSE Sensex.