Thursday, June 25, 2009

ONGC's profit hit by fall in output, lower realisations

Fall in output and lower realisations dragged ONGC’s profit in the final three months of 2008-09 to its lowest level in the fiscal despite a sharply reduced subsidy burden.

India’s largest oil explorer turned in results, which were below market expectations, hurt also by a drop in other income and a one-time provision of Rs 860 crore towards a legal dispute with the government over sharing of revenue. The ONGC stock gained 2.5% to Rs 1,051 on the BSE on Wednesday, while the benchmark Sensex rose by 0.7%.Net profit for the March quarter fell by 16% to Rs 2,207 crore on a 12% fall in net sales to Rs 13,834 crore.

ONGC’s production for the quarter, including the output from joint ventures, was 6.8% lower at 6.48 MT. Discounted fuel sales to petroleum retailing companies fell substantially to Rs 852 crore. However, for the full fiscal, the subsidy burden was 28% higher at Rs 28,225 crore. ONGC continued to be India’s top profit-making listed company in FY09, posting a consolidated net profit of Rs 20,117 crore. After adjusting for minority interest, it was Rs 19,752 crore, only marginally higher than last year.

The company’s consolidated performance for the year was aided by its wholly owned overseas arm ONGC Videsh. The subsidiary, which has 40 projects in 16 countries, benefited from higher crude oil prices in the first half of the year. OVL’s profit for FY09 grew 19% to Rs 2,853 crore on sales growth of 9% to Rs 18,503 crore. OVL’s production for the year, however, stagnated at 8.8 million tonne of oil equivalent.

Although the state-run oil marketing companies raised their dividends in FY09, ONGC has maintained its payout at last year’s level of Rs 32 per share. This will amount to an outgo of Rs 6,844 crore and including the dividend distribution tax, it will take away half of ONGC’s standalone annual profit.

At the current price of Rs 1,051, ONGC’s stock trades at 11.4 times its FY 09 earnings per share of Rs 92.4. The annual dividend yield works out to a little over 3%. The scrip gained substantially in May following expectations of an upward revision in natural gas prices and the possibility of divestment. ONGC’s weak results for the fourth quarter may not impact the stock price much as the company has managed to report better profit than last year despite higher subsidy and lower crude prices.

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