What are the long-term prospects of ONGC?
-Arun Rahar
Oil and Natural Gas Corporation (ONGC) is India’s largest oil and gas producer, accounting for nearly 68 per cent of India’s domestic oil and gas production. It is also the second-largest listed firm in the country by market value which equals Rs 2,33,350.9 crore. The company’s much-awaited 5 per cent stake sale nearly ended up in a flop show until LIC helped government raise over Rs 12,000 crore.
ONGC is also highly sensitive to any change in oil price, rupee-dollar movement and upstream subsidy share. An increase in both the oil price and rupee depreciation affects ONGC negatively, as it would lead to an increase in subsidy losses on sales of subsidised petroleum products. Going forward, industry experts anticipate retail selling prices of regulated petroleum products to be raised soon and ONGC is expected to be the biggest beneficiary of any fuel price increase.
The stock is currently trading at a discount of 17.2 per cent to its five-year median PE of 12.65. With an earnings per share growth of mere 7.8 per cent over five years, its price-to earnings to growth (PEG) ratio comes unattractively at 1.3 times. The scrip looks expensively valued in terms of PEG and near term profits of ONGC are expected to remain impacted due to higher under recoveries and lower overseas production. It holds a positive outlook over the long term due to expected subsidy rationalisation and potential reserve accretion from its large E&P acreage.
This article was originally published on April 19, 2012.
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