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On an Acquisition Spree

The imminent gas price hike will benefit ONGC, which has already withstood incessant government interference

Why invest?
ONGC faces the problem of sharing under-recoveries as oil exploration companies have had to bear arbitrary Government sharing formulas that would often vary year to year. The diesel price reforms which mandates a 50 paise per litre increase in diesel prices every month and market pricing for bulk buyers is expected to cut the burden of under-recoveries by as much as 50 per cent by FY16.

Moreover, an imminent gas price hike will significantly add to ONGC's earnings. ONGC will be the biggest beneficiary of the gas price hike. If gas prices are hiked to $8.4 per mmbtu ONCG could see its FY15 earnings per share jump by as much as 30 per cent (Motilal Oswal estimates).

The company recently made acquisitions in Azerbaijan and Mozambique. This acquisition spree is expected to continue.

  • The country's largest oil exploration company
  • Gas price hike looks certain and Likely to impact FY15 earnings by 30 per cent
  • Aggressive overseas acquisition
  • EPS has compounded by 11 per cent annually in the last 10 years

Caution: Watch out for the speed of reforms initiated by the new Government. It is worth noting that ONGC's earnings power has helped the company withstand the incessant and often overbearing Government interference, despite which its earnings per share grew by 11 per cent annually in the last 10 years.