Widely read:
The state-owned crude oil and natural gas giant, ONGC has become the second most profitable company in FY22 after Reliance Industries. It beat Tata Steel and TCS which took the third and fourth spots respectively. While the company faced a small hiccup during the first quarter, it made a comeback and was the second most profitable in the next three quarters.
Here are the top-10 most profitable companies during FY22 and FY21. Just a fun fact, the last time Reliance Industries wasn't the most profitable company in India was in FY15 when TCS beat Reliance Industries by Rs 698 crores!
Oil and gas prices to the rescue
While ONGC's oil and gas production has been on a decline for the last few years, surging oil and gas prices helped the company boost its profits, making its low production more valuable. Crude oil price constantly hovered over $100 per barrel and natural gas prices have doubled since the Russia-Ukraine skirmish started. This can be seen in the company's recent quarterly results where revenue and profits jumped 37 and 21 per cent respectively on a YoY basis.
Is this sustainable?
While this is great news for investors, what matters the most is whether this level of profits is sustainable. Crude oil and natural gas prices seem to come down slowly as the conflict between Russia and Ukraine has been cooling off lately and a decline in these prices is expected by the market. As prices ease down to the normal levels, it would be extremely difficult for ONGC to maintain this level of profit without increase its output.
Boost from new discoveries
ONGC had recently stated that their crude oil production would increase by 11 per cent and natural gas output would increase by 25 per cent, thanks to new discoveries in western and eastern offshore, with the latter expected to contribute more. The management is well aware of the decline in production and is stepping up its exploration efforts. The company stated that it would spend Rs 31,000 crore from 2022 to 2025 throughout the country for exploration. ONGC contributes to 70 per cent of India's total oil and gas production.
Impact on share price
The rising prices of crude oil and natural gas was cheered by the investors as the company has given 35 per cent returns in the last one year against BSE Sensex which gave only 8 per cent.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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