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ONGC Q1 results: Dismal performance, new discoveries & other key takeaways

Mumbai: State-run Oil & Natural Gas Corporation witnessed a tough June quarter as Covid-19 wrecked havoc for crude oil and gas prices. Analysts say the dismal show will continue for now.

Analysts had expected a dismal show and the stock price reflected the same as it dropped 3.3 per cent to Rs 79.35 ahead of the earnings announcement.

Consolidated profit slumped 84.7 per cent, while revenues shrank 43 per cent. The only silver lining, if one, was that the exploration and production (E&P) major has notified three discoveries — two pools and one prospect — after the end of the quarter, taking the total discoveries to six in fiscal year 2021 so far.

That said, let’s run a fine comb through the numbers and see what are the key takeaways for the shareholders and if they promise good prospects ahead.

How much did the company earn?
ONGC reported a 84.7 per cent decline in consolidated net profit for the quarter ended June to Rs 1,090 crore. The oil and gas major had reported a net profit of Rs 7,120 crore a year ago.

What was the revenue like?
Its consolidated revenue from operations dropped 42.9 per cent to Rs 62,496 crore from Rs 1,09,546 crore a year ago.

How did Covid-19 impact its business?
The company said its revenue and net profit have been impacted by lower crude price realization in the wake of Covid-19 fall out in the global oil and gas industry as a direct consequence of adverse price movements in global crude prices. Lower gas prices also contributed to lower topline and bottomline.

What are the key positives to look forward to?
After June 30, ONGC has notified three discoveries — two pools and one prospect — taking the total discoveries to six in FY 2020-21 so far.

By how much did realizations drop?
Its realizations for crude oil price from nomination fields dropped by 56.7 per cent to $28.72/bbl, while those from joint venture fields declined 55.7 per cent to $29.60/bbl. The gas price dropped to $2.39/mmbtu, down 35.2 per cent from a year ago

Investment Implications

Jyoti Roy, DVP – Equity Strategist, Angel Broking, said the June quarter numbers were along expected lines.

“For ONGC, the next few quarters are going to be subdued. Q2 is going to be better than Q1 though, as realizations may have picked up,” said Roy, adding that even though it has no coverage on the stock, it does not expect the stock price to rally significantly from the current levels.

“We are avoiding E&P companies for now, as crude demand is expected to stay subdued for some time,” he said.

Current valuation of the stock
As of Tuesday, the stock traded at Rs 79.35, commanding a P/E of 7.5 times on an EPS of Rs 10.51. Analysts reports released before this quarter earnings saw the stock attractively priced. The stock has 12 strong buys, 9 buys, 5 holds, 2 sells, and 3 strong sell ratings, data from Reuters Eikon showed. Their price targets had a mean and median of Rs 100.87 and Rs 98 respectively.

Its peer Oil India quoted a P/E of 5.98 times, suggesting a slight edge for ONGC over its rival.

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