About the company Oil and Natural Gas Corporation Limited (ONGC)is an Indian multinational oil and gas company headquartered in Dehradun, India. It is one of the largest Asia-based oil and gas exploration and production companies. produces around 77% of Indias crude oil(equivalent to around 30% of the countrys total demand) and around 81% of its natural gas.
ONGC has been ranked 357th in the Fortune Global 500 list of the worlds biggest corporations for the year 2012. It is also among the Top 250 Global Energy Company by Platts. ONGC was founded on 14 August 1956 by the Indian state, which currently holds a 69.23% equity stake. . Its international subsidiary ONGC Videsh currently has projects in 15 countries.
The oil and gas industry has been instrumental in fuelling the rapid growth of the Indian economy. The petroleum and natural gas sector which includes transportation, refining and marketing of petroleum products and gas constitutes over 15 per cent of the GDP. Growth continued in 2008-09 with the export of petroleum products touching US$ 23.63 billion during April-December 2008.
Production Domestic production of crude oil fell from 34.11 MT in 2007-08 to from 33.50 MT in 2008-09. Refinery production in terms of crude throughput increased to 160.77 MT in 2008-09 as compared to 156.10 MT in 2007-08. The production of natural gas went up to 32.84 billion cubic metres tonnes (BCM) in 2008-09, from 32.40 BCM in 2007-08. The projected production of crude oil during the 11th Five-Year Plan (2007-2012) is 206.76 MMT, while that of natural gas is 255.27 BCM.
Consumption Indias domestic demand for oil and gas is on the rise. As per the Ministry of Petroleum, demand for oil and gas is likely to increase from 176.40 million tonnes of oil equivalent (mm tone) in 2007- 08 to 233.58 mm tone in 2011-12. India is the fifth largest country in the world in terms of refining capacity, with a share of 3 per cent of the global capacity. Indian companies plan to increase their refining capacity to 242 mtpa by 2011-12 from about 149 mtpa in 2007.
Policy 100% FDI is allowed in petroleum refining, petroleum product and gas pipelines and marketing/retail through the automatic route. For entry into petroleum product marketing/retail, an investment in an upstream venture of over $450 million is required. Virtual administrative price control of government over most petroleum products. Petroleum and Natural Gas Regulatory Board Bill to be enacted shortly will result in the setting up of an Independent Regulator for Oil & Gas. Natural Gas Pipeline Policy to be enacted shortly.
Outlook High GDP growth rate, rapidly growing vehicle population and better road infrastructure will drive consumption of petroleum products. Industry is expected to grow at a CAGR of about 8% to 10% . Over 190 MMT of refining capacity required by 2010. Over 120MMSCMD of additional demand for Natural Gas in the next five years. Recent gas finds and increased use of gas for power generation, petrochemicals, fertilisers and city gas distribution
Strength State-owned: One of the biggest advantages & strength of the company is that it is state owned. This led the company have great infrastructure with the governments support. The policy making also becomes easier due to the same reason. Moreover any undue and sustained pressure creates due impact on the government as well. Efficient and Professional management Team: The management team of ONGC comprises of some eminent figures of the industry who has got wealth lot of experience in running the Business and some of them has been successful entrepreneur as well. These people are at the helm of any decision making regarding the policy of the company.
Good Quality of Product: All crudes are sweet and most (76%) are light, with sulphur percentage ranging from 0.02- 0.10, API gravity range 26°-46° and hence attract a premium in the market. Maximum number of Exploration Licenses, including competitive NELP rounds: ONGC has bagged 85 of the 162 Blocks (more than 50%) awarded in the 6 rounds of bidding, under the New Exploration Licensing Policy (NELP) of the Indian Government. This enables the company to stay ahead of its competitors. Strong Infrastructure: ONGC owns and operates more than 15000 kilometers of pipelines in India, including nearly 3800 kilometers of sub-sea pipelines. No other company in India operates even 50 per cent of this route length.
Weakness State-owned: The control of state sometimes proves to be a weakness for company as well. Because of Huge govt. of India control on ONGC many important decisions are being taken by govt. of India and sometime it proved to be fatal for company’s profit and growth prospects. For example, the government’s decision to provide certain amount of money to the huge loss making petroleum companies from ONGC has an adverse impact on the net profit of the company. Low Production from aging Reservoirs: ONGC is facing difficulties to produce oil from aging reservoirs.
Opportunity Expansion of offshore operations: The oil reserves in some African countries are still unexplored and ONGC has a great opportunity to tap these markets to meet growing needs petroleum in India. This will definitely add to the production capacity of the company in a long way. Increased Economic Activity: The economy all over the world is showing signs of recovery and because of that the crude oil prices will appreciate in the coming months. This will help the company to gain the lost ground due to huge decrease in the crude oil price last year.
Threat Ever Changing Government Policy: The policy of the government keeps changing over the period of time and any unfavourable change from the company’s perspective may be damaging for the company. For example, if the government decides to subsidise the diesel further, this will put an extra pressure to the profit of the company. China’s Growing Demand: The Chinese company are directly competing with ONGC in several parts of the world. The aggressive bidding policy adopted by the Chinese companies might result in either huge escalation in the cost or the company might even loose the bid altogether. So this is going to be a great concern for the company as far as securing the energy needs of the country is concerned.
Threat Rapid Change in Technology: The Company could fall behind technology with everything changing so quickly this day and age. The company is required to do a lot of investment in this area. Threat of Alternative Fuel: The Company may face some real threat from alternative fuels in the next decade or so. But this is not going to be realised in the near future and the replacement of oil & natural gas. Change in Policy by Foreign Governments: The foreign policy of different governments keep changing over the period of time and this does have a significant impact on the bidding policy or the tender invited by the government in that particular country. Therefore, an unfavourable policy change vis-a-vis Indian government might adversely impact the future prospects of the company.
Brief overview (ONGC) (incorporated on June 23, 1993) is India’s most valuable public sector (petroleum) company. It is also one of the Navratna Company in India. It is a Fortune Global 500 company ranked 335th, and contributes 77% of Indias crude oil production and 81% of Indias natural gas production. It is the highest profit making corporation in India. It was set up as a commission on August 14, 1956. Indian government holds 74.14% equity stake in this company.
ONGC posted a net profit of Rs. 161.26 billion despite volatile oil markets and crude prices. Net worth Rs. 781 billion. Practically Zero Debt Corporate Contributed over Rs. 280 billion to the exchequer
Global Ranking ONGC ranks as the Numero Uno Oil & Gas Exploration & Production (E&P) Company in the world, as per Platts 250 Global Energy Companies List for the year 2008 based on assets, revenues, profits and return on invested capital (ROIC). ONGC is the only Company from India in the Fortune Magazine’s list of the World’s Most Admired Companies 2007. Occupies 152nd rank in “Forbes Global 2000” 2009 list (up 46 notches than last year) of the elite companies across the world; based on sales, profits, assets and market valuation during the last fiscal. In terms of profits, ONGC maintains its top rank from India
Earnings per Share (EPS): EPS means the portion of a companys profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a companys profitability. It is calculated by the formula: EPS = (NI – Dividend on Preferred Stocks) / Average outstanding Shares
P/E Ratio:P/E ratio is a valuation ratio of a companys current share price compared to its per-share earnings. It is calculated as: P/E ratio = Market price per share / EPS In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E.
The following graph shows the EPSand P/E Ratio of ONGC for the last 5years. 105 14.00 100 13.00 95 90 12.00 EPS (Rs.) 85 11.00 80 P/E Ratio 75 10.00 70 9.00 65 60 8.00 FY05 FY06 FY 07 FY08 FY09 EPS P/E Ratio
Operating Profit Margin:A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings. Profit margin is very useful when comparing companies in similar industries. Return on Capital Employed:ROCE indicates the efficiency and profitability of a companys capital investments. It i calculated as: ROCE = EBIT / (Total Assets – Current Liabilities)
Book Value per Share:It is a financial measure that represents a per share assessment of the minimum value of a companys equity. Book value per share is one factor that investors can use to determine whether a stock is undervalued or overvalued.It is calculated as: BVPS = Value of Common Equity / No. of shares outstanding
The graphical depiction of the above three ratios are given below: 65 400 60 350 55 OPM, ROCE (in %) 50 300 BVPS(Rs.) 45 250 40 35 200 30 150 25 20 100 FY05 FY06 FY 07 FY08 FY09 OPM ROCE(%) Book Value
ONGC is planning to jointly invest 4 billion(Rs 20,000 crore) to scale up the production capacity of their oil fields at Barmer in Rajasthan by 25,000 barrels of oil per day (bopd) to two lakh bopd. They had earlier revised their production target from 1.50 lakh bopd to 1.75 lakh bopd. The commercial production at the Mangla filed in the Barmer basin began in August 2009 with an initial capacity of 30,000 bopd. The production will be increased by a further 100,000 barrels per day in the first half of next year. This is quite a significant development as oil from Rajasthan will account for over 20% of India’s domestic oil production. ONGC holds 30% participating interest in this project
Oil and Natural Gas Corporation (ONGC) will invest Rs 8,554 crore in producing crude oil from two clusters of marginal fields in the western offshore by 2012. The board also approved procurement of second generation stimulation Vessel equipped with state-of-the-art technology for the Mumbai offshore at an estimated cost of Rs 764.1 crore. . At present, well stimulation jobs are done by Samudra Nidhi, the only stimulation Bessel owned by ONGC. The new vessel will not only augment the stimulation job but will gradually replace Samudra Nidhi.
According to a press release dated July 23, 2009 ONGC Board approved setting up of Polypropylene Unit by MRPL integrated with its Phase-3 refinery project at a total project cost of Rs 1803.78 Crore to be executed in 39 months (38 months for mechanical completion and 1 month for commissioning). The capacity of the plant is 440,000 TPA of Polymer grade Propylene product.
The above figure gives a comparative performance of RIL and ONGC for the last five years. Clearly, despite the strong fundamentals ONGC has not been able to outperform RIL in terms of providing the shareholders a better return on their investment. This is mainly because RIL is more responsive towards the Nifty and during the period of July 2006 to December 2008, ONGC could not march with the market and hence was outperformed by RIL.
However, the scrip did perform better than PSUs in the same sector viz. GAIL, HPCL, IOC over the last five years. This shows that in order to diversify the portfolio, one should go for ONGC rather than its PSU counterparts as the return are higher in this scrip with almost same level of risk.
Analysis On Chart Pattern1,600.00 12000000 Neck Line Double Top Pattern H1,400.00 10000000 S S1,200.00 80000001,000.00 800.00 6000000 Trend of Relatively High Volume 600.00 A Possible Making of Another Head & Shoulder 4000000 400.00 2000000 200.00 0.00 0 01/09/2004 01/09/2005 01/09/2006 01/09/2007 01/09/2008 Closing Price of ONGC Volume
The two chart patterns that are shown here are very prominent reversal patterns for the stock market. The first pattern that is, Head and Shoulder Pattern appeared after a long Bull trend in the scrip since it was listed on the stock exchange. The formation of left shoulder started on December 5, 2005 and it ended on February 13, 2006. . Then a fresh spurt in the volume level drove the prices again and the Head was formed and the period of formation was from February 14, 2006 to June 12, 2006 that means a period of 6 months.
The next pattern that is quite visible in the graph is double top pattern that was developed during October 15, 2007 to January 14, 2008 just before the stock market crash. . This resulted in the formation of a bubble that couldn’t sustain and finally burst and that resulted in a bearish trend for more than a year. In the right most part of the a pattern is indicated which is taking the shape of Head and Shoulder and might just well be another sign of reversal.
The following graph shows the share price movement of ONGC from Sep. 6, 2004 to August 31, 2009.
The scrip has shown a very interesting movement right from the beginning of the graph. Whenever the scrip has touched the upper Band, it has shown downward movement and whenever the scrip has touched the lower Band. It has shown upward movement in most of the cases; though the duration of the movement has been varying over the period of time. This is quite significant pattern and going by this historical evidence, it is looking quite probable that the scrip is poised to show a downward correction in its price as the Bands are closing at the rightmost end of the graph and the scrip has already touched the upper Band.
The downward movement might not be too much because the Gap between the two bands is relatively narrower. But the scrip, most probably, is going to shed some points in the coming days.
Moving Average ConvergenceDivergence Analysis Shows the relationship between two moving averages of prices. The default MACD is represented as the difference between a 26-day and 12-day EMA of the price. Divergence, the difference between the MACD and the signal, is also plotted as a histogram.
Going by the basic MACD trading rule, one can easily make out form this graph that the indicator is giving the sell signal to the investor. The MACD line has fallen below the Signal Line (see the rightmost part in the lower panel of the graph) and this indicates a future downward correction in the price of the scrip.
Exponential Moving AverageAnalysis An EMA differs slightly from a Simple Moving Average (SMA) in that it gives extra weight to more recent price data. This allows investors to track and respond quickly to recent price trends that might take more time to appear in an SMA. The formula for an EMA is: EMA = price today * K + EMA yesterday * (1-K) where K = 2 / (N+1).
Like an SMA, it smooths out a data series, making it easier to spot trends.
In the above graph, the exponential moving average has been taken for 50 days i.e, 10 weeks as it shows the behaviour of the scrip over the last 5 years more precisely than 200 days moving average. The red line in the graph represents the EMA line. The catching up phase in upward movement is supported by a significant rise in the volume while during the catch up phase in downward movement the volumes has come down quite significantly. While the scrip is trying to catch the EMA line which is on the lower side, the volumes are drying up for the scrip.
Relative Strength Index (RSI): The Relative Strength Index (RSI) measures the price of a security against its past performance in order to determine its internal strength (in an attempt to quantify the security’s price momentum). Relative Strength Indexes have also gained popularity. The Relative Strength Index is a price- following oscillator that ranges between 0 and 100.
The scrip has got a history of trading in the range of 30 to 75 (RSI) for the last five years and it has corrected itself each time the movement is beyond 75 or below 30. when the scrip crossed the upper boundary of 75 on RSI this May, it corrected its upward movement and finally the movement is settled around 50 on RSI. The scrip crossed 60 a fortnight ago when it reached to a 52 week high figure and then there is a clear evident of secondary movement in the price of the scrip.
The Indian stock market has recovered from the impact of recession and the confidence of the investors and FIIs is restoring in the market again. Though the market is looking a bit exhausted for the past one week because of the volatility it has shown in the past one week, it needs just one push from the global market to set the Indian Stock Market on a high trajectory yet again. The positive Global cues that are expected to come from various quarters will help the economy revive in a big way and the market is going to react in the same enthusiastic manner.
Therefore, for the investors who missed the opportunity to invest in the market when it was in the bottom in March, the coming weeks will set the one for them. The other thing that can be recommended here is that despite correlations (whether positive or negative) the scrip has got a particular pattern of movement of its own which it follows continuously therefore sometimes the trend in the market doesn’t necessarily reflect the trend in that particular scrip. Finally, ONGC is a kind of share which gives a decent return to the investors without putting them into too much of a risk. The scrip doesn’t show any sudden upward or downward movement and either movement use to be gradual in nature for this scrip, therefore, it can be recommended to add to the portfolio to reduce the risk as the market price of the share will appreciate in the coming times.
The scrip is definitely poised for a downward movement from this level and the correction is definitely on the cards. But the correction will not be too much and the scrip will be able to regain its position after going through a short phase of correction. However, the investors who are willing to invest in the scrip should wait till the next big movement in the scrip and then only they should go for either Long or short position for the scrip. A very interesting pattern is being seen in the stock market for the Last three months. While in the previous three months, the FIIs have been net sellers in the equity market worth Rs. 85.14 crore, 1,364.60 crore and Rs. 3767.03 crore for the months of June, July and August 2009, the FIIs have been investing in the market in a big way.