OngC2 TECHNICAL AND FUNDAMENTAL ANALYSIS

PROJECT REPORT ON ANALYSIS OF
OIL & NATURAL GAS SECTOR

 OMKAR ADKAR (01)

 PRANJAL CHOPDA (10)

 PRATIK KUMBLE (17)

 MAHEK MADHAVI (18)

 MANISH NANDAL (19)

 MANDAR ULE (29)

 KAMLESH VAVDARA (30)

 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 India's crude
oil(equivalent to around 30% of the
country's total demand) and around 81% of
its natural gas.

 ONGC has been ranked 357th in the Fortune
Global 500 list of the world's 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.

 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.

 India's 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.

 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.

 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

 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.

 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.

 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.

 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.

 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.

 (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 India's crude oil
production and 81% of India's 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

 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 company's
profit allocated to each outstanding
share of common stock. Earnings per
share serve as an indicator of a
company's 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 company's
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.

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
FY'05 FY'06 FY' 07 FY'08 FY'09

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
company's 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 company's 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
FY'05 FY'06 FY' 07 FY'08 FY'09
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.

1,600.00 12000000
Primary Bull Trend Primary Bull Trend
1,400.00
10000000
1,200.00
8000000
1,000.00

800.00 6000000

600.00
4000000
400.00
Primary Bear Trend
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

1,600.00 12000000
Neck Line Double Top Pattern
H
1,400.00
10000000
S S
1,200.00

8000000
1,000.00

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.

 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.

 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.

 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.

Recommendation and
suggestion

 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.

OngC2 TECHNICAL AND FUNDAMENTAL ANALYSIS

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