Oil & Natural Gas Corporation Limited (ONGC India)

Asia’s best Oil & Gas company …

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Oil and Natural Gas Corporation Limited (ONGC); incorporated on June 23, 1993; is an Indian
public sector petroleum company. ONGC is one of Asia's largest and most active companies
involved in exploration and production of oil. Oil and Natural Gas Corporation Limited (ONGC
India) is considered Asia's best Oil & Gas company.

ONGC contributes 77% of India's crude oil production and 81% of India's natural gas production. It
produces about 30% of India's crude oil requirement. It owns and operates more than 11,000
kilometers of pipelines in India.

ONGC is the highest profit making corporation in India. Indian government holds 74.14% equity
stake in this company. In 2009, ONGC discovered a massive oil field, with up to 1 billion barrel
reserves of heavy crude, in the Persian Gulf off the coast of Iran. Additionally, ONGC also signed a
deal with Iran to invest US$3 billion to extract 1.1 billion cubic feet of natural gas.

Vruddhi V. Naikdesai
PG 2010 Student
The Sales of the company rose by 6.30% i.e., to Rs. 639,681.90 m in the FY 08-09. ONGC has got
good increasing sales as compared with the other players in this sector such as Aban offshore, Oil
India, Duke offshore, Dolphin Offshore etc.

%
  2007-2008 2008-2009 increase
sales 598,482.79 636,187.79 6.30%

ONGC (sales)
640,000.00
Between 2003 and 2007,
630,000.00 crude oil demand grew
620,000.00 by 7.6 million barrels per
day as compared to 4.3
610,000.00 million barrels per day
600,000.00 growth in the preceding
five years; which has
590,000.00 hiked up to 87.2 million
580,000.00 barrels per day in the
fourth quarter of 2007.
570,000.00 The moment the world
2007-2008 2008-2009
is out of this recession,
demand for oil and gas is bound to regain its position back. The economy is now moving out of
recession and this would lead to a high demand for oil. Supply is the biggest challenge for the
industry as major oil fields are globally declining. But being a strong company, ONGC has made
new discoveries and has also made acquisitions which would definitely increase their sales and
they would be able to meet the supply challenges in the near future.

The net profit of the company slid down to 3.44% i.e, to Rs. 161,263.15 m in the FY 08-09. ONGC
is the only oil company which managed to sustain in the time of recession also. It just slid down by
a small % as compared to the other firms in the sector which slid down miserably.

Vruddhi V. Naikdesai
PG 2010 Student
 %
  2007-2008 2008-2009 decrease
Net profit 167,016.47 161,263.15 3.44%
ONGC (net profit)
168,000.00
167,000.00
166,000.00
165,000.00
164,000.00
163,000.00 This happened because
162,000.00 the year 2008 began
161,000.00 with the bankruptcy of
160,000.00 America's biggest
159,000.00 company Lehman
158,000.00 Brothers. Many other
2007-2008 2008-2009 companies followed suit
and the entire world
was facing grave
recession because of trillions of Dollars were lost. Many companies were shut down and many
people lost employment. The recession led to declining profits in almost all industries and in
particular Oil, since it is a luxury for many. Financial crisis led oil prices to crash. The price which
was US $140 at the end of 2007, slid to almost US $60 and this affected the bottom line (NP) of
the whole industry. At present, the price of Oil is $73 per barrel. ONGC is the lowest affected
company as compared to the other players of this sector like Aban offshore, Oil India, Duke
offshore, Dolphin Offshore etc.

The operating margin of the company slid down to 4.30% i.e., to Rs. 25, 541 m in the FY 2008-
2009. This was may be because of the increase in raw materials which rose by 30.79% i.e., to Rs.
85,166.03 m. The company had acquired and had made expansions. The operating margins show
how efficient is the company in its operations. ONGC has a slid operating profit for the FY 2008-
2009, but due to its increasing sales will definitely improve in the near future.

%
  2007-2008 2008-2009 decrease
operating
profit 26,690 25,541 4.30%

Vruddhi V. Naikdesai
PG 2010 Student
 ONGC (operating profit)
26,800
26,600
26,400 ONGC’s promoter holding is
26,200 74%. Promoters stake is
26,000 nothing but the investment
25,800 made by the promoters
25,600 themselves This shows that
25,400 the promoters have invested a
25,200 lot of money in the company.
25,000 And major part of the profits
24,800 go to the promoters. There’s
2007-2008 2008-2009 less liquidity for these shares
The other players in the sector
with high promoter stakes are Oil India (78%) & Duke offshore (70%).
COMPANY PROMOTER HOLDING
ONGC 74%
Oil India 78%
Duke Offshore 70%

PROMOTER HOLDING
80%
78%
DIVIDEND – The company
recommended a final dividend of
76%
Rs. 14 per share (140%);
74% maintaining aggregate dividend
72% at Rs. 32 (320%), at par with last
70%
year, which happened to be the
highest aggregate dividend.
68%
66%
ONGC Oil India Duke Offshore dividend
7,000
6,800
6,600
6,400
6,200
6,000
5,800
5,600
5,400
Vruddhi V. Naikdesai
PG 2010 Student
5,200
5,000
2005 2006 2007 2008 2009
EARNING PER SHARE (EPS) - EPS is considered as one of the parameter along with P/E ratio for
analysis of company’s strength. ONGC has EPS of Rs. 70 (return); which shows that this is a good
company to invest in. The other players with good EPS in this sector are Oil India (Rs. 85), Aban
offshore (Rs. 51).

COMPANY EPS
ONGC 70
Oil India 85
Aban Offshore 51

EPS
90 RESERVES & DEBT – The reserves
80 of ONGC are Rs. 765,965.28 m as
70 at 31st March, 2009. Their debt is
60 Rs. 267.35 m. This shows that the
50 company is efficient enough. The
40
company can repay its debt and
30
20 can invest in other projects and
10 expansions.
0
ONGC Oil India Aban Offshore P/E RATIO - The lower the P/E
ratio, the better the script to
invest in. The P/E ratio has reflects the potential growth of the industry. ONGC is good to invest in
its P/E ratio (17) is better as compared with the other companies in the sector like, Aban offshore,
Duke offshore etc.

BETA (β) - Beta is said to be a combination of volatility and correlation. A positive beta means that
the asset generally follows the market. A beta of less than 1 means that the security will be less
volatile than the market. ONGC has a beta of 0.80, which shows that the stocks of ONGC are less
volatile than the market.

The Indian oil and gas industry is among the largest contributors to the central and state
exchequers in India (Estimated to be a US$ 110 billion industry). India ranks sixth in the world in

Vruddhi V. Naikdesai
PG 2010 Student
terms of petroleum demand and by 2010. India is projected to replace South Korea and emerge as
the fourth-largest consumer of energy, after the United States, China and Japan.

Oil and Gas Industry has a vital role to play in India's energy security and if India has to sustain its
high economic growth rate. 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.
Petroleum exports have also emerged as the single largest foreign exchange earner, accounting
for 17.24 per cent of the total exports in 2007-08. Growth continued in 2008-09 with the export of
petroleum products touching US$ 23.63 billion during April-December 2008.

Today oil supplies about 40% of the world’s energy and 96% of its transportation energy. Since the
shift from coal to oil, the world has consumed over 875 billion barrels. From now to 2020, world
oil consumption will rise by about 60%. Transportation will be the fastest growing oil-consuming
sector. By 2025, the number of cars will increase to well over 1.25 billion; which is approximately
700 million today. Global consumption of gasoline could double. In the next two decades, India’s
oil consumption is expected to grow at a rate of 5.5%.

Vruddhi V. Naikdesai
PG 2010 Student