3. 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 India's crude
oil(equivalent to around 30% of the country's total
demand) and around 81% of its natural gas.
4. 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.
6. 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.
7. 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.
8. Consumption
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.
9. 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.
10. 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
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
19. 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 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.
21. 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
22. 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
24. 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
25. 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.
26. The following graph shows the EPS
and P/E Ratio of ONGC for the last 5
years.
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
27. 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)
28. 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
29. 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
31. 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
32. 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.
33. 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.
36. 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.
37.
38. 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.
41. Analysis On Chart Pattern
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
42. 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.
43. 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.
45. The following graph shows the share price
movement of ONGC from Sep. 6, 2004 to August
31, 2009.
46. 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.
47. 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.
48. Moving Average Convergence
Divergence 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.
49.
50. 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.
51. Exponential Moving Average
Analysis
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).
52. Like an SMA, it smooths out a data
series, making it easier to spot trends.
53. 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.
54. 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.
55.
56. 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.
58. 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.
59. 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.
61. 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.
