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. 200.00
400.00
600.00
800.00
0.00
1,000.00
1,200.00
1,400.00
1,600.00
01/09/2004
01/11/2004
01/01/2005
01/03/2005
01/05/2005
Neck Line
01/07/2005
01/09/2005
01/11/2005
01/01/2006
S
01/03/2006
Trend of Relatively High Volume
H
01/05/2006
01/07/2006
01/09/2006
S
01/11/2006
01/01/2007
01/03/2007
01/05/2007
Closing Price of ONGC
01/07/2007
01/09/2007
01/11/2007
Volume
01/01/2008
01/03/2008
01/05/2008
01/07/2008
A Possible Making of Another Head & Shoulder
Double Top Pattern
01/09/2008
01/11/2008
01/01/2009
01/03/2009
Analysis On Chart Pattern
01/05/2009
01/07/2009
0
2000000
6000000
8000000
4000000
10000000
12000000
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.
