ONGC Q4 2024 Earnings: Strong Crude Prices and Strategic Moves Boost Performance

ONGC Q4 2024 Earnings Highlights

Earlier this week, the state-run Oil and Natural Gas Corporation (ONGC) announced its financial results for the quarter ending March 2024. The company benefited from improved crude oil price realizations and increased production volumes.

• Crude Oil Realizations: ONGC’s crude oil price realization stood at $80.8 per barrel in Q4 FY24, up from $77.1 per barrel a year earlier.

• Production Volumes: The company reported a total crude oil output of 5.36 million tonnes, marking a 2.4% year-on-year (YoY) growth.

• Gas Output: ONGC’s total gas output fell by 3% YoY, with gas price realizations declining by 24% in the quarter.

Key Milestones:

• Krishna Godavari (KG) Deepwater Block: The first crude oil tanker was dispatched in early March 2024. The ramp-up is expected to reach peak production of nearly 45,000 barrels of oil per day (BOPD) and 10 MMSCMD of gas in the first half of FY25.

Financial Performance:

• Operating Profit Margin: The company’s standalone operating profit margin improved by 1,030 basis points to 45.9%.

• Net Profit: ONGC reported a standalone net profit of Rs 98.7 billion, a staggering 1,769% YoY increase, partially due to an exceptional loss in the previous year’s quarter.

Dividend Declaration:

ONGC’s board declared a final dividend of Rs 2.5 per share, bringing the total FY24 dividend to Rs 12.25 per share, yielding nearly 4.4% at the current price.

Historical Financial Performance and Strategic Investments

Between 2019 and 2023, ONGC demonstrated resilient growth with a 5-year compound annual growth rate (CAGR) of 13.6% in sales and 4.7% in profits. The company’s Return on Capital Employed (ROCE) and Return on Equity (RoE) averaged 13.9% and 12.8%, respectively.

Financial Snapshot:

• Revenue Growth: The revenue growth varied significantly over the years, from a peak of 57.6% in 2021-2022 to a decline of 22.4% in 2020-2021.

• Profit Margins: Net profit margins ranged from 2.7% in 2019-2020 to 9.2% in 2021-2022.

Capital Expenditure:

ONGC is allocating Rs 300 billion annually for core exploration and production activities, with plans to invest around Rs 1 trillion in renewable energy by 2030. The company has also established a wholly owned subsidiary, ONGC Green, focusing on renewable energy projects.

ONGC Green and Upcoming IPO

Incorporated in February 2024, ONGC Green is set to lead the company’s ventures into renewable energy, including green hydrogen, bio-fuels, and carbon capture. The company has approved an equity investment of Rs 990 million in ONGC Green, with an additional Rs 11 billion planned.

IPO Prospects:

While no official IPO announcement has been made, ONGC Green is expected to leverage ONGC’s existing infrastructure and expertise for efficient project development and management in the renewable energy sector.

ONGC Stock Performance and Comparative Analysis

As of Tuesday, ONGC shares closed at Rs 280, after hitting a 52-week high of Rs 293 on 3 May 2024. The stock has gained approximately 70% over the past year and close to 40% in 2024 so far. Despite global crude oil prices hovering around $82 per barrel, ONGC faces a windfall tax on higher oil prices, impacting its profitability.

Valuation:

ONGC trades at a PE multiple of 7 times estimated FY25 earnings, compared to global peers like Shell and Exxon, which trade at over 12 times forward earnings.

Comparison with Domestic Peers:

• ROE and ROCE: ONGC’s ROE stands at 12.1% and ROCE at 13.6%, competitive within the industry.

• Dividend Yield: ONGC offers a dividend yield of 4.4%, higher than many of its peers.

ONGC’s strong Q4 performance, strategic investments in renewable energy, and robust dividend payouts make it a stock to watch. Investors should consider the company’s long-term growth potential and market position.