ONGC stock perks up in tune with crude oil price

HPCL ac­qui­si­tion will in­crease its lever­age to up­per limit of Baa1 rat­ing: Moody’s

The Hindu Business Line - - MARKET WATCH -

Shares of Oil and Nat­u­ral Gas Cor­po­ra­tion rose 1.69 per cent in­tra­day on the BSE.

The scrip opened at ₹ 187.70 a share on Mon­day, higher than Fri­day’s clos­ing price of ₹183.55 a share and closed at ₹186.65 a share.

The growth is on the back of the pub­lic sec­tor un­der­tak­ing re­port­ing a net profit of ₹5,131 crore for the sec­ond quar­ter of the fi­nan­cial year 2017-18. This is 3 per cent higher than the bottomline in the cor­re­spond­ing quar­ter end­ing Septem­ber 30 of the last fi­nan­cial year.

But the earn­ings are not the only trig­ger for the higher price. Ac­cord­ing to oil and gas Re­search An­a­lyst at Ko­tak Se­cu­ri­ties, Su­mit Pokharna, “The price of crude oil has al­ready dou­bled from its lows and is ex­pected to stay higher.”

This is likely to keep the stock in de­mand. Pokharna said, “Brent traded at $28 a bar­rel dur­ing the slump and is now at $60 a bar­rel. There was also sup­port from a weaker Ru­pee.”

In­terim div­i­dend

At its 299th an­nual gen­eral meet­ing, the com­pany board also de­clared an in­terim div­i­dend of 60 per cent or ₹3 on each eq­uity share of ₹5. An of­fi­cial state­ment said, the to­tal pay­out on this ac­count will be ₹3,850 crore.

ONGC has no­ti­fied nine dis­cov­er­ies till now in the fi­nan­cial year 2017-18 of which four were made since July.

Of the four dis­cov­er­ies, two each have been made in off­shore blocks and on­shore blocks.

There was also sup­port for the stock from Moody’s In­vestors Ser­vice that said that ONGC’s ac­qui­si­tion of HPCL will in­crease its lever­age to the up­per limit of its Baa1 rat­ing. In a state­ment Moody’s said, “ONGC’s strate­gic im­por­tance to the In­dian gov­ern­ment (Baa3 pos­i­tive) will also in­crease, given that the merger would cre­ate the coun­try’s first in­te­grated oil and gas com­pany with sig­nif­i­cant up­stream and down­stream op­er­a­tions.” It said, “Based on HPCL’s av­er­age mar­ket cap­i­tal­i­sa­tion over the three months to Oc­to­ber 24, the stake to be ac­quired by ONGC is worth about ₹35,000 crore.

“As­sum­ing this amount as the pur­chase price, Moody’s says that ONGC will likely fund the trans­ac­tion with in­cre­men­tal bor­row­ings of ₹25,000 crore, with the re­main­ing amount funded with cash on hand and the liq­ui­da­tion of in­vest­ments.”

Qual­i­ta­tive im­prove­ment

Vikas Halan, a Moody’s Vi­cePres­i­dent and Se­nior Credit Of­fi­cer, said, “The in­crease in lever­age will be partly off­set by a qual­i­ta­tive im­prove­ment in ONGC’s op­er­a­tions, as a ver­ti­cally in­te­grated com­pany, such that its pro-forma fi­nan­cial met­rics could still sup­port its Baa1 rat­ing.”

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