The Hindu Business Line : ‘ONGC shares undervalued’

New Delhi, Nov. 7 The share price of ONGC is highly undervalued mainly due to subsidy burden and under-realisation incurred in natural gas sales, the company’s Chairman and Managing Director, Mr R.S. Sharma, said. “Our enterprise value is about $9 per barrel as against $13-14 for Cairn Energy, while the global average for a company of size equivalent to us is $15-16,” he said.

He told newspersons at sidelines of a conference that an enterprise value is determined on the basis of oil and gas reserves of a company and is equal to the market capitalisation about $70 billion for ONGC divided by proven reserves – 8 billion barrels of oil and oil-equivalent of gas in the case of ONGC.

ONGC has a market capitalisation of about Rs 2,76,000 crore. This is second only to private sector major Reliance Industries Ltd in India. ONGC stocks, which shot up to an intra-day high of Rs 1,345 at the BSE and closed at Rs 1,289.25 on Wednesday.

Subsidy burden

“Markets have realised that ONGC would not be able to get a high price realisation as it has to provide subsidised rates for cooking oil and LPG. In the second quarter we had to give $22 a barrel towards subsidy by selling crude at about $55 a barrel to state-run refiners,” Mr Sharma said.

“If we do not produce any gas we would make more profits.” The company’s subsidy bill in the July-September quarter stood at about Rs 3,800 crore.

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