ONGC stock perks up in tune with crude oil price

Our Bureau New Delhi | Updated on January 09, 2018

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

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 Vice-President 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.”

Published on October 30, 2017

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