ONGC becomes second most profitable company in India

After a very long time, ONGC is ranked among the most profitable companies in India. FY22 was the year when ONGC gained substantially from the steep spike in crude prices, which directly improved their realization per barrel.

For FY22, ONGC reported net profit of Rs.40,305 crore placing it just behind Reliance Industries in terms of full year profitability. In the course of FY22, ONGC managed to get past TCS and Tata Steel in terms of net profits.

The growth was frenetic. In fact, for FY22, the net profits were up 3.58 times compared to net profits of just Rs.11,246 crore in FY21.
 

What triggered this jump?

For FY22, ONGC net realizations on crude went up sharply by 79.1% YoY at $76.62/bbl as compared to just $42.78/bbl in FY21.  During the last quarter of FY22, the price of crude had surged to $139/bbl on the back of supply chain issues created by the Russia Ukraine war.

Even the top line revenues of ONGC for Q4FY22 were extremely impressive at Rs.34,497 crore, representing a YoY growth of 21.2% over Q4FY21. It may be recollected that back in 2008, the price of crude had surged to an all-time high of $147/bbl.

However, back then upstream companies like ONGC were required to subsidize fuel retailers like IOCL, BPCL and HPCL. Hence, the net realization per barrel was much lower in year 2008.
 

Even the gas price realizations have gone up for ONGC in the fiscal year FY22 at $2.35 per million British thermal unit (MMBTU) compared to just $2.09 per MMBTU in FY21. However, the impact could be more prolific in the June-22 quarter as gas prices have spiked further to $6.10 per MMBTU. In fact, if the subsidiaries were also consolidated, then the net profit of ONGC for FY22 would have closer to Rs.49,300 crore. 

Let us see how ONGC standalone and consolidated profits compare with the other profitable big guns of India Inc. Reliance reported consolidated net profit of Rs.67,845 crore for FY22, so it is way ahead in the race.

Tata Steel reported standalone net profit of Rs.33,011 crore and consolidated profits of Rs41,749 crore for FY22. The other big gun, TCS, reported consolidated net profit of Rs.38,449 crore. Other like SBI and HDFC  Bank also had net profits of more than Rs.30,000 crore.

However, such spikes may be ephemeral for ONGC. In FY22, ONGC had reported 3.7% fall in crude oil production to 21.7 MT as aging wells saw weak output. Even gas output fell by 5%. It is in this light that the latest decision by ONGC to invest Rs.31,000 crore in exploratory activities over the next 3 years makes a lot of business sense. Even its international arm, ONGC Videsh saw net profits fall by 16% in the quarter amidst a steep fall in output.

ONGC declared a final dividend of Rs3.25 per share taking the total dividend pay-out for the fiscal year FY22 to Rs10.50 a share. However, the Windfall Tax proposed by the government on ONGC and other upstream players on crude prices beyond a threshold level, could be a sentiment dampener. It is fuel subsidy through the back door and markets may not take it too favourably. That is already visible in the recent fall in the stock price.