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Stable Money Circulation to Assist ONGC’s Increased Investments: S&P

June 5, 2022
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Using on the again of surge in world power costs, state-owned Oil and Pure Gasoline Company (ONGC) ought to have a stable base to extend investments over the subsequent 12-18 months on account of wholesome earnings, S&P World Scores has mentioned. “Improved money circulate continues to assist the score” of ONGC, it mentioned in an announcement.

Whereas ONGC will get worth equal to worldwide oil charges for the crude oil it produces from fields equivalent to Mumbai Excessive, the federal government mounted worth of pure gasoline primarily based on a method that components in world indices. Whereas oil costs are hovering at multi-year excessive, gasoline costs for ONGC too have risen to greatest ever price of USD 6.1 per million British thermal unit.

“ONGC will direct greater than 60 per cent of its improved money flows to capital investments over the subsequent few years. We anticipate the corporate to spend Rs 55,000-60,000 crore in fiscal 2023 (ending March 31, 2023) in contrast with lower than Rs 45,000 crore that it has spent yearly for the previous two years in view of difficult enterprise circumstances,” it mentioned. Of this, ONGC intends to spend Rs 31,000 crore over the subsequent three years on exploration actions, in contrast with near Rs 21,000 crore for the final three years.

“This improve will offset the decline within the firm’s latest manufacturing to 43.4 million tonne of oil equal (mmtoe) in fiscal 2022 from 48.25 mmtoe in fiscal 2020. We anticipate these investments may also assist earnings resilience if costs begin to decline,” S&P mentioned. ONGC can also be more likely to preserve wholesome dividend distribution to shareholders, it mentioned.

“The corporate paid about Rs 13,000 crore in dividends in fiscal 2022, equal to about 30 per cent of its free working money flows. ONGC has proven good flexibility up to now when it scaled again dividends to about Rs 3,000 crore in fiscal 2021 because of the difficult enterprise circumstances. Nevertheless, given the wholesome earnings outlook, we anticipate the corporate to keep up its said monetary coverage of returning 40-50 per cent of internet revenue to shareholders,” it mentioned. The score company mentioned beneficial crude oil costs will assist ONGC’s earnings over the subsequent 12 months and underpin the elevated investments.

It revised its forecast for Brent crude oil worth for the remainder of 2022 to USD 90 per barrel and USD 75 a barrel for 2023. This compares with about USD 76 per barrel that ONGC realized in fiscal 2022.

“The latest improve in India’s pure gasoline worth may also enhance earnings. The formula-determined worth elevated to USD 6.1 per million British thermal unit (mmbtu) for the primary half of fiscal 2023 from the sooner USD 2.90 per mmbtu,” it mentioned. Crude oil and gasoline contribute nearly equally to ONGC’s total manufacturing volumes.

“We anticipate ONGC’s earnings will improve 20-25 per cent in fiscal 2023 over fiscal 2022. We additionally estimate the corporate’s ratio of funds from operations to debt will stay 55-60 per cent in fiscal 2023 in contrast with our estimate of 50-55 per cent in fiscal 2022,” it added.

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