Oil and Natural Gas Corporation (ONGC) share has so far fallen about 38% from its highs in January. As it turns out, the company’s March quarter results announced on Wednesday evening don’t inspire much confidence. True, revenues at 21456 crore, representing 20% year-on-year decline, were slightly ahead of Street estimates but net crude oil price realisations declined by almost 21% to $49.01 a barrel. Oil and gas volumes fell by 7.3% and 10.6%, respectively.

Profitability picture was dull though. An increase of 11% in other expenses weighed on profits, especially when other components of operating costs have declined. Earnings before interest, tax, depreciation and amortisation (Ebitda) declined by 30.6% to 8,588 crore. Further, other income declined sharply and there was also an impairment loss of about 4,900 crore. The upshot: ONGC reported a net loss of 3,098 crore for the March quarter.

For the March quarter, the decline in gas production was sharper at about 9% compared to the 1.4% drop in crude oil production.

On Thursday, ONGC shares were trading 1% lower in early deals when the Nifty 50 index was marginally up.

After a disappointing ending to financial year 2020, prospects for ONGC stock are not any brighter. Remember, earlier this calendar year, covid-19 related concerns had led to a sharp drop in global crude oil prices. While oil prices have recovered from the lows, triggers for a meaningful jump in oil prices are few and far between. Higher oil prices are critical for ONGC’s fortunes as they help improve realisations. As such, muted outlook on prices doesn’t augur well for the company.

Kotak Institutional Equities has reiterated its ‘sell’ rating on the stock given expected sharp decline in domestic gas prices, recurring disappointment on volumes, elevated operating/ capex costs and policy apathy amid weak oil cycle. “Our reverse valuation exercise suggests the stock is already discounting crude price recovering to about $48 per barrel,” wrote Kotak analysts in a report today.

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