ONGC: Crude gains

Higher oil prices, lower subsidy boost ONGC profit

ONGC was the main beneficiary of higher oil prices in the last quarter, and the sharp improvement in its performance for the fourth quarter was hardly surprising. Profit before tax has grown 68.43 per cent to Rs 5,101.7 crore.

Average crude realisations were pegged at $ 42 per barrel in the last quarter and they have grown approximately 34.4 per cent on y-o-y basis. As a result, net sales have grown 46.23 per cent to Rs 12,148.92 crore in the December quarter.

Meanwhile, ONGC's subsidy losses, as per the formula worked out earlier with oil marketing companies (OMCs) was estimated at Rs 989.61 crore in Q4 FY05 versus Rs 1,154.71 crore in the previous year.

The lower subsidy burden for the company in the last quarter is being attributed to the hike in LPG prices in late Q3 FY05. However, ONGC's subsidy losses in FY05 have amounted to Rs 4,103.8 crore versus Rs 2,690.39 crore in the previous year.

Bouyant realisations coupled with reduced subsidy lossed helped operating profit grew 50.15 per cent to Rs 6,377.26 crore in the last quarter and operating profit margins expanded 137 basis points to 52.49 per cent.

Going forward, the company is planning to set up refineries and expand MRPL's capacity in a bid to leverage strong gross refining margins.

However, in the short term, the firmness in global crude prices is expected to help ONGC keep its net realisations buoyant. The stock currently trades at about 7 times consensus forward earnings, which is all right for a commodity stock.

Centurion merger

Considerable synergies are likely to be unleashed as a consequence of the proposed merger of Centurion Bank and the Bank of Punjab. One of them is of course the complementarity in their areas of operation""-while Bank of Punjab has most of its branches in the north of the country, Centurion's presence is in the south and the west.

Bank of Punjab is strong in the SME sector, while Centurion's forte lies in retail advances, with emphasis on segments like two-wheelers and commercial vehicles.

Bank of Punjab has a strong retail network for mopping up deposits, which will complement Centurion's retail assets.

Perhaps the biggest difference between the banks, however, lies in the fact that while Centurion Bank has cleaned up its balance sheet and pumped in capital into the business in the past year, the perceptions regarding the Bank of Punjab continue to be negative.

The Bank of Punjab hasn't yet declared its fourth quarter results, and its Q3 results were dismal. Profits were a fraction of what they were a year ago, and not all of that is because of lower treasury income.

Net interest income too has decreased. The bank needs capital and it was trying to raise money through a preferential allotment to investors like Scotiabank, a proposal that seems to have hit a roadblock with the RBI.

But too much should not be read into these concerns""-the fact remains that Bank of Punjab, with its computerised environment, its lack of trade unions, and its strong franchise in the north, is a far better target than several other private sector banks.

As for cleaning up the balance sheet and improving the business, the present Centurion bank management has enough experience of that. Centurion Bank management seems to have found the scope for rapidly building up scale, so necessary in the current environment.

Voltas

Voltas's stock price declined by 3.5 per cent on Tuesday, after the company announced results for the quarter ended March 2005, giving the impression that the results disappointed the street.

The numbers, nevertheless, look impressive with net turnover increasing by 26.5 per cent last quarter and operating margin rising by even higher by 37.5 per cent. For the whole year, turnover increased by 8.9 per cent and operating profit rose 35.8 per cent.

The electro-mechanical projects and services segment reported a 42.6 per cent increase in revenues last quarter. In the nine months till December 2004, revenues of the division had declined by 4.8 per cent.

The jump in revenues last quarter resulted in a decent 9.5 per cent increase in turnover for the whole year, which in turn led to a 370 basis points increase in EBIT margin.

Both segments are expected to continue to do well - the projects division which had revenues of Rs 800 crore last fiscal, currently sits on an order book of Rs 1,100 crore.

The engineering services business reported a 17.7 per cent increase in turnover to Rs 98.5 crore in FY05. Although the division accounted for less than 7 per cent of overall turnover, it's an extremely profitable business for the company. It accounted for over 37 per cent of total segment profit.

The cooling business, however, continued to be a drag on overall performance, registering a loss of Rs 7.89 crore at the EBIT level. While the marketing portion of the cooling business is EVA positive, it's the manufacturing business that's causing the loss.

Voltas's manufacturing unit at Hyderabad was into third-party contract manufacturing for LG and Samsung. These companies no longer source from Voltas, which has resulted in over-capacity at the unit.

The company's VRS last month has partly taken care of the problem, and things should be better this fiscal.

With contributions from Amriteshwar Mathur and Mobis Philipose