After reporting a weak set of earnings number for the Q3FY20 period where net profit at the company halved to Rs. 4152 crore, the PSU oil and natural gas company Oil and Natural Gas Corp. Ltd (ONGC) continues to fall in stock price and on February 18, 2020, closed below Rs. 100 per share for the first time in 15 years.
Reasons for the sharp fall in ONGC's stock price to levels below Rs. 100
1. Investors wary of government diluting its stake in the company:
In its divestment spree with a target set at Rs. 210,000 crore for FY21, the government has pared a massive stake in the firm and as of December ended quarter, its stake in the firm equates to 62.78% from 67.72% in the same quarter one year ago. Also, a further reduction of its stake in the firm needs to be discounted for.
2. Drastic fall in its market cap to just Rs. 1.5 trillion:
Since 2014, the stock has lost substantial value and now ranks 22 wherein the company earlier commanded the top position in India otherwise. Nonetheless, in the current year particularly, the stock of ONGC has seen a sharp fall to the tune of 7% even despite giving a handsome dividend yield of 7.5%.
3. Production of crude oil and gas declining:
There is a double whammy for the company in term of both production of oil and gas on the one hand and low prices on the other which are likely to sustain for few more months amid US-China tariff war stress and corona-virus related demand pull back.
4. Price of domestic gas to reduce further:
It is expected that to keep up with the lower benchmark prices, domestic prices of gas will further recede lower until the six months time till September 30, 2020. Though changes in gas pricing policy i.e.it being regulated will come as a big relief as and when it comes to effect.
So, investors in the stock need to be watchful as the events related to the company will unfold in due course. Hence some of the triggers for the stock include any improvement in gas or crude oil production or an uptick in gas or oil price.
Hence given its low valuations of just 5x its earnings which have not been seen in years, there is more room for an upside, and history of good dividend pay-out which can in most likelihood go further higher on account of government push, the stock's future seems bright which can be good deal to bet on.Disclaimer: The article is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article. The author owns shares in ONGC.
About the author: Roshni Agarwal has been covering personal finance and investment planning for close to 5 years. She has a degree in MBA, Finance and writes on Mutual Funds, Stock Markets and Currency markets.