Drill-Ship Sagar Samrat at work in Mumbai High (Source: ONGC Website)

Why Brokerages Are Bullish On ONGC Listing Its Overseas Unit

Brokerages are bullish on Oil and Natural Gas Corporation Ltd., India’s largest oil and gas producer, deleveraging its balance sheet with a potential listing of its overseas investment arm – ONGC Videsh Ltd.

The government has asked ONGC to list ONGC Videsh on the stock exchanges and transfer proceeds to it in the form of a special dividend, helping meet its disinvestment target.

State-owned ONGC turned a net debt company in 2018 after it acquired Government of India’s stake in the third largest oil marketing company, Hindustan Petroleum Corp. Ltd., in a move to create an integrated oil company.

The listing of the overseas unit, which has 11 producing assets in countries such as Russia, Brazil, Vietnam, etc., would help ONGC to not only unlock value, but it could also lead to a re-rating for the oil marketer, Sudeep Anand, head of institutional research with IDBI Capital, said in a note.

The company, which on an average had a net cash of more than Rs 11,000 crore over FY10-17, closed the financial year 2018 with a net debt of close to Rs 25,000 crore. However, in financial year 2019 the company was further able to reduce its debt to close to Rs 17,000 crore through internal accruals.

The oil and gas major has also received government approval to sell stake in Indian Oil Corp. Ltd., GAIL (India) Ltd., and Pawan Hans. Along with, this ONGC is also exploring integration of Mangalore Refining and Petrochemicals Ltd. and ONGC Mangalore Petrochemicals Ltd. with HPCL. Brokerage UBS believes this moves along with strong earnings trajectory would deleverage ONGC’s balance sheet.

ONGC, which is one of the most preferred stock in the S&P BSE Oil & Gas Index, has declined more than 10 percent so far in 2018 as against a 12 percent rise in Brent Crude prices. Nearly 31 of the 38 analyst tracked by Bloomberg have a ‘Buy’ rating on the stock with a potential upside of close to 30 percent over the next 12 months.