How did ONGC become so profitable in the fiscal year FY22? What is the secret?

For the fiscal year FY22, ONGC yanked up profits sharply to emerge as the second most profitable company in India. For FY22, net profits at Rs40,305 crore was an all-time record putting them just behind Reliance Industries in terms of full year profitability. In FY22, ONGC has generated more profits than TCS and Tata Steel. In fact, the net profits of ONGC in FY22 were up 3.58 times compared to net profits of just Rs11,246 crore in FY21.

One of the major triggers for this leap of faith was the 79.1% yoy increased in crude price realizations at $76.62/bbl as compared to just $42.78/bbl in FY21. Crude had rallied in the fourth quarter to as high as $139/bbl. Even top line revenues for ONGC were impressive at Rs34,497 crore, a spike of 21.25 yoy. Unlike in 2008, ONGC does not have to subsidize retailers and hence the net realization per barrel is much higher than in the year 2008.

In fact, what I have mentioned above is the standalone profits of ONGC. if the subsidiaries were consolidated, the net profit of ONGC for FY22 would be Rs49,300 crore. That is still lower than Reliance Industries at Rs67,845 crore for FY22. However, this is much higher than consolidated profits of Rs41,749 crore for Tata Steel and net profit of Rs38,449 crore for TCS. A word of caution is that such spikes may be purely short lived for ONGC.

There are some risks going ahead. For instance, ONGC declared final dividend of Rs3.25 per share taking the total dividend for FY22 to Rs10.50 a share. However, the catch could be in the Windfall Tax proposed by the government on upstream players. The idea is to make them pay out when crude spikes, something the UK has recently done. Clearly, the stock markets are not to happy and that is reflected in the stock price of ONGC falling sharply of late.