“FINANCIAL PERFORMANCE ANALYSIS OF

OIL AND NATURAL GAS CORPORATION

(ONGC) LTD”
Radhika Chaudhry
IFMR— M19-115
radhikac_mbab19@ifmr.ac.in

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 ABSTRACT
The report attempts to analyse and comment upon the financial performance of a
Public Sector Unit (PSU) i.e. ONGC. Financial Performance Analysis is a very crucial
activity for investors, shareholders, potential investors, government and other
stakeholders because it aids them in taking better decision.
Ratio analysis is a widely used tool to measure the financial soundness of a company.
Finance and finance related activities are key business drivers for any company,
despite of the fact of it being a financial or a non-financial company.

In the report, I have tried to measure the soundness of the financial position of
ONGC with respect to its profitability, liquidity, solvency and efficiency.

In the modern economy, finance is the base of all kinds of economics activities. It is
the master key, which provides the access to all the sources for the being employed
in any company which makes the need and management of finance a more critical
and crucial task.

Efficiency and success of every business is closely related with its efficiency in
managing its finances.

“Finance is the only common denominator for vast range of corporate objectives.”

As all the PSUs in India are on a downtrend, it becomes very important to scrutinize
the factors that are responsible for it and should move towards getting rid of them.
For that sake, I have done this study in order to find where ONGC is lagging behind
and what the reasons are.

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 TABLE OF CONTENTS

Chapter 1: Introduction………………………………………………...5
Industry Profile……………………………………………….…………5
Company Profile………………………………………………….….…..6
Chapter2: Objectives and Research Methodology……………….…….7
Chapter 3: Analysis and Interpretations………………..……………8-13
Liquidity Ratios……………………………………….………………..8-9
Profitability Ratios.……………………………………...……………….9
Turnover Ratios……………………………………………………......9-10
Solvency Ratio……………………………………..……………….....10-11
Investment Ratios………………………………………………….…12-13
Chapter4: Conclusion…………………………………………………....14
References……………………………………………………………...…15

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 ACKNOWLEDGMENT

We all are creature of ‘Almighty Father’ and nothing in this world happen without his
consent. I pray to Almighty Father to grant me strength and courage in future too in order to
perform my task as smoothly as has been my present work. It is due to his grace that I have
ultimately been able to complete my research work.
Exchanges of ideas generate a new object to work in a better way. Apart of the ability, labour,
time and devotion, guidance and cooperation are two pillars for the success of a project.
Whenever a person is helped or cooperated by others, his heart is bound to pay gratitude to
others.
In this chain, I am immensely thankful and convey my sincere gratitude to my Mr. Arindam
Das and Mr. Shrikant Rajan, Institute for Financial Management and Research for their
supervision, advice and guidance from the early stage of this research as well as giving me
extraordinary experiences throughout the work.
I will also extend my special thanks to the Dean of the Institute who provided facilities as
and when required.
Finally, I would like to thank everybody who is important to the successful realization of this
project.

RADHIKA CHAUDHARY
M19-115

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Chapter 1: Introduction
Finance is known as the lifeblood of any business entity. And it is the proper utilisation of
finance which describes the financial performance of an organisation.
Finance can be defined as a process of rising and utilising the funds efficiently and
effectively as per the overall objectives of the organisation.

It will not be wrong to say that the efficiency of an organisation can be measured by its
efficiency of managing its finance.

Industry Profile: Oil and Gas Industry in India:

In India, energy sector is one of the eight core industries. India accounts for 37.3 % of
world’s total energy consumption and therefore, is the fourth largest energy consumer in
the world.

The economic growth of India rely on energy sector to a large extent, thus it is expected to
grow at a fast pace. This makes this sector more attractive for investment.

It is forecasted that in coming years, India will be one of the largest contributor to non-OECD
petroleum consumption.

India imports around 80% of country’s oil needs and has an aim to bring it down to 67% till
2022 by way of local exploration, introduction of renewable energy and local ethanol fuel.

Rising demand: Indian economy is soaring with demand for energy with its 7+ growth rate
percentage and booming growth of the industrial ecosystem in the country.

100% FDI: Due to exponentially rising demand in the industry, the industry is attracting huge
FDI is expected to attract 25 billion US dollars till 2022. The government allows 100% FDI in
the industry.

Supporting Policies: The government has also enacted many policies in energy sector to stir
up the production such as CPM (Contractor’s Plant and Machinery) and OALP (Open Acreage
Licensing Policy.

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Company Profile: Oil and Natural Gas Ltd
Oil and Natural Gas India Ltd. (ONGC Ltd.) is the largest crude oil and natural gas producing
company in India. ONGC contributes to around 70% of total domestic production of crude
oil and natural gas. The contribution of ONGC to Indian economic development in terms of
employment level, CSR activities and crude oil
exploration cannot be over emphasized.
CURRENT HIGHLIGHTS
The company is also expanding its reach to global oil
and natural gas market through its most successful Produces 77% of India’s
subsidiary ONGC Videsh Ltd. Currently it is working on crude oil and 62% of
projects in 17 countries. Natural Gas.

Establishment: 14 August 1946 Revenue from

Operations is INR
Market Capitalisation: 235000 crores. 850041million in FY’18.
Management- It is a Public Sector Undertaking of
Has discovered 6 out of
Government of India administered under Ministry of
7 oil and gas producing
Petroleum and Natural Gas. Headquarter of the basins.
company is situated in Dehradun, Uttarakhand.
Ranked 11 th in Global
No. of Employees: 34500 approximately, out of which
Energy Majors.
approximately 7% is the composition of women.

Subsidiaries: Only company in

Fortune’s Most Admired
 ONGC Videsh Ltd (OVL) Energy Companies’ list.
 Mangalore Petrochemicals Limited (MRPL)
Ranked 183 rd in fortune
 Hindustan Petroleum Corporation Limited
global 2000.
(HPCL)
Spent INR 5259 Million
Chairman: Shashi Shankar holding 5568 shares in
in CSR activities.
ONGC.

Key Operational Highlights of ONGC:

 In the current financial year, the company discovered 12 Oil and Gas sources, out of
which 6 are offshore.
 The standalone output of Oil and gas was 3.3% higher than the FY’17.
 The profit after tax has increased by approximately 11% in comparison to FY’17.
 The offshore gas production in the FY’18 is 5.7% higher than the previous year.

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Chapter 2: Objective and Research Methodology
Objectives of the study:
a. To analyse the financial performance of ONGC from 2016-2018 over a period of 2
years.
b. To comment upon the liquidity, solvency, profitability and overall position of the
company.

Research Methodology: The study is currently intended to analyse the financial health
of ONGC based on various accounting ratios and comparing them with the ideal ratios
required in the Energy sector.

The study is based on secondary data, i.e. the annual report of the PSU (public sector
enterprise). The study takes into account the data for two financial years starting from April
1ST 2016 to March 31st 2018.

The data is analysed using the following ratios:

Profitability Liquidity Ratios Activity Solvency Ratios Investment

Ratios Turnover Ratios Ratios
Gross Profit Current Ratio Stock Turnover Debt-Equity EPS (Rs.)
Ratio (%) Ratio Ratio
Net Profit Ratio Liquid Ratio Debtor Turnover Capital Gearing Diluted EPS
(%) Ratio Ratio
Operating Profit Super Quick Fixed Assets Interest DPS
Ratio (%) Ratio Turnover Ratio Coverage Ratio
Return on Total Capital Turnover FA To Net worth P/E ratio
Assets (%) Ratio
Return on Net CA to Net worth Dividend pay-
Worth (%) out ratio (%)

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Chapter 3: Analysis and Interpretation
Ratio Analysis: Ratios analysis is a quantitative accounting technique of analysing the
information present in the financial statements. This analysis is used to measure the
liquidity, solvency and profitability state of a company.

Liquidity Ratios: Liquidity ratios indicate whether the firm will be able to fulfil its short
term obligations out of its short terms assets.

Current Ratio: This ratio expresses the relationship between the current assets and the
short term liabilities.
1.8 1.6
Interpretation: The current ratio of 1.6
the firm has fallen drastically from the 1.4 1.2
previous financial year i.e. from 1.6 to 1.2
0.4. 1
0.8
Ideal ratio is 2:1. 0.6 0.4
0.5
0.4 0.3
A lower current ratio indicates that it 0.2 0
might be possible that the company 0
won’t be able to repay its lenders or Current Ratio Liquid Ratio Super Quick Ratio
2016-17 2017-18
might have to cut back its operational
cost.

Reasons: The current liabilities of the company have increased from 192334.36 million to
493618.59mn.
Specifically, ONGC has undergone some developmental expenditure for which it has
borrowed short term loan of 255922mn which is a significant increase in the current
liabilities which was not there in the FY’17.

Liquid Ratio: Liquid ration indicates the relationship between the liquid assets (current
assets – inventory – prepaid expenses) and current liabilities.

Interpretations: There is not much difference between current and quick ratio i.e. 0.1 that
means that the company is able to manage its inventory well and not over or understocking
its inventory.

Quick Ratio: This ratio is also known as absolute liquid ratio and tells about the absolute
liquidity position of the firm in terms of cash and cash equivalent which is known as the’ life
blood of the business’.

Interpretations: In FY’18, ONGC is accounting a quick ratio which is close to 0 which is

interpreted as the firm has low levels of cash and cash equivalents. Therefore, it can be
commented that the firm is facing a situation of financial distress where it is unable to meet
its short term obligations.

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Profitability Ratios: Profitability ratios measure the company’s abilities to generate
profit in the future.
50.00%
Gross Profit Ratio: This ratio compares 43.50%
40.00% 39.70%
between the gross profits made by the
26.20%
company during the year to the sales 30.00%
24.20%23.50% 22.07%
made by it. 20.00%
10.00%
Net Profit Ratio: This ratios is also
0.00%
commonly termed as ‘Return on sales’
Gross Profit
because we determine net profit after Net Profit
Ratio(%) Operating
deduction all the expenses and costs Ratio(%)
Profit Ratio(%)
from the sales.
2016-17 2017-18
Operating Profit Ratio: The
operational efficiency is measured by this ratio. However, in case of ONGC, there is a
significant change in the operating expenses which has led to change in this ratio.

Interpretations:
In FY’18, all the profit margins have decreased as compared to the previous year.
Yet, the profitability situation of the company is not much affected because the major
changes are in current liabilities and not in the profit and loss statement related items.

Turnover Ratios: The other name for these ratios is Activity ratios or Efficiency ratios
because they tell about the operating efficiency.

Inventory Turnover Ratio: This

15 12.6 12.7 13.1
turnover ratio tells the number of 11.9
times a firm’s inventory is transformed 10 7.3
into sales.
5
0.6 0.5
Interpretation: A high inventory
0
turnover ratio is an indicator of Stock Turnover Debtor Fixed Assets Capital
efficiency in handling the inventory. -5 Ratio Turnover Ratio Turnover Ratio Turnover Ratio
ONGC is having an inventory holding -10
period of 29 days in FY’18. Therefore, -9.9
we can say that it takes almost a -15 2016-17 2017-18
month to ONGC to sell its inventory.

“All the assets turnover ratios are better when higher.”

Debtors Turnover Ratio: This ratio depicts the efficiency of debtors.

Interpretation: Debtors’ turnover ratio has decreased by 9%. Earlier the receivables
collection period was 27 days now it has increased to 31 days. This means that the money of
the firm is now blocked in debtors for a longer period of time which is not a good indicator.

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Fixed Assets Turnover Ratio: The ratio is a measure of the efficiency of fixed assets in
generating revenue during a year. This tells the degree to which the investment in the fixed
assets was judicious.

Interpretations: ONGC is continuously having a low FATR which means it is somewhat

inefficient in utilising its fixed assets. Also the FATR has further reduced by 20 % which is
again not a good indicator.

This shows a huge blockage in fixed assets which is why firm is unable to generate revenue
from it.

Working Capital Turnover Ratio: This ratio is an indicator of the efficiency of the working
capital turning into revenue. This ratio is helpful in measurement of overtrading or under
trading.

Interpretations: The firm has taken a huge amount of short term borrowing resulting in
negative Working Capital. Therefore, the capital turnover ratio has drastically gone down to
-9.9. It can be inferred from the ratio that company is inefficient in managing its working
capital.

Solvency Ratios: Solvency ratios are a financial metric to measure a firm’s ability to
repay its long-term debt and other obligations.

Debt-Equity Ratio: It measures the

proportion of shareholders’ funds and
debt used to finance the company’s 0.14
assets and long term financial needs. It 0.12
is a way to determine the proportion of 0.1
each equity and debt in firm’s capital 0.08
Debt-Equity Ratio
structure. 0.06
0.04
The other name of this ratio is 0.02
‘Financial Leverage Ratio’. 0
2016-17 2017-18
Interpretations:
In FY’18,ONGC has taken a huge
amount of short term loan which has led to this increase in the debt equity ratio.

Yet, the ideal debt equity ratio is 2:1 and ONGC is having a D/E ratio way lower than that
which means that in the company’s capital structure the proportion of equity is very high.

ONGC does not issue any preference shares resulting in same D/E and Capital Gearing Ratio.

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Interest Coverage Ratio: ICR measures the sufficiency of company’s income to bear the
interest obligations during a year.

This ratio is calculated taking the base of Operating Profit (PBIT).

Intepretations: ONGC’s interest

25
coverage ratio is pretty good though it
has decreased to 20.1 times,yet there 24
is safety of payment of interest 23
obligations.
22
For energy sector , the ICR should be Interest Coverage
21 Ratio
atleast 2, but ONGC’s ICR is 10 times of
that which shows that company is 20
capable of taking more debts and still
19
comfortably bearing the finance costs.
18
Company’s debt equity ratio is low and 2016-17 2017-18
interest coverage ratio is high which
depicts a strong solvency position.

Fixed Assets to Net Worth:This ratio

measures the proportion of 0.9
shareholders’ funds which is there in 0.8
the form of fixed assets of the 0.7
company and to which extent the 0.6
funds are available to company’s 0.5
FA To Networth
operations. 0.4
CA to Networth
0.3
Interpretations: The higher FA to Net 0.2
worth ratio in both the financial year 0.1
shows that most of the shareholders’ 0
funds are blocked in Fixed Assets and 2016-17 2017-18
very less proportion is there for
working capital.

At this point of time it is right to mention that in FY’18, company has recorded Negative
working capital of 27,845.31 Million.

Ideally, FA to Net worth ratio should be below 0.75 but here in both the years it is above
0.75 which is undesirable because this might affect the day to day operations of the firm.

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Investment Ratios: These are generally termed as investor’s ratios as they are used to
measure the performance and return of company’s common stock.
In addition to the shareholders, these ratios are also useful to potential investors and other
stakeholders of the company.

Earnings per Share (EPS): This ratio

signifies the amount of company’s 15.54 15.54
15 13.95 13.95
profit which is being allocated to the
each equity share of common stock. 13

11
Interpretations:
9
During the FY’18,despite of low 7
liquidity, the EPS of the company has 5
increased from Rs.13.95 to Rs.15.54. 2016-17 2017-18

EPS(Rs.) Diluted EPS

The basic and diluted eps of ONGC
remains same in both year because the company doesn’t include any stock options,
convertible preference shares, warrants and restricted stock units (RSU)etc.

Dividend Per Share: It tells the total amount of dividends declared by the company over
each share of common stock.It is determined by dividing the total dividends including
interim dividend by the number of shares available.

Interpretations: In case of ONGC, in FY’17, a dividend of Rs. 5.5 was given whereas this year
it was increased to Rs.6.6 which shows that despite of having liquidity crunch, company is
taking care of its shareholders in an
Rs. 5.4 Rs.6.6
DPS adequate way.
FY'17 FY'18

Price Earning Ratio (P/E ratio): P/E ratio

defines the relationship between the 10.5 9.8
10.0 9.4
market price s the share of the company 9.5
to its earnings. It is a very crucial ratio 9.0
8.5
from the perspective of investors and 8.0
7.5
potential investors. 7.0
6.5
Intepretations: 6.0
5.5
The overall P/E ratio of ONGC is below the 5.0
2016-17 2017-18
average price earning ratio required in the P/E ratio
industry.

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In view of “Growth Investors”, a higher P/E ratio shows the growth prospects for the
company and this is why investors tend to invest more in the companies with higher P/E
ratio.

Over the years, ONGC has become less attractive to its investors and therefor has a P/E ratio
of 9.41 and 9.8 times in two continuous years.

Private sector leaders such as Reliance Industries has P/E ratio of 21.3 which is way more
higher than ONGC’s.

But in case of PSUs, P/E ratio can be misleading also because irrespective of having low P/E
ratio for many years, these companies have been working good enough in terms of
profitability and solvency.

Retention and Payout Ratio: Retention ratios is the percentage of net income which is
retained in the business for the purpose of reinvesting in the business to grow.
Payout ratio shows the percetage of
100%
net income which is distributed as
dividends to the equity share holders 80% 46.83
61.08
of the company. 60%

Interpretations: In FY’18, taking into 40%

consideration the tarnishing liquidity 53.17
20% 38.92
of the company and decreased profit
margins,ONGC decided to retain 0%
2016-17 2017-18
61.08% of its net income and
distribute the rest while in FY’17, it Dividend payout ratio(%) Retention Ration

distribute more than it retained.

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Chapter 4: Conclusion
The growth and development of any organisation depends on its financial position and
efficiency of management. To sum up the financial performance of ONGC, it is essential to
comment upon the following 4 parameters in order to get a clear picture out of the analysis.

Profitability: In terms of profitability, ONGC’s performance is fair enough but the scope for
improvement is very high as competitors in the same market are performing better.

Liquidity: The liquidity position of the company is not good as the current ratio and quick
ratio is way lower than required.

To avoid liquidity crunch, ONGC has to perform a review of its current assets and liabilities
so as to increase their returns. During the year, it has taken a huge short term loan; it should
ensure that the loan is used for a productive purpose which adds up to the company’s
wealth.

Efficiency: In the current year, the company is having a negative working capital which is a
result of high current liabilities which might be taken for some productive use, hence it is
not a threat for the company. But it is important for ONGC to not to ignore this aspect and
work more on its current assets to improve its liquidity position.

Solvency: In terms of solvency, ONGC is proved to be a leading company with a very low
proportion of debt and very high interest bearing capacity.

ONGC is way below the industry debt equity proportion; therefore, it can take debt to do
more growth and developmental expenditures in the coming future.

In brief, one can say that ONGC is a strong company in every aspect but currently facing
some liquidity crisis, that too have not resulted in any serious crunch or loss.
Hence, it can be assumed that the management of the company is efficient enough to
handle tough situations.

Therefore, it will not be wrong to say that ONGC is moving towards accomplishment of
vision i.e. to become a global leader in integrated energy business.
Financial analysis is not the only measure to measure the success of an organisation, other
measure is to see the organisational practices, corporate governance, CSR activities ,
customer services and contribution to nation and economy of the nation.

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References:
Annual Report: (2016-17 and 2017-18)

 http://www.ongcindia.com/wps/wcm/connect/ongcindia/Home/Performance/Annu
al_Reports/

Websites:

 www.ongc.com
 https://www.ongcindia.com/wps/wcm/connect/en/about-ongc/ongc-at-a-
glance/corporate-profile/
 http://www.ongcindia.com/wps/wcm/connect/ongcindia/Home/company/citizens-
charter/corporate-profile
 https://www.ibef.org/industry/oil-gas-india.aspx
 https://economictimes.indiatimes.com/oil-and-natural-gas-corporation-
ltd/stocks/companyid-11599.cms
 https://www.moneycontrol.com/financials/oilnaturalgascorporation/ratios/ONG
 www.investopedia.com
 www.nseindia.com

Research Papers:

 ISSN Online: 2394-5869 by Deepika S and Dhivya B

 Shri I N Chaterjee (2013)“Assessing Financial Performance of Indian Public Sector

Companies Engaged in Business of Petroleum and Natural Gas during Pre and Post
administered pricing mechanism system.”

 Kumar Aditya (2016) “An appraisal of financial solvency of ONGC”- Online ISSN 2320-
0073

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