Reviews

In this edition, we have reviewed Coal India Ltd. and Oil & Natural Gas Corporation Ltd.. We suggest our reader-investors to HOLD Coal India Ltd. and Oil & Natural Gas Corporation Ltd.

We had recommended Coal India Ltd. in Volume 37, Issue No. 22 dated September 26 – October 9, 2022, under the ‘Cover Story’ segment. The recommended price for the stock was ₹227.10. We had recommended the stock on the basis of automation in its mining operations, development in transportation and a high return on capital employed. Coal India Limited (CIL) is a Maharatna company, the highest category of industrial undertakings in India, under the ownership of the Government of India. It is the state-owned coal mining corporation of India and the single largest coal producer in the world. 
 

The company is mainly engaged in mining and production of coal, and also operates coal washeries. It has a vast portfolio of coal mines across India, and is constantly exploring new areas for coal exploration. In Q1FY24, Coal India Limited’s consolidated revenue increased by 1.77 per cent YoY at ₹33,072.64 crore compared to ₹32,497.98 crore from the previous year’s same quarter. On a sequential basis, revenue decreased by 5.94 per cent. 
 

PBIDT excluding other income decreased by 14.18 per cent to ₹10,513.85 crore YoY as compared to ₹12,250.84 crore from the previous year’s same quarter, while sequentially increasing by 52.42 per cent. The company’s net profit stood at ₹7,964.42 crore compared to ₹8,858.21 crore, a YoY decrease of 10.09 per cent, while sequentially it increased by 45.98 per cent. The net profit margin decreased by 311 bps YoY and increased by 783 bps QoQ, standing at 22.13 per cent. At TTM, Coal India is trading at a PE of 5.23 times, which is lower than its three-year median PE. The company has maintained a healthy three-year average ROE and ROCE of 46.8 per cent and 57.3 per cent, respectively. It has a three-year compounded sales and profit growth of 13 per cent and 19 per cent, respectively. CIL is the single-largest coal-producing company in the world and one of the largest corporate employers. It is also a major player in the renewable energy sector, with plans to install 3,000 MW of solar power by FY24. 
 

This growth in the renewable energy sector is a major growth trigger for CIL, as it will help the company diversify its revenue streams and reduce its reliance on coal. In addition, CIL is also investing in new technologies to improve its efficiency and productivity. This includes the use of automation and robotics in its mining operations, as well as the development of new ways to transport and store coal. We believe that these investments are expected to boost the growth of CIL in the coming years. Hence, we recommend HOLD. 
 

We had recommended Oil & Natural Gas Corporation Ltd. in Volume 37, Issue No. 22 dated September 26– October 9, 2022, under the ‘Low Price’ segment. The recommended price for the stock was ₹128.70. We had recommended the stock on the basis of the strong growth track record, revenue growth and investing heavily in international operations. ONGC, India's largest crude oil and natural gas company, specialises in the exploration and production of petroleum products like petrol, diesel, kerosene, naphtha and cooking gas-LPG. With in-house service capabilities in exploration and production, ONGC has a dedicated team working in challenging locations. The company has won the Best Employer Award and has developed in-house capabilities in seismic data acquisition, drilling, engineering, construction, production, processing, refining, transportation, marketing, and applied research and development. 
 

In Q1FY24, Oil & Natural Gas Corporation’s revenue on a consolidated basis decreased by 10.43 per cent YoY to ₹163,823.59 crore compared to ₹182,893.75 crore from the previous year’s same quarter. On a sequential basis, its revenue stood flat. The PBIDT excluding other income increased by 59.69 per cent to ₹30,106.81 crore YoY as compared to ₹18,852.78 crore from the previous year’s same quarter, while sequentially increasing by 43.39 per cent. The net profit stood at ₹16,857.22 crore compared to ₹7,545.69 crore, a YoY increase of 123.40 per cent, while sequentially it increased by 133.33 per cent. 
 

The net profit margin increased by 616 bps YoY and 489 bps QoQ to 7.11 per cent. At TTM, ONGC trading at a PE of 5.48 times, which is slightly higher than its three-year median PE. The company has maintained a healthy three-year average ROE and ROCE of 13.9 per cent and 13.8 per cent, respectively. It has a three-year compounded sales and profit growth of 17 per cent and 37 per cent, respectively. Its electrical vehicle business is thriving with revenues expected to increase in the coming quarters. 
 

ONGC holds a 5 per cent stake in the India Gas Exchange, providing a strategic position in the natural gas market. The company plans to invest ₹31,000 crore in oil and gas exploration in FY22-25, selling its stake to international firms, and developing oil fields in collaboration with international players. With a strong growth track record, ONGC is investing heavily in exploration, production, and expanding its international operations to maintain its growth momentum. Our recommendation is to HOLD.