ONGC’s EBITDA set to recover after pandemic’s impact

After a 76% rise in EBITDA for state-run Oil and Natural Gas Gas Corporation quarter-on-quarter for the three months ended 30 September, its earnings are set to improve over the next 12-18 months, says Moody’s Investors Service.

Its EBITDA during the July-September quarter dropped by 30% year-on-year in line with the dip in oil price due to the drop in demand because of the pandemic.

Despite a recent recovery, crude oil prices remain below fiscal 2020 levels. Moody’s estimate the oil prices to average $45/barrel next year because demand will remain low and high inventory levels.

Earnings from gas sales will decline because the Indian government has reduced domestic natural gas prices by 25% from October 2020. However, lower gas revenue will not have a significant impact on overall revenues as the sector accounts for only 20-25% of the earnings.

Oil refining margins will also remain weak compared with previous years, Moody’s said.

The ratings agency said that the company’s earnings will recover close to pre-pandemic levels only beyond fiscal 2022.

ONGC’s capital spending fell by 7% during the first six months of fiscal 2021 to 191 billion rupees, but this is likely to increase in coming quarters as the economic activity rebounds.

This could possibly impact the company because it may result in higher borrowings, possibly resulting in a downgrade of its credit rating, Moody’s said.

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