Markets
Chart Beat Coal India and ONGC: A contrasting outcome of two PSU companies in June quarter
Summary
- Coal India saw the highest consensus earnings estimates increase for FY25 in absolute terms. while ONGC's earnings estimates were cut sharply, making it the company that saw the biggest drop in earnings estimates
The June quarter results (Q1FY25) are out of the way, and investors are preoccupied with determining the winners and losers across the board—among sectors and companies. As it turns out, some companies have seen sharp downgrades or upgrades in earnings estimates for FY25 after the Q1 results.
Here, Coal India Ltd saw the highest consensus earnings estimates increase for FY25 in absolute terms at ₹4,800 crore. The chart alongside, sourced from an ICICI Securities report dated 24 August, has the details. On the other hand, Oil and Natural Gas Corp. Ltd’s (ONGC) FY25 earnings estimates were cut to the tune of ₹3,700 crore, making it the company that saw the biggest drop in estimates.
What explains this?
Coal India’s Q1FY25 profits were ahead of Street expectations. Ebitda (excluding OBR or overburden removal) growth was aided by lower employee expenses and raw material costs. Ebitda is short for earnings before interest, tax, depreciation and amortization.
A change in OBR accounting policy also helped reported earnings. Accordingly, the write-back in OBR provision in Q1FY25 was higher-than-expected at ₹2,800 crore versus ₹1,500 crore in the March quarter ( ₹6,100 crore in FY24). Plus, ‘other income’ was higher year-on-year, boosting net profit growth to that extent.
In the Q1FY25 results review report, analysts from Motilal Oswal Financial Services raised their profit after tax estimates for FY25 and FY26 by 11% and 3%, mainly on account of higher-than-expected OBR reversals.
Coming to ONGC, the delay in the ramp-up of production from the KG basin 98/2 block has dampened optimism. This is touted as a key factor prompting analysts to realign their earnings expectations. In the earnings call, the company’s management said it is producing 12,000 barrels per day of oil from the KG 98/2 field. Management expects oil production to rise to 30,000 barrels per day from the December quarter onwards, underpinned by the commencement of one new well.
To be sure, shares of both companies scaled new 52-week highs this month. Going ahead, a key trigger for the Coal India stock would be better-than-anticipated volume growth. For ONGC, investors will take cues from the pace of production ramp-up in the KG 98/2 field.
