Posts Tagged ‘ONGC

24
Sep
11

Not a positive news for ONGC..

If this piece of news is correct http://www.business-standard.com/india/news/finmin-wants-ongc-others-to-pay-rs-56700-cr-fuel-subsidy/147052/on, then it will be detrimental for upstream companies. It will be suicidal for ONGC. In the last financial year FY10-11, ONGC paid Rs. 24,892 crore as subsidy. As per this news, ONGC subsidy share would increase to Rs 47,640 crore this fiscal. Till now, market was under impression that upstream companies would share one-third of Rs. 1.14 lakh crore subsidy. But it seems the Finance Ministry wants upstream companies to share one-third subsidy of Rs. 1.71 lakh crore, which was the subsidy amount before June duty cuts and fuel price hike. It goes without saying that it would be body blow for ONGC. I guess a lot of investors would have cried foul if this subsidy hike would have happened after FPO. After this subsidy hike, it would be difficult for government to come with FPO price more than 230-240. It might be a possibility that the government scraps FPO altogether after its antics. In Q4, FY11 also government arbitrarily increased upstream subsidy share from 33% to 38.8%. Its time to stay miles away from ONGC on long side. Government just want to reduce its share of subsidy so you never know what is the next googly. I have written ONGC October series 300 calls. Given all the negative sentiment around market in general and ONGC in particular, it would be difficult for ONGC to move up sharply from current levels. But one has to watch crude price level, if it corrects sharply, it might make the case for ONGC not falling sharply either. INR has depreciated recently, nullifying any kind of positive impact of crude price fall.

20
Aug
11

Coal India: India’s most valuable company

Coal India became India’s most valuable company by overtaking Reliance Industries. Four years ago RIL became M-cap leader by toppling ONGC. Coal India had announced its Q1 results on August 12. Results were above estimates with consolidated PAT increasing by 64.1 percent to Rs 4144 crore. After Q1 result, Coal India rallied sharply to 400 odd levels.

I saw this as an opportunity to write Coal India calls. In this volatile market environment, PSU giant stock has been rock steady and acted as a defensive. But to think that Coal India will move another 12% from current levels would be too much. New draft mining bill, according to which coal producers would have to share 26% of profits with local people, will continue to be an overhang on Coal India stock. Although some of this would be passed onto buyers as price increase. With this thought I wrote September series 440 call. This call will yield 11.36% in 41 days. I am not saying that Coal India will fall from these levels nor will it increase substantially. I can write puts as well but in this volatile market I shall refrain myself from writing naked puts (When I wrote Nifty puts, I bought protection through higher level puts).

28
Jun
11

Petroleum products price hike

Finally, government bit the bullet and increased diesel, kerosene and LPG cylinder prices on Friday evening. It was long overdue though. Market gave big thumbs up to government oil price hike. It looks like suddenly market has woken upto Oil marketing companies (OMC), Oil PSU’s like ONGC. Lot of upgrades are coming in with buy and overweight rating. Oil prices fell sharply last week by 8%, mainly on account of release of strategic oil reserves of 60 million barrels over next 30 days by members of IEA. This sudden fall in price is also helping OMC cause. As things stand now, OMC’s are not losing any money on petrol sale. Loss on other oil products like diesel, kerosene has also been reduced by price hike and duty rationalization.

But, I feel more confident about ONGC than OMC’s. I think ONGC has seen its bottom at Rs. 248 this year. Although an irony, but its a fact that in current scenario, oil price fall benefits upstream company like ONGC more than its rise. ONGC suffers from adhoc subsidy sharing formula of government. In case, government gives some clarity on subsidy sharing, share price should easily move past Rs. 300. Follow on Public Offering (FPO) also remains overhang on the stock. Its scheduled date was July 5, but note sure if less than 300 is the fair price and government should go ahead with it.

It looks like ONGC is having its way in Cairn-Vedanta deal. Royalty payments will be made cost-recoverable which will be positive for ONGC.

I wrote few ONGC July series 240 puts yesterday. These puts will yield 5.81% in 32 days. Considering all the scenarios, I don’t think ONGC share will fall below 240 in July series.

08
Jun
11

Why Congress government rocks..

Yesterday, I read an article on Kirtan’s blog (http://www.insearchofnirvana.in/) on politicians. Sometime back, I used to share same level of frustration about politicians but not anymore. As an option writer Indian government is my best friend because they allow me to play on time decay. They will never be able to take any decisions and even if they will, it would be too late in the day. As per congress government, it is extremely difficult to decide on what is of  national interest in Cairn-Vedanta deal. After several months of delay, they are yet to decide on the deal with ball moving from GOM to CCEA and back. I could easily sell Cairn India 320 Put in April with confidence that government won’t take any decision soon.

The Government is too busy with Baba Ramdev and they don’t have time to decide on diesel price hike. One can easily create short strangle in Oil marketing companies. I haven’t done that, since my plate is currently full with Sun TV, R Comm, Tata Motors. After destroying investors wealth in Oil marketing companies, government is all set to do the same with ONGC by increasing its subsidy share just before Follow-on Public Offer (FPO).

They still cannot decide on the best way to dilute stake in Public Sector Units (PSU’s). FPO has become a dreadful word which, if associated with any PSU, becomes target of bears and option writers like me. I don’t think FPO is the best way to dilute stake in PSU’s with government not getting best possible value. I made money by selling SAIL 180 Call in May, 160 Calls in June. I missed the chance in Power Finance Corporation (PFC).

When UPA got clear mandate in 2009, market gave it a big thumbs up by rallying 10% plus. Market thought, with comfortable mandate, government would be able move faster on reforms. After 2 years, we are still waiting for any kind of reforms with many important bills pending. With BJP ruled states opposing, one important tax reform Goods and Services Tax (GST) can’t find its way. GST has the potential to add several bps to India‘s GDP growth. Next 1-1.5 years is the best possible window for government since as they go into the election mode.

Our Finance Minister(FM) still says investors should not be negative on India. I agree, but that would be because of private companies and not the government. I wish the government was a listed entity then one could have entered into Pair Trade (Short government, Long private corporations). Congress government rocks!!!…please keep adding some more scams to your already long list!!!!




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