Posts Tagged ‘Royalty payment


ONGC follow up..

In one of my earlier post, I had mentioned about writing ONGC 240 puts for July series. There have been few positive developments for ONGC in terms of Cairn-Vedanta deal pre-conditions imposed by Government of India (GOI). As expected GOI has made royalty payments cost-recoverable as one of the pre-condition for approving the deal. It is difficult to say if the arm-twisting by GOI is correct and whether it would deter FDI in E&P sector in India on account of such ad-hoc policy changes. There was good article in BS on the same,

Someone on CNBC-TV18 commented, it looks like everybody in the GOI is working overtime to ensure success of ONGC Follow-on-Public Offer (FPO). One concern after other are getting resolved for ONGC and decks are being cleared for its FPO. Still one of the biggest overhang for the company, subsidy sharing formula is still pending. I think in a week or two clarity on the formula should come from GOI.

If one looks at ONGC July & August future contract prices (Rs 7 discount), it becomes quite clear that market is expecting ONGC FPO in August and not in July. I wrote some more ONGC July series 240 puts.


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.

May 2018
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