Oil Boon

Updated: Sep 26 2002, 05:30am hrs
The ONGC stock has hogged the maximum mileage after the dismantling of APM in Indian oil sector from April 2002. It has moved up by around 30 per cent to Rs 345 in line with the surge in international crude oil price to $ 30.5 per barrel due to fears that the US might attack Iraq. The rise in crude oil prices has the potential to catapult the companys growth during the current fiscal.

The company had posted a net profit of Rs 6,198 crore in FY 2001-02 on an administered crude price of $16 a barrel. Crude oil sales account for about 60 per cent of the companys total revenues followed by natural gas with 25 per cent. Assuming that the international crude oil prices remain at $ 24 on an average, it will mean 50 per cent jump in price realisation on y-o-y basis. ONGCs output is likely to remain almost the same as it expects to produce 25.9 MMT of crude oil during FY 2002-03 as against 26.01 in FY 2001-02.

During the first quarter to June 2002, the company sold crude oil at a provisional price of $ 22 per barrel, which was below the average West African Bonny Light crude oil price of $ 24 despite the dismantling of APM. Still, its net profit grew 34 per cent to Rs 1,981 crore on a 27 per cent increase in topline to Rs 7,056 crore.

These two variables may fatten further by at least 5-10 per cent if the companys financials for the quarter are revised.

ONGCs long term prospects also look good. The company plans to invest Rs 12,000 crore over the next five years to increase the oil recovery factor from 28 per cent to 40 per cent.

Its other plans include focussing more on the North Eastern region with additional survey and drilling of 178 exploratory wells in the region. Moreover, the companys 40 per cent stake in Panna-Mukta and Tapti Oil & Gas fields in a three-way joint venture with RIL and British Gas should also be factored into its stock valuation.

Aarti Drugs
Aarti Drugs, a bulk drug major, posted much lower growth in sales than the industry average of 11 per cent. Net sales during the quarter to June 2002 grew only seven per cent at Rs 51 crore on the back of higher volume from expanded capacity and restructuring of product mix. Export accounts for 48 per cent of total sales.

Operating profit improved by nine per cent at Rs 7 crore. OPM remained unchanged at 13.6 per cent (13.8 per cent). The companys entry into formulation business did not reflect in an improvement in the margin. Import from China also put pressure on prices. Net profit rose two per cent at Rs 3 crore.

Traditionally, the company has been over dependant on anti-diarrhoea and anti-ulcerants. Ranitidine, an off patent anti-ulcerant, is the main product of the company and has been facing competition from omeprazole in overseas markets. America is the largest market for omeprazole (13 million prescription) and ranitidine. Since omeprazole is proving a substitute for ranitidine with adverse implications for the latters export. Domestic market for ranitidine is also likely to follow the same trend in due course as against stable domestic market at present. Glaxos Zintac one of the largest ranitide drug, has reported declining oftake in domestic market. The company supplies to major formulation manufacturers such as Glaxo, Cadila, Ranbaxy, Sun Pharma and Dr Reddys Labs. Domestic market size for ranitidine is around Rs 300 crore. Currently, ranitidine is priced around Rs 630 per kg.

The company also has ventured into the formulation business by taking over an existing unit on loan cum license basis. The formulation division contributed around five per cent to the total turnover in 2001-02.

The company expects to ramp up sales turnover to Rs 400 crore by 2006.

It has introduced various drugs like atorvastatin (anti-cholestrol), quinpril, ramipril and enalpril in anti-hypertensive segment and zidovudine in anti aids semgent. These segments have been growing at 20 per cent plus a year.

The company has been making efforts to establish its presence in a number of new products like diclofenac sodium, nimesulide, rofecoxib and vitamins.

The company is also diversifying into anti-asthama, anti-HIV, anti-arthritis, antibiotics and number of new therapy areas to cover larger coverage in the drug market size of Rs 20,000 crore.

Manish Joshi & Dhruv Rathi