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Ongc Growth Strategy Case Study Ppt


Case Details:

Price:

Case Code:BSTR130Electronic Format: Rs. 300;
Courier (within India):Rs. 25 Extra

Themes

Corporate Restructuring
Case Length:12 Pages
Period:1999 - 2004
Organization:Oil and Natural Gas Corporation, ONGC
Pub Date:2006
Teaching Note:Not Available
Countries :India
Industry:Oil and Energy

Abstract:

The case describes the growth strategy and diversification plans of the Government owned Oil and Natural Gas Corporation Limited (ONGC), the largest oil exploration and production (E&P) company in India. ONGC has near monopoly in India's oil E&P industry producing nearly 90 percent of the country's crude oil and natural gas. Till the late 1990s, the company was mainly confined to upstream activities of E&P. In order to reduce risks inherent in confining to one activity and to achieve financial stability and steady growth, ONGC acquired a major equity stake in Mangalore Refinery and Petrochemicals Limited so as to enter the down stream activities of refining. With this, ONGC became the first integrated oil company in India.


The case examines the benefits and drawbacks of oil E&P Company entering into refining and retailing businesses. The case also discusses the possible benefits and disadvantages of ONGC's plans in 2004 to enter insurance, power generation and shipping businesses as part of its diversification program.

Issues:

» Examine the growth strategy of a public sector oil exploration and production company

» Study the internal and external factors that contributed to the growth of ONGC

» Critically analyze the vertical integration strategy of ONGC by entering into refining and retailing businesses

» Examine the latest diversification plans of ONGC to enter insurance, power generation and shipping businesses and identify synergies, if any, with its core businesses

» Chalk out a future growth strategy for ONGC

» Gain insights into the oil and energy industry in India

Contents:

Keywords:

Case, Oil and Natural Gas Corporation of India, Indian Oil and Energy Industry, Business Restructuring, Diversification, Vertical Integration, Financial Restructuring, Deregulation of Indian Oil Industry.

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"ONGC, the most valuable company in India by market capitalization, is on a high growth trajectory. It is on its way to be a truly integrated oil and gas player." 1

- Jigar Shah, Head, Research Wing, KR Choksey Shares & Securities Pvt Ltd.

"In the coming six to seven years' time, one would see ONGC on an assured growth path. It should have increased production and recovery factor, reserve accretion, best-in-class technology, competent, motivated human resource and strong financials. I would like ONGC to meet India's hydrocarbon needs to the maximum possible extent. I would also like to see ONGC recognized within and outside the country, for its competencies and achievements. We should be accepted globally as one of the best E&P companies." 2

- Subir Raha, Chairman & Managing Director, ONGC.

Introduction

The Oil and Natural Gas Corporation Limited (ONGC) was the largest oil exploration and production (E&P) company in India. The company enjoyed a dominant position in the country's hydrocarbon sector with 84 per cent market share of crude oil & gas production. Around 57 per cent petroleum exploration licenses in India for over 588 thousand sq. km belonged to ONGC.

The company was the first to achieve Rs 100 bn net profits in the Indian corporate history. ONGC's major products included petroleum, crude natural gas, liquefied petroleum gas (LPG), kerosene and petrochemical feedstock. For the fiscal year ended 2002-03, the company reported gross revenues of Rs 353.872 bn and net profit of Rs 105.293 bn. With market capitalization of US$ 15 bn, ONGC was ranked 260 in BusinessWeek's Global 1000 list of the world's top companies by market value, for 2003-04. Since the mid 1990s, ONGC had faced the problem of declining crude oil and gas production. The company made efforts to consolidate its position in the business by acquiring foreign oil equity through its wholly owned subsidiary, ONGC Videsh Limited (OVL).


OVL was formed to help ONGC secure a strong foothold in the international oil market. With the acquisition of Mangalore Refinery and Petrochemicals Limited (MRPL), ONGC became the first integrated oil company in India.

With ONGC's core business showing signs of stagnation, the company chalked out a massive diversification plan to go into downstream activities such as LNG marketing, diesel, naphtha and kerosene. ONGC was also contemplating forward integration opportunities in gas, petrochemicals and the power sector.

The company also announced its intentions of entering the insurance and shipping business in the next couple of years. However, ONGC's diversification plans received a major setback when the Government of India (GoI) announced that the company should stick to its core business rather than venturing into 'unrelated' areas.

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