Is ONGC a Better Investment Than Page Industries?

 

Because the balance sheet size of ONGC is much bigger than that of Page Industries?

Maybe or Maybe not!

Because the total assets or total liabilities are a part of a balance sheet.

And,sometimes the value of assets mentioned in the balance sheet is different in reality.

What do I mean by this statement?

Let’s take an example:

What’s the biggest asset of Infosys? Here’s the screenshot of Infosys’ balance sheet. Have a look and tell me.

 

Infy Balance Sheet

      ( Fig: Infosys Balance Sheet 2012)

Cash and bank balances seems to be the biggest asset on Infosys’ balance sheet, right?

Is market giving high value to this cash and bank balance?

Think.

I think the main asset—human resources—is not mentioned on Infosys’ balance sheet and the market is giving value to its human capital too.

Now, let’s come back to ONGC and Page Industries case.

Here’s ONGC’s Balance sheet:

ONGC Balance sheet

( Fig: ONGC Balance Sheet 2012)

And this is Page Industries balance sheet

Page Industries Balance Sheet( Fig: Page Industries Balance Sheet 2012)

Please note that ONGC balance sheet figures are in Rs.millions and Page Industries figures are in rupees.

Now, let’s compare these two balance sheets:

1. All figures including cash, inventories and fixed assets figures are much bigger in ONGC case compared to Page Industries.

2. Even Shareholder’s funds (share capital +reserves and surplus) are much bigger in ONGC case compared to Page Industries.

So, you’ll say, ONGC must be a better investment than Page Industries, right?

Wait...

Do you really think “Bigger is better”?

Let’s see some facts.

1. Return on Equity

Firstly, let’s check the ROE % for last 5 years for ONGC and Page Industries:

Return on Equity (ROE) is increasing year after year for Page Industries – in 2007 the ROE was 25.14% and in 2012 it was 62.15%, more than double in last 5 years.

In case of ONGC, ROE in 2007 was 23.87% and in 2012, it is 22.24%, almost same.

2. Share Price

Had you bought 100 shares of ONGC in 2007 at Rs.310 = Total investment would have been – 100 x 310 = Rs.31000

and now, if you check the value of your investment it would be = 100 x 273( 30th October,2012 price) = Rs.27300.

Page industries, same investment in 2007 – 100 shares at Rs.390 = Rs.39000

and now, the value of your investment is = 100 x 3445 = Rs.344500.

See, which investment is giving you more returns at this stage.

Do you still think “Bigger is better” ? 🙂

Well, one more point for you to note- The two companies are not comparable. Why?

Because ONGC is from oil exploration sector and Page industries is from Textiles(Readymade apparels) industry.

Always remember, comparison should be with the peers in the same industry/sector.

Are you still making this mistake?

Next Batch Starts on 29th April, 2019
- Classroom Course with Placement Assistance: Our Full-Time Financial Modeling Investment Banking Course (6 Weeks) starts on 29th April, 2019 and 2.5 Months Weekend Workshop starts on 6th April, 2019 in New Delhi, India and on 16th March, 2019 in Gurgaon, India.

- Online Course with Placement Assistance: Join our Online Financial Modeling Investment Banking course with Placement Assistance from anywhere in the world.

- CFA Level - I: 16th April, 2019

- Financial Modeling Investment Banking Weekend in Gurgaon: 6th April, 2019

- See Testimonials.

Only a few seats remain. Interested candidates can contact me.

View All BIWS Courses –Free $397 Bonus for FinanceWalk Readers
Is ONGC a Better Investment Than Page Industries? 2

Leave a Comment