Nov 13, 2012, 05.44 PM IST | Source: Moneycontrol.com

Buy ONGC; target of Rs 311: Angel Broking

Angel Broking is bullish on Oil and Natural Gas Corporation (ONGC) and has recommended buy rating on the stock with a target of Rs 311 in its November 8, 2012 research report.

Angel Broking is bullish on Oil and Natural Gas Corporation (ONGC) and has recommended buy rating on the stock with a target of Rs 311 in its November 8, 2012 research report.

“ONGC’s The top-line decreased by 12.5% yoy to Rs19,788cr (above our expectation of Rs19,175cr). The net crude realization declined by 43.4% yoy to US$46.8/bbl, however, INR depreciation against the USD partially offset its impact. Oil sales volumes and gas sales volumes were flat yoy to 5.9mn tonnes and 5.1bcm respectively during 2QFY2013. The company shared a subsidy burden of Rs12,330cr in 2QFY2013 vs Rs5,713cr of subsidy shared in 2QFY2012 and Rs12,346cr in 1QFY2013.”

“The EBITDA margin contracted by 1,158bp yoy to 52.4% and EBITDA decreased by 28.3% yoy to Rs10,369cr mainly due to a higher subsidy burden. Higher other income mutes PAT decline: The company’s depreciation and amortization expenses increased 11.7% yoy to Rs3,727cr whereas other income was higher 67.8% yoy to Rs1901cr. However, the company’s net profit decreased by 31.8% yoy to Rs5,897cr (above our expectation of Rs5,662cr)”

“We remain positive on ONGC from a long-term perspective due to potential reserve accretion from its large exploration and production (E&P) acreage. The new discovery from D1 field would help to raise additional crude oil output from FY2014. Also, a concrete subsidy-sharing formula by the government could make ONGC’s cash flows more predictable. The stock is currently trading at 8.7x FY2014E PE, compared to its five-year average forward PE of 10.2x. Hence, we recommend a buy rating on the stock with a SOTP target price of Rs311,” says Angel Broking research report.

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