Buy ONGC; target of Rs 357: Angel Broking

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Angel Broking is bullish on Oil and Natural Gas Corporation (ONGC) and has recommended buy rating on the stock with a target of Rs 357 in its February 11, 2013 research report.
 
“For 3QFY2013, Oil and Natural Gas Corporation (ONGC)’s top-line and profitability were higher than our estimates. We maintain our Buy rating on the stock. The company’s top-line increased by 15.8percent yoy to Rs20,987cr (above our expectation of Rs19,294cr). The net realization for crude oil increased by 6.7percent yoy to US$47.9/bbl and gas realizations increased 10.5percent yoy to 8.4/scm. Crude oil sales volumes grew 7.0percent yoy to 6mn tonne.”
 
“EBITDA margin contracted by 693bp yoy to 54.0percent and EBITDA increased by 2.6percent yoy to Rs11,342cr, mainly due to higher subsidy burden. The company’s other income grew by 33.7percent yoy to Rs1,281cr, which resulted in the adjusted net profit growing by 54.6percent yoy to Rs5,563cr (above our expectation of Rs4,843cr). We remain positive on ONGC from a long-term perspective due to potential reserve accretion from its large exploration and production (E&P) acreage. Further, we expect the government to progressively raise diesel prices during CY2013 and CY2014, which is expected to result in lower subsidy burden for ONGC. Also, a concrete subsidy-sharing formula by the government could make ONGC’s cash flows more predictable. The stock is currently trading at an inexpensive valuation of 10.8x FY2013E and 9.0x FY2014E PE. Hence, we recommend a Buy rating on the stock with a SOTP target price of Rs357,” says Angel Broking research report.

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