Buy ONGC; target of Rs 360: Unicon Investment

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Buy ONGC; target of Rs 360: Unicon Investment

Unicon Investment is bullish on ONGC and has recommended buy rating on the stock with a target of Rs 360 in its June 2, 2011 research report.

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Unicon Investment is bullish on ONGC and has recommended buy rating on the stock with a target of Rs 360 in its June 2, 2011 research report.

"Oil & Natural Gas Corp Ltd. (ONGC) Q4FY11 results are below our estimates. This is due to the higher subsidy burden during the quarter. During the quarter Q4FY11, ONGC's net sales has marginally increased (4.6% YoY) to INR 153,962 mn while on an annual basis the same has increased by 9.8% to INR 658,418 mn FY11. The increase in revenue was due to the higher crude price realisation. Moreover, volume growth was marginally lower by 3.3% QoQ on Q4FY11. EBITDA for the quarter Q4FY11 stood at INR 79723 mn decline of 15.4% YoY, while on annual basis the EBITDA has increased by 9.4% in FY11 to INR 410,189 mn. EBITDA margin for the quarter Q4FY11 has contracted by 936 bps while on an annual basis it has declined by 119 bps."

"Decline in the EBITDA for Q4FY11 was attributed to higher operating cost. Operating cost during the quarter has increased 23.6% led by higher operating & manufacturing cost (increased 30% YoY) and increased employee cost( increased 60% YoY). PAT for the quarter Q4FY11 has declined 26.1% YoY to INR 27,909 mn while for FY11 PAT has increased by 12.9% YoY to INR 189,240 mn. PAT margin for Q4FY11 has contracted 621 bps YoY to 16.7% while it has marginally increased (26 bps) in FY11 to 26.4%. Degrowth in PAT for the quarter was due to the higher subsidy burden with higher operating cost."

"ONGC expects to increase its production volume of oil & natural gas in both onshore and offshore going forward. We feel that Government of India's indication towards 38.8% upstream sharing of the subsidy burden is an aberration to the historical trend and will be rolled back to the earlier 33%. This will help the company directly by higher crude price realisation. At CMP INR 282, the company is trading at PE of 9x & 8.8x its FY12e & FY13e earnings respectively. Considering the continuous demand for crude oil and business expansion through new discoveries domestically, as well as internationally, we remain bullish on the stock with a price target of INR 360," says Unicon Investment research report.

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To read the full report click on the attachment