Hold ONGC; target of Rs 309: Nirmal Bang

Nirmal Bang has recommended hold rating on Oil and Natural Gas Corporation (ONGC) with a target of 309, in its August 14, 2012 research report.

“ONGC reported 1QFY13 net profit of Rs60.77bn, up 8% QoQ, 48% YoY but 1.3%/1.7% lower than Bloomberg/our estimates, respectively. The company’s earnings got a shot in the arm from lower dry well expenses and higher realisation in rupee terms following rupee depreciation, despite lower realisation in US dollar terms. We retain our Hold rating on ONGC with a revised target price of Rs309 following the government dithering on fuel price reform policy along with a poor monsoon which is likely to narrow the room for price hikes of subsidised petroleum products.”

“Net realisation on nomination blocks in 1QFY13 stood at US$46.62/bbl compared to US$48.74 in 1QFY12 and FY12 average of US$54.71/bbl. Subsidy on nomination blocks in 1QFY13 was at US$63.27/bbl from $72.53/bbl in 1QFY12 and FY12 average of US$62.69/bbl. ONGC bore subsidy of Rs123bn in 1QFY13 compared to Rs120bn in 1QFY12, but it was up following a higher share of upstream companies’ subsidy burden. Of the total upstream subsidy, ONGC shared 81.9% of the burden in 1QFY13 compared to 78.2% in 4QFY12 and FY12 average of 80.9%. On blended basis, the company posted net realisation of US$59.53/bbl. Average rupee/dollar exchange of Rs54.2/$ helped the company to maintain net realisation at Rs2527/bbl in 1QFY13 compared to Rs2,181/bbl in 1QFY12.”

“After the long hiatus of stagnant volume growth from domestic field, FY13 would be turnaround year for increase in volume; despite that, market will be unable to give it a growth premium on account of (1) Uncertainty regarding the upstream subsidy burden & upstream subsidy distribution ratio (2) Possibility of fuel prices again being kept on back burner with poor monsoon (3) Pressure on PE multiple with heightened possibility of rising upstream burden given tight government finances. We maintain hold rating on stock with price target of Rs309 (Core op valued at Rs300/share & Rs9/share on investment),”says Nirmal Bang research report.

Bodies Corporate holding more than 50% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More