Accumulate ONGC; target of Rs 327: Emkay

Emkay Global Financial Services is bullish on Oil and Natural Gas Corporation (ONGC) and has recommended accumulate rating on the stock with a target of Rs 327 in its July 30, 2012 research report.

“ONGC is expected to have a consolidated production growth of 6% CAGR over FY12- 15E in oil and gas over 2012-15 to 73mtoe on the back of new field development efforts, IOR/EOR efforts on existing domestic fields and increase in oil production from Rajasthan JV field. This is in contrast to its flat production at 61mtoe during FY07-12.”

“The current decline in crude oil prices is beneficial for ONGC as its realization on crude oil goes up. We have factored net realization of US$56/58.5bbl in FY13/14 as against US$54.7/bbl for FY12. At 40% share of upstream share in subsidies, ONGC’s net realization on crude oil ranges between US$64/bbl-US$53/bbl for a crude oil price range of US$80/bbl-US$120/bbl. Given the precarious financial status of the government, it has no choice but to take up policy measures to tackle subsidy issue. The recent decline in crude oil prices provides government an opportunity to bring in favorable policy measures to tackle subsidies. We expect oil prices to remain subdued ahead on the back of weak oil demand fundamentals globally. Any price hike will have a substantial impact on ONGC and provide valuation upsides.”

“We initiate coverage on ONGC with Accumulate rating given its production growth ahead and likely government action on the fuel subsidy front. Our target price for ONGC works out to Rs327/share, with the standalone business contributing Rs224/share at 4xEV/EBIDTA and OVL, Rs68/share at 5xEV/EBIDTA on FY14 estimates. The balance contribution comes from MRPL (Rs9/share) and cash and investments of Rs26/share. ONGC also offers an attractive dividend yield of ~3.5%,” says Emkay Global Financial Services research report.    

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