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.

“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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