Buy ONGC; target of Rs 348: KRChoksey

KRChoksey is bullish on Oil and Natural Gas Corporation (ONGC) and has recommended buy rating on the stock with a target of Rs 348 in its June 1, 2012 research report.

“ONGC reported one of the lowest quarterly net crude realizations of $44.32 due to higher subsidy sharing with OMC’s. In FY12 upstream companies have shared 40% fuel subsidy burden. The company reported standalone 4QFY12 net profit growth of 102% to Rs 5644 Cr on Y-o-Y, higher than our estimates mainly due to on better-than expected crude sales volume, rise in gas production and lower operating expenses. Net crude oil realization at US$44.3/bbl was above our estimate of US$43.4/bbl. ONGC board has recommended a final dividend of Rs 2/share. Total dividend for FY12 works out at Rs 9.75/share. With dividend yield of 3.8%.”

“ONGC reported ultimate reserve accretion of 84.13MMT (617mboe) with an impressive reserve replacement ratio of 1.79 in F2012 compared to 1.76 in F2011. During F2012 ONGC made 23 exploration discoveries. ONGC's Gas production for Q4FY12 improved by 2.4% Q-o-Q at 6.6bcm. Impressive growth in JV's crude production by 3.7% Q-o-Q on account of ramp up in production from RJ field. Management guided for FY13 crude oil production at 27.54 mmt. Incremental production of to come from B-22, B-4, B-193, Heera and South Heera redevelopment, MHS- redevelopment and MHN –redevelopment fields. Gas production guidance for FY13 stands at 25.73bcm. In near term gas will flow from marginal fields. Peak gas production from Daman offshore fields is likely to start in FY15 with 7 mmscmd and finally scale up to ~10 mmscmd. The company’s expectations are likely to increase in production from JV fields, viz. CAIRN, where we expect production to increase to 175kbpd/240kbpd in FY13E/FY14E.”

“We expect $56/bbl net crude realisation for FY13. At CMP of Rs 246, the stock is trading at 6.52X and 5.69x of its estimated PE for FY13E & FY14E. We recommend a Buy on the stock with a Price Objective (PO) of Rs 348 (intrinsic value) representing a potential upside ~ 41% over a period of 12 months,” says KRChoksey research report. 

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