Buy ONGC; target of Rs 533: ICICIdirect

ICICIdirect.com's report on Oil and Natural Gas Corporation (ONGC)

ONGC declared its Q1FY15 results with the topline increasing 13.2% YoY to Rs 21851.3 crore above our estimate of Rs 20740.9 crore due to higher-than-expected net realisations

EBITDA at Rs 12691.8 crore came above our estimate of Rs 10780.2 crore due to lower-than-expected other expenditure. However, higher exploration and dry well costs led to depreciation and exploration costs increasing from Rs 3900.7 crore to Rs 6389.8 crore (our estimate: 5083.5 crore)

Subsequently, PAT during the quarter increased 19.1% YoY to Rs 4781.8 crore, marginally below our estimate of Rs 4882.8 crore "We believe a gas price hike is inevitable. However, we need more clarity on the time frame in which the new government will implement the hike. We have not assumed any gas price hike for FY15E but from FY16E, we have assumed a gas price of $7.4/mmbtu. An increase in US$1/MMBTU in gas price would increase ONGC’s EPS by Rs 3-3.5. We have a BUY recommendation on the stock, with a target price of Rs 533 (average of 12x FY17E EPS and 1.6x FY17E BVPS)", says ICICIdirect.com research report.

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