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Credit Suisse has upgraded Oil India to outperform from neutral and also raised target price to Rs 425 from Rs 300 per share following increase in crude oil prices.
The brokerage firm feels the risk reward remains favourable and capital efficiency is better across with costs falling.
"Oil around USD 60 per barrel is a sweet spot for both ONGC and Oil India with strong earnings and low subsidy risk in FY19," the research house said while raising EPS estimates for ONGC/OIL for FY18/19 by 8/2 percent and 10/9 percent, respectively.
Every USD 10 a barrel increase in oil adds 22-28 percent to EBITDA and 20-30 percent to equity value of ONGC/Oil India.
The research house feels higher oil is a double-edged sword for both companies. It improves financials of companies but increases near-term cash flow risk due to rising subsidies.
ONGC's capex efficiency has improved and Oil India has seen lower cost which management sees as sustainable, the brokerage house said.
It further said triggers for both PSU companies are restart of regular LPG/Kerosene price increases in January 2018, 20 percent gas price increase over 12-months and cost efficiencies.
Credit Suisse has maintained outperform rating on ONGC with increased target price at Rs 220 (from Rs 190 per share).
At 14:50 hours IST, the stock was quoting at Rs 369.70, up Rs 2.90, or 0.79 percent on the BSE.
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