Brokers' Picks: ONGC and PTC India

CLSA Has Outperform on ONGC

Target: Rs 360

Current price: Rs 300

1) On FY14 INR of Rs55.5/US$, ONGC’s bear case implies 23% downside but a 67% upside in bull case scenario

2) Continuation of diesel price hikes and likelihood of a clear subsidy sharing formula to be recommended by an expert committee in the next three months are triggers for the stock.

3) Fear of earnings impact on weaker INR unfounded; the 10% stock price correction last month an entry opportunity

4) Upstream subsidy burden will be based on a proportion of gross under-recoveries. This will allow upstream companies like ONGC to benefit from the sharp YoY decline in FY14 under-recoveries.

PTC India to Outperform: CIMB

Target: Rs 78

Current price: Rs 50

1) PTC’s current price, excluding the value of its investments/cash (10% discount to book value), has assigned no value to its core trading business.

2) Applying 10x P/E to its core trading business (excluding tolling earnings/other income) implies 48% upside.

3) PTC’s net collection days had improved from 62 days in FY12 to 42 in FY13 and will likely improve further to 24 days in FY14.

4) PTC has signed longterm power purchase agreements for 14GW and expects the commissioning of 11GW over FY14-16, which can hypothetically add 2.4xto its present traded volume of 29BUs.