Buy ONGC for target of Rs 1,077: Religare
Religare Research has upgraded their recommendation on ONGC to ‘buy’ from ‘hold’ and revised the target price to Rs 1,077 from Rs 1,280 earlier.
By ET Online |
MUMBAI: Religare Research has upgraded their recommendation on ONGC to ���buy��� from ���hold��� and revised the target price to Rs 1,077 from Rs 1,280 earlier. ONGC reported a healthy revenue growth of 26 per cent year on year to Rs 15,630 crore for Jan-Mar quarter of 2007-08, slightly above the brokerage estimate owing to higher crude oil price realisations.
The growth in ONGC's realisations would have been higher, but for the increased subsidy burden of Rs 8,500 crore. Increased dry well and survey costs inflated depreciation, depletion and amortization expenses. Consequently, the company recorded a net profit growth of 19 per cent year on year to Rs 2,630 crore in Jan-Mar 2007-08, against the brokerage estimate of Rs 4,190 crore.
A key positive, however, is the high reserve-replacement ratio (of more than one) reported for the fourth consecutive year. For 2008-09, the company will carry a lower subsidy burden of Rs 38,000 crore as per the new government stipulations, which will boost its growth significantly, says Religare.
In view of the continuous northward trend in global crude oil prices, Religare has assumed that ONGC will shoulder a total subsidy burden of Rs 48,600 crore for 2008-09 and Rs 38,500 crore for 2009-10. This is premised on average crude oil prices of $ 120/bbl in 2008-09 and $ 90/bbl thereafter.
ONGC is currently trading at 6.4x on FY09E and 8x on FY10E EPS. The stock presents a healthy upside of 30 per cent from the current levels.
The growth in ONGC's realisations would have been higher, but for the increased subsidy burden of Rs 8,500 crore. Increased dry well and survey costs inflated depreciation, depletion and amortization expenses. Consequently, the company recorded a net profit growth of 19 per cent year on year to Rs 2,630 crore in Jan-Mar 2007-08, against the brokerage estimate of Rs 4,190 crore.
A key positive, however, is the high reserve-replacement ratio (of more than one) reported for the fourth consecutive year. For 2008-09, the company will carry a lower subsidy burden of Rs 38,000 crore as per the new government stipulations, which will boost its growth significantly, says Religare.
In view of the continuous northward trend in global crude oil prices, Religare has assumed that ONGC will shoulder a total subsidy burden of Rs 48,600 crore for 2008-09 and Rs 38,500 crore for 2009-10. This is premised on average crude oil prices of $ 120/bbl in 2008-09 and $ 90/bbl thereafter.
ONGC is currently trading at 6.4x on FY09E and 8x on FY10E EPS. The stock presents a healthy upside of 30 per cent from the current levels.
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