Citigroup recommends 'sell' on ONGC
Citigroup recommends `Sell’ rating on ONGC with a target price of Rs. 1,192.
By ET Bureau |
ONGC
RESEARCH: CITIGROUP
RATING: SELL
CMP: RS 1138
Citigroup recommends `Sell��� rating on ONGC with a target price of Rs. 1,192. The government has announced plans to constitute a committee to fix the subsidy mechanism. A telescopic sharing structure on auto fuels could be one of the options, where upstream share increases progressively with crude price. Citigroup builds various workable scenarios with the upstream share rising gradually to as much as 100% of incremental losses at crude more than $85/bbl.
Such scenarios could lead to ONGC���s FY10E EPS peaking at ~Rs135 according to the analysis, without factoring in meaningful downside risks from higher diesel cracks and/or possible review of LPG/SKO exemption. In this scenario, upstream bears a lower (25%) share of auto fuel losses at lower crude prices($60-75 /bbl), a higher (50%) share between $75-85 /bbl, and 100% at more than $85/bbl. Citigroup estimates this could lead to FY10E EPS of ~Rs125-139 and resultant net realisations of $58-62.
ONGC���s FY10E EPS could be ~Rs115-125 if upstream bears 50% of auto fuel losses at crude less than $85/bbl (net realisation of $55-57 ). Citigroup assumes flat diesel cracks, i.e. a $1 increase in diesel for every $1 of crude. This is rather simplistic especially if a further rise in crude is led by a pick up in distillate demand.
RESEARCH: CITIGROUP
RATING: SELL
CMP: RS 1138
Citigroup recommends `Sell��� rating on ONGC with a target price of Rs. 1,192. The government has announced plans to constitute a committee to fix the subsidy mechanism. A telescopic sharing structure on auto fuels could be one of the options, where upstream share increases progressively with crude price. Citigroup builds various workable scenarios with the upstream share rising gradually to as much as 100% of incremental losses at crude more than $85/bbl.
Such scenarios could lead to ONGC���s FY10E EPS peaking at ~Rs135 according to the analysis, without factoring in meaningful downside risks from higher diesel cracks and/or possible review of LPG/SKO exemption. In this scenario, upstream bears a lower (25%) share of auto fuel losses at lower crude prices($60-75 /bbl), a higher (50%) share between $75-85 /bbl, and 100% at more than $85/bbl. Citigroup estimates this could lead to FY10E EPS of ~Rs125-139 and resultant net realisations of $58-62.
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ONGC���s FY10E EPS could be ~Rs115-125 if upstream bears 50% of auto fuel losses at crude less than $85/bbl (net realisation of $55-57 ). Citigroup assumes flat diesel cracks, i.e. a $1 increase in diesel for every $1 of crude. This is rather simplistic especially if a further rise in crude is led by a pick up in distillate demand.
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