MOFSL assigns 'buy' rating to ONGC

Mumbai: Motilal Oswal Financial Services has assigned a 'buy' rating to ONGC on the back of decent quarterly earnings and attractive valuations.

"We are positive over a longer term due to an expected rationalisation of subsidy and potential reserve accretion from its large E&P acreage. At the current price, the stock trades at attractive valuations," said analysts at MOFSL.

The analysts, however, expect near term profitability headwinds due to high under recoveries and lower production from OVL led by geopolitical tensions.

Apart from production impact due to unrest in Syria and Sudan, OVL's PAT was impacted by impairment provisioning of INR19.5b for its subsidiary Jarpeno Ltd (this includes assets of Imperial Energy, Russia).

ONGC reported fourth quarter net sales at Rs 188 billion, EBITDA at Rs 111 billion and PAT at Rs 56.4 billion. Reported numbers were significantly higher than our estimates due to lower share in upstream subsidy, analysts said.

"Key things to watch out would be clarity on Sudan and Syria production for OVL, subsidy sharing and visibility on production growth," MOFSL analysts said. ONGC shares were trading marginally higher at Rs 252.95 (post-noon) on the BSE on Thursday.