'Buy' retained on ONGC – TP Rs.277 - Geojit BNP Paribas Financial Services

- Retained buy rating on the stock with a lowered target price of Rs.277 as against the earlier target price of Rs.322. Target price is lowered considering the increase in cess from Rs.2500 to Rs.4500/ ton. TP lowering is also due possible de-rating of standalone business to factor policy uncertainty and lack of production growth.

- FY12 realization at USD55 a barrel shows a marginal improvement over FY11. However, the under- recoveries still remain high.

- Year end operational result announced by OVL is also below estimates on account of write-down at Imperial Energy and 4QFY12 shut down in Sudan.

- Crude production (ex Cairn) declined 3% while gas production remained flat.

- Potential diesel price hike is expected in the near term, which will be the near term catalyst on the stock, as, it will help to reduce the subsidy burden and increase near term realization.

- ONGC is expected to surprise positively on FY13 standalone production. It is estimated that 1% increase in crude production may have 1.5% impact on EPS.

- The stock is a defensive play in the current weak market conditions as the downside is very low after the recent correction.

Source : Equity Bulls

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