Downgraded ONGC to 'hold' - TP Rs.277 - Geojit BNP Paribas Financial Services

- ONGC has been downgraded to 'hold' from earlier 'buy' rating and the target price is maintained at Rs.277 over one year.

- Though under-recoveries have declined 24%, reduced contribution from Cairn JV and OVL (ONGC Videsh Ltd) imply only a marginal impact on earnings.

- Gas production is a positive but it is in its nascent stage.

- The company has got the maximum benefit from declining crude prices when crude softened to USD 85/ barrel. Further benefits from declining crude prices may be capped.

- Post May 24, 2012, the stock rallied 14% while the Sensex gained 9%. No further catalyst is seen for the stock.

- The stock may have incremental upside from hereon if there is a multiple rerating driven by favorable subsidy policy by the government. But, such chances are remote because government's fiscal position has not improved much.

- Despite the downgrade to 'hold' the defensive status of the stock remains. The downgrade has been only due to the absence of any major upside trigger for the stock.

- BPCL appears to be a better play in the oil and gas segment and maintain 'buy' rating while ONGC is downgraded to 'hold'.

Source : Equity Bulls

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