Motilal Oswal Maintains Buy on ONGC

ONGC (ONGC IN; Mkt Cap USD54b, CMP Rs1,136, Buy)

3QFY11 EBITDA was largely in line at Rs113b and adjusted PAT was Rs58.2b. Reported PAT was Rs71b boosted by one-time credit from the gas pool account

ONGC's DD&A expenses in 3QFY11 were largely in line at Rs36.4b, down 22% YoY and 17% QoQ. Oil production of 7mmt (up 6% YoY) was boosted by production from its JV block in Rajasthan. Gas production was 6.4bcm (down 2% YoY, up 2% QoQ).

Gross realizations in 3QFY11 were US$89.1/bbl (up 16% YoY), and the subsidy payout was at US$24.3/bbl resulting in net realization of US$64.8/bbl.

The key event to watch for is the rationalization of subsidy sharing by the government. The government indicated upstream sharing would be limited at a third and this is being built-in by us with ONGC sharing 80% of it. The stock trades at 8.8x FY12E EPS of Rs129. Our SOTP-based target price for ONGC is Rs1,365, implying a 20% upside from current price. Maintain Buy.

Source : Equity Bulls

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