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Despite ONGC coming out with lower-than-expected results for the fourth quarter ended March 31, analysts remain positive on the oil refinery major.
ONGC has reported a 19.5 per cent drop in net profit to ₹3,935 crore for the fourth quarter of 2014-15, against ₹4,889 crore it had reported in the same period last year.
Lower price realisation from its crude oil sold from joint venture fields and a write-off on dry wells drilled affected its performance.
ONGC’s net realisation was $55.63 a barrel against $44.87 a barrel in the same quarter last year.
Kotak Securities said it was a forgettable year for the company, as ONGC’s adjusted consolidated EPS declined 30 per cent to ₹22 in FY15 on account of lower profitability from OVL, loss from MRPL, a sharp increase in DD&A expenses and lower other income and higher interest cost as it moved from net cash to net debt.
‘Re-rating ahead’Religare sees a re-rating ahead as ONGC’s net realisations are likely to improve to $60-65 a barrel with the Centre proposing that ONGC would not bear any subsidy burden if crude averages below $60 a barrel and only 85 per cent of the difference if it averages higher.
For Religare, which recommended a ‘buy’ with a price target of ₹470, current valuations do not factor in net crude realisations beyond $45 a barrel.
India Infoline maintains a ‘buy’ rating with a 9-12 months target price of ₹400 as higher net realisations for the standalone entity will offset the impact of lower realisations on joint venture and OVL production.
Respite from subsidy-sharingKotak Securities expects FY2016-17 to improve significantly despite lower global crude prices as the company gets respite from the ad hoc subsidy-sharing mechanism. It retained the ‘add’ rating with a revised target price of ₹365.
Emkay sees near-term pressure on the stock given the weaker crude oil price outlook. “However, a clear subsidy sharing formula and expected reforms in kerosene/LPG should drive a re-rating,” said Emkay which maintained a ‘buy’ rating with target price of ₹398.
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