Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
11,910.1553.35
Stock Analysis, IPO, Mutual Funds, Bonds & More

Street turns bullish on ONGC as EPS improves

The crude oil production-to-sales ratio improved to 93% in the June quarter from the historical average of 87% between FY14 and FY16.

, ET Bureau|
Updated: Sep 20, 2016, 08.29 AM IST
0Comments
MUMBAI: The stock of Oil & Natural Gas Corp (ONGC), India's largest oil exploration company, was out of investors' radar due to depressed crude oil price and ambiguous policy on subsidy sharing for the past two years. But the perception appears to have changed after the June quarter results, which were followed by earnings upgrade of 10-20% on account of the lower effective rate on oil cess and better cost management.

CLSA, in a recent report, said that higher earnings per share (EPS) triggered an increase in its target price to Rs 270. It also upgraded the stock to `outperform' from `sell.' ONGC's operating profits in the June quarter was Rs 9,276 crore, nearly 18% higher than consensus estimates due to lower operating cost. The company's management stated in an earnings call that operating cost is expected to remain lower for rest of the fiscal. This may result in 10% year-on-year drop in operating cost for FY17.

The company has improved efficiency of crude handling. The crude oil production-to-sales ratio improved to 93% in the June quarter from the historical average of 87% between FY14 and FY16. If it maintains the ratio at the current level, this may boost projected earnings by around 9%. In addition, upstream companies are paying cess on crude oil at an effective rate of 16.67%, which is lower than the street expectation of 20%.

A recovery in the crude oil prices may help ONGC to fetch better realisation. At Monday's closing price of Rs 254, ONGC's stock was traded at 11 times FY18 expected earnings. This is at 25-30% discount to its international peers.Given the upbeat prospects in the coming quarters, the valuation discount may offer comfort to investors.

Also Read

EPS-NPS switch shelved as trade unions object

EPS-NPS switch shelved as trade unions object

ACC gains as CLSA upgrades EPS after strong show in Q3

Tax windfall to boost Nifty EPS; India-focused sectors, companies to gain

Credit Suisse downgrades India on slowdown’s likely impact on EPS

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service