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ONGC scrip reaches all time high of Rs 1450
15 September, 2010

Moving forward on a bullish note owing to healthy market conditions and positive sentiments, ONGC scrip galloped through 1400 mark for the first time ever since the last peak of 1333 on November 2009, to trade at Rs 1424 on BSE on September 14,2010.

The scrip opened at 1438 on September 15, today and went past 1450 at 1030 Hrs.

Intraday 14/09/10

With the day price hovering in Rs1369.35 ~ 1413.00 range at NSE the scrip registered a fantastic rally across the counters as could be seen with a total of 1,86,376 shares exchanging hands.

A peep onto the 52 week Stock Price History reveals that today also happens to be a 52 week high for ONGC scrip.

Or. net while trying to fathom the rise spoke to various fund managers/ analysts and pundits in the trading circle who point at number of factors for the scrip high.

Historical Profile

While Morgan Stanley predicts a target price of Rs1500 they say that the Potential Catalysts relate to recent oil price increase, deregulation of petrol and diesel prices, Oil price decontrol leading to a stable petroleum pricing policy, which could remove uncertainty about ONGC's profitability, possible reimbursement of 70 percent oil rebate to ONGC by the government on the cairn, new discoveries by ONGC & OVL and Strong Quarterly earnings are some of the positive notes,.

They also feel that the other Key Value drivers include Global Oil prices, Subsidy sharing mechanism, Domestic Gas price and Production Growth.

On the impact of the reimbursement of 70 % of royalty paid for the Cairn Block, CLSA, highly rated independent equity brokers and financial-services groups based in Hong Kong, points out in a report that ONGC will get an estimated USD 515 million. This would mean adding significantly to the company's financials and fundamentals. The report projects lower royalty payments and reimbursement of prior excess payments will increase the fair value of ONGC by Rs65/share but the impact of earnings will depend on the terms of the reimbursement with Lower royalties allowing ONGC to gain from resources and production upsides.

CLSA while recommending buy on ONGC had only recently reported that rising production and an increasing share of overseas crude (where prices are free market) will still allow the company to deliver 12-15% earnings CAGR over FY06-08CL. At USD 4.5/boe, stock more than discounts relatively lower profitability and is among the cheapest upstream names. At 8.5x PE and 4.5% dividend yield, it is also among the cheapest stocks in India.

While another report by Credit Suisse reveals that at US$ 70/bbl Oil and a 12% discount rate, NPV of Rajasthan Block will add US$ 3bn which is around 5% of the market cap. At peak production of 240 kbpd, EPS addition could be about Rs 15.

Profitability at Rajasthan also means that ONGC's crude production outlook transforms from flat to meaningful growth the report adds.

Credit Suisse however feels that there is consequent risk that ONGC's subsidy burden would increase with upside however contingent on meaningful earnings upgrades, which depend on government actions on subsidies/royalty.

While pointing out to investor and analyst community on the upsides as regards ONGC and its group companies was concerned CMD, ONGC, Mr. R S Sharma in a recent conference on Ratnas of Bharat organized by ICICI Securities had said that factors like APM Gas price revision, Equity in crude price discount, Production enhancements through New field developments & IOR/ EOR schemes and Value-multiplier SPVs to come on stream within 2 Years, have helped the company maintain healthy sentiments in the market.

Like wise with regards to MRPL Mr. Sharma pointed out that factors relating to Refinery up-gradation and capacity enhancement and integration with Value-multiplier SPVs have helped the organization maintain its supremacy

Sounding optimistic about OVL Mr. Sharma maintained that Production enhancement from new acquisitions, Equity in Carabobo Mega Project in Venezuela and the current Balance Reserves at present with production levels having life of 20 years on Proven Reserves and 40 years on Proven and Probable Reserves have also increased the investor confidence in the organization as a whole.

So days ahead could really make a difference in the scrip value pepping up the investor mood if all goes well on the market conditions.

Note- All figures/views are those based on reports by the fund mangers/ analysts. Investment discretion is accordingly advised


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