Analysts' corner

ONGC
Reco price: Rs 1,039
Target: Rs 1,120 ONGC is India’s largest holder of exploration acreage (at around 60 per cent) with an E&P (exploration and production) portfolio of 69 nominations and 94 NELP (National Exploration Licensing Policy) blocks. The company has stepped up its exploratory efforts over the last few years, given a mature production profile. This has resulted in a cumulative 43 discoveries in the last two years. Having said that monetisation is some time away. The production growth is expected to be unexciting for FY10E-11E (financial year 2009-10 and 2010-11 – estimated), given a mature production portfolio. Improved oil recovery/ marginal field monetisation concomitant with higher production from OVL should materialise in a growth of 11 per cent y-o-y (year-on-year) in FY12E. Improvement in OVL volumes would be driven by increased production from Imperial Energy and Brazil assets. The overall subsidy burden could be Rs 18,000-20,000 crore for FY11-12E, implying a net realisation of $54 per barrel. Maintain hold.

— Ambit Capital

GSK Pharma
Reco price: Rs 1,884
Target: Rs 2,020 GSK Pharma’s Q1CY10 (first quarter, calendar year 2010) numbers are better than market expectations with revenue up 18 per cent y-o-y, 110-bps expansion in operating margins to 37.6 per cent and adjusted PAT up by 28 per cent y-o-y. Dermatology and vaccine franchises have shown strong growth coupled with all-around performance across key segments. Going forward, expect the company to outpace the industry's growth on the back of new product launches across parent’s pipeline, focus on rural markets, strengthening hospital portfolio by introducing new products and fielding franchises in chronic therapeutic areas and oncology. The brokerage upgrades earnings estimates by 4 per cent and 5 per cent to Rs 70.3 and Rs 80.8 for CY10E/CY11E respectively. The stock is trading at 26.9x CY10E and 23.3xCY11E. Maintain hold.

— Emkay Research

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