Exploring a bright future : ONGC

The oil and gas sector will play a crucial role in fuelling the rapid growth of the Indian economy. India has significant oil and gas reserves and also a good share in exports.

This sector’s performance in the stock markets has been quite disappointing until now. The prospects of the sector have witnessed a lagging demand as the global economy is still to witness a complete recovery. Many of the large companies were building new capacities before the recession. These new capacities led to excess supply and witnessed a fall in demand due to the slowdown and crisis. This led to fall in the operating margins of the refiners who were stuck with excess supplies of crude products. With the recent advent of recovery on the horizon, we foresee a gradual pick-up in the global demand for oil and gas. The economies are back to pump money for higher capacity utilization of their resources the coming years.

Moreover the subsidy overhang has hampered the performance of the oil marketing and exploration companies. However with the government starting the liberalization process hopes have built up of a positive future.

We expect the sector to perform significantly well in the long run and see immense potential in the stock- ONGC. The company is a major in Oil & Gas Exploration & Production. The company reported net sales of Rs 13,666 crore and net profit of Rs 3,661 for the Q1FY11. It made five new discoveries in Q1 and the board has also approved a 102 MW wind power project in Rajasthan. The company is looking forward to an investment of Rs 372 crore for developing two areas in Mumbai High fields off the country's west coast. The company, recently discovered oil in an exploratory well, Vadatal-1, a block on India's western onshore basin. The discovery has opened up a large area of exploration. Moreover, the company is also planning to buy four offshore and ten onshore rigs. This would increase the production and hence, the profitability.

We foresee a good future and would recommend an addition of the scrip in one’s portfolio. We see a near term target of Rs 1560. The proposed follow on public offer will also keep interest alive in the counter.