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Sell ONGC – Reiterates Goldman

March 5, 2009

Goldman Sachs in a report reiterates a SELL on ONGC primarily due to 5 main reasons – overseas growth strategy has not been very effective, unexciting execution track record in domestic business, limited focus on cost control, corporate governance issues with cash withdrawals by promoter [Government], and ONGC being structurally unattractive with downside from lower oil price but limited upside from price rebound.

Goldman downgrades FY10E-11E EPS estimates to Rs 79 and differs with consensus, especially on lack of meaningful domestic exploration successes, production decline in overseas assets; price cuts in retail fuel, and announcement of any expensive overseas acquisition.

Goldman recommends a sell on ONGC, with P/B-based 12-month target price of Rs574, implying potential downside of 14%. Target multiple of 1.4x FY09E P/BV, based on 2003 trough multiple, is actually generous.

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