Mumbai: Goldman Sachs said it has cut Oil & Natural Gas Corp. to sell from neutral and added it to its Asia Pacific conviction sell list on a lower forecast for oil prices.
It also cut the 12-month target price on the country’s top oil and gas producer to Rs760 from Rs1,000.
Goldman Sachs said it has lowered its oil price forecasts for full-year 2009 to $97 per barrel from $113 earlier.
“We note that ONGC has been a constant beneficiary of high oil prices, albeit a weak one, although popular street perception is that ONGC benefits from low oil prices,” Goldman Sachs said in a note.
ONGC shares, which have fallen about 27% so far this year, were trading down 1.5% at Rs901.90 on Tuesday.
India has a government-controlled fuel price regime, under which state-run upstream companies such as ONGC are forced to grant subsidies to state-owned oil marketing companies, which are made to sell products at mandated discounts.
In the note to its clients released earlier on Tuesday, Goldman also attributed the downgrade to ONGC’s poor production growth profile, including a likely production decline in fiscal year 2009, and the company’s expensive valuations.
The firm said it cut ONGC’s consolidated fiscal years 2009 and 2010 earnings by 16-29%, on account of lower oil prices and lower volumes, even as lower forecasts for the Indian rupee against the U.S. dollar have lent some support to its earnings.