Stock views on ONGC, Hindustan Unilever

MORGAN STANLEY on HINDUSTAN UNILEVER

MORGAN Stanley reiterates ‘overweight’ rating on HUL as it believes that investors are likely to be positively surprised by the company’s structural growth story and turnaround in business fundamentals. The FMCG sector is at an inflection point and a sharp reduction in input costs is likely to benefit consumers as well as companies. HUL is not witnessing any exceptional uptrading or downtrading across its product portfolio. Industry volume growth in soaps and laundry is flat due to steep price hikes, but consumers have still been resilient. Revenue growth in FY10 is likely to be lower as it will be largely volume-led. HUL has geared up to respond to volatility in input costs and has shortened its response time and planning cycle.

INDIABULLS on ONGC

INDIABULLS has recommended a ‘hold’ rating on ONGC. During Q2 FY09, the company’s standalone net sales increased 12.9% y-o-y to Rs 17,410 crore. While the surge in global crude oil prices and the weakening rupee were expected to drive ONGC’s financials, its performance was dented by the excessive subsidy burden (Rs 12,670 crore) it had to shoulder in order to limit the losses of OMCs. As a result, ONGC’s standalone adjusted net profit declined 5.7% y-o-y to Rs 4,810 crore. Due to the global economic crisis, oil prices have fallen by more than 60% from their peak of $147/bbl in mid-July to the current lows of $50/bbl. This is mainly due to dampening fuel demand from the major consuming nations. The IEA has lowered its oil demand forecasts by 500,000 bopd for the second half of ’08 and by 400,000 bopd for ’09. Thus, with reducing demand, Indiabulls expects oil prices to be under pressure till FY10, thereby adversely affecting the company’s net realisations. However, Indiabulls believes that once the global economy revives, demand for crude oil and natural gas will recover, mainly due to increased demand from developing economies such as India and China.