ONGC, HLL top stock picks

STREET CUES

ONGC,HLL,Canara Bank and Punj Lloyd are the top picks of the foreign institutional brokerage houses, ABN Amro,Citigroup,HSBC and Macquarie.

Oil and Natural Gas Corporation is the favourite pick of Dutch ABN Amro. In its recent research report, ABN Amro said, "There is potential in the domestic gas business. While a hike in the regulated price seems to be on the cards, its timing remains uncertain. We believe the upstream subsidy- sharing mechanism of the past four years is unlikely to change adversely for ONGC unless the oil price jumps to new highs.The company's net oil realisation will rise to $ 50/bbl in FY07 despite subsidy payments rising by 27 per cent to Rs 15,200 crore. With diesel/petrol losses likely to decline substantially, we forecast upstream sharing at 33 per cent in FY08-09. ONGC's net realisation will remain flat at $50.4/bbl despite the projection of a $10/bbl y-o-y drop in the oil price for FY08. We see potential for improvement in gas realisation,which could be one of the triggers to unlock value in ONGC shares. We maintain our BUY rating."

The US-based Citigroup sees a good upside for the fast moving consumer goods (FMCG) giant, Hindustan Lever. "HLL's stock has been unduly de-rated after a disappointing Q4, which we believe was a one-off. Fundamentals are on an improving trajectory and its operating parameters are looking up. Sales growth has picked up and margins have been improving despite cost pressures. HLL has also lately started improving its market share in key segments. The current valuations are near historical lows and are disconnected to fundamentals.The stock is trading at 17.9x 08E P/E, offering 2-year EPS CAGR of 20.5 per cent and its capital efficiency ratios are among the best in the sector (78 per cent ROE). In addition, the stock offers a dividend yield of 4 per cent,which should support the stock price." their report stresses.

The broking arm of HSBC sees limited downside for Canara Bank and maintains an "overweight" on the stock. "During FY07, there has been a weakness in net interest margin (NIM) in most Indian banks, particularly in the state-owned banks.This weakness is partly the result of slower growth in low-cost deposit when compared with new private banks.We lower our forecast for FY07 net profit of Canara Bank by 8.5 per cent.The revision is driven by decreases in forecasts for net interest income and non-interest income.The stock has under-performed the Sensex over the past quarter.The discount in the bank's PE, relative to the Sensex PE, has deepened to 65 per cent, near a two-year low. We believe there is limited downside to the stock from current levels and raise the rating from Neutral to Overweight." HSBC said in its report.

Punj Lloyd is the favourite stock pick of Macquarie. The latter has reiterated an "outperformer" on the stock. "Punj had acquired SembCorp E&C (SEC) and its UK-based subsidiary,Simon Carves, for its engineering and design skills.These companies were just about breaking even at the time of acquisition.

Punj has planned to gradually increase the profitability of these units as the low-margin order book burned out. Continued inflow of high-margin orders for Simon Carves is likely to result in faster turnaround. We expect Punj to lead industry growth league tables over the next few years," said a report of Macquarie.