Oil India :47% upside possible
Call & Research Report by HDFC Securities Research
Report Date: 15 November 2021
CMP Rs. 217, Target Rs. 320
Target Period : 1 Quarters
Our BUY recommendation on Oil India with a target price of INR 320 is
premised on (1) increase in crude price realisation and (2) improvement in
domestic gas price realisation (at USD 2.9/mmbtu). We expect oil price
realisation to increase to ~USD 68/bbl in FY22E and USD 70/bbl in FY23E vs.
USD 44/bbl in FY21, given the expected global economic rebound, post
COVID. Q2FY22 revenue was 1% below our estimates while EBITDA was
32% below, owing to higher-than-expected operating expenses (on account of
provisions and write-offs). RPAT came in 32% below our estimate, impacted
by higher depreciation, which was offset by higher other income and lower
interest cost.
Standalone financial performance: Sales in Q2 were INR 33bn (+53% YoY,
+10% QoQ). Crude realisation in rupee terms was at INR 5,154/bbl (+67%
YoY, +7% QoQ). EBITDA came in at INR 9bn (HSIE INR 13bn, -26% QoQ),
owing to higher provision of INR 5bn and exploration write-off of INR 1bn.
Standalone operational performance: Crude oil realisation increased to
USD 69.6/bbl, (+67% YoY, +7% QoQ); gas realisation was at USD 1.9/mmbtu,
(-47% YoY, +3% QoQ). Oil sales volumes were at 0.74mmt (+2% YoY, +2%
QoQ), while gas sales volumes were at 0.67bcm, (+70.2% YoY, +11% QoQ).
Call takeaways: (1) The standalone Capex budgets for FY22 and FY23 are
INR 41bn and INR 42bn respectively. (2) The NRL refinery expansion to
9mmt will incur Capex of ~INR 300bn, which will be payable over FY24-26.
(3) The company has guided oil production for FY23/24E at 3-3.1mmt and
gas production at 3.2-3.25bcm. (4) The exploration write-offs were high in
Q2 due to commercial unviability of blocks at KG basin and Mizoram.
However, management expects no major write-offs in the near future.
We value Oil India’s standalone business at INR 173 (5.5x Mar-23E EPS)
and its investments at INR 147. The stock is currently trading at 4x FY23E
EPS.