Oil India Ltd. - Kotak

Oil India Ltd. (OINL) is the second largest government exploration and production (E&P) company in India with presence across oil and gas value chain. We initiate coverage on OINL with a BUY rating and price target of Rs. 529/Share, an upside of 19.5%.

Our positive stance on OINL is premised mainly on: 1) Relatively underexploited resource base; 2) Quality assets with relatively low finding and development costs; 3) Resilient production growth; 4) Strong balance sheet with net cash of around Rs.221/share (49.8% of market cap); 5) Attractive valuation implying an EV/boe (2P) of US$3.2/bbl; and 6) OINL's potential to maintain a reserve replacement ratio (RRR) of 1. We believe Oil India will be able to capitalize on expected increase in domestic energy consumption and will also benefit with any increase of oil and gas prices.

We value OINL's core business at a target PE multiple of ~7x FY13E earnings. Further, the cash pile provides downside support and opportunities of inorganic growth.

Source : Equity Bulls

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