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Research
Oil India - Realizations to improve; as Reforms Unfold - Karvy
Posted On : 2013-07-04 21:19:20( TIMEZONE : IST )
Oil India reported a marginal improvement in net realization of Rs 2916/bl in FY13 despite 17% higher under recoveries and 5% lower volumes, as upstream share of subsidy burden reduced from 39% to 37.3%. Keeping upstream share at 39% we expect 11% increase in the net realization in FY14 to Rs. 3251/bl. Even after accounting for recent depreciation in rupee, downsides to the EPS is Rs 4/shr (still 7.5 % growth annually) as realization from natural gas segment improves and the under recoveries are still lower YoY. We don't expect under recoveries to cross Rs. 6/liter even with rupee at 58 on account of some more diesel hikes and softening crude oil price.
Net Crude Oil Realization to Improve Further
We are assuming an under recovery of Rs 4.5/ltr on diesel in FY14, assuming crude at $ 105/bl and rupee at 54. Assuming a total under recoveries of Rs 1140 bn and upstream share at 39% we expect net realization to improve to $ 60/bl in FY14 and stabilize there going forward.
Gas Price Hike Likely
We expect upstream companies to be likely beneficiaries to the extent of $1.5/mmbtu hike in gas price from FY15. Our sensitivity analysis suggest Rs 4.5 change in EPS to per $/mmbtu change in gas price realization.
Volumes under pressure; Realization to offset
The volumes are expected to be under pressure as there is no incremental output expected from anything apart from the existing Assam Arakan Fields. The prospective resources in KG basin as well as Mizoram will take 3-4 years to materialize. We expect Oil output to stay flat at 3.75 MMT and gas to improve by ~0.7 mmscmd in FY15 on the back of off take by BCPL.
Attractively Valued despite Rally
We increase our EPS estimates for FY14 by 8% and FY15 by 18% to Rs. 69 and Rs. 74 resp. We have accounted for under recovery for diesel at Rs. 4.5/ltr and Rs 3/ltr in FY14 and FY15 resp. We have assumed gas price hike of $ 1.5/mmbtu in FY15. We upgrade our target price by 6.5% to 650 at 9.3x FY14 and reiterate BUY on the stock.
