REDUCE on Oil India - Reeling under stress - HDFC Securities

Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities & Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities

Our REDUCE recommendation on Oil India with a price target of INR 119 is premised on (1) a muted oil and gas realisation and (2) lack of production growth for both oil and gas. We expect oil prices to remain at ~USD 50 per barrel in FY22/23E vs. USD 61/bbl in FY20, given the weak global macro. With no subsidy sharing with OMCs, OIL remains a pure play on the crude oil price. 3QFY21 revenue was in line with our estimates, but EBITDA was 116% below our estimate, owing to dry wells write-off of INR 6.5bn. RPAT was above our estimate, owing to higher-than-anticipated other income and credit of INR 12bn of taxes.

Standalone financial performance: Sales in 3Q was INR 21bn -28% YoY, led by a 27% fall in crude realisation in rupee terms to INR 3,158/bbl. EBITDA came at INR -1bn as opex to sales inched up by 3638bps YoY to 82%.

Exceptional loss: The expense of INR 1,514mn incurred to control the blowout incident of May/June 2020 at Oil India's well in Baghjan has been classified as an exceptional item in 3Q. OIL settled all its pending income tax disputes from AY2003-04 to AY2016-17 and received a settlement of INR 12bn in 3Q for the same, which led to a spike in the RPAT. Adjusting for these one-offs, OIL reported a loss of INR 1.4bn in 3Q.

Standalone operational performance: Crude oil realisation corrected to USD 42.8/bbl, +3/-30% QoQ/YoY; also, gas realisation contracted to USD 1.7/mmbtu, -46/-45% QoQ/YoY. Oil sales volumes remained flat QoQ/YoY at 0.72mmt, while gas sales volumes were 0.59bcm, +48/-2% QoQ/YoY.

Con call takeaways: (1) The Board approved an interim dividend at 35% i.e., INR 3.5/sh. (2) Debt on Dec-21 end stands at USD 1.275bn. (3) Capex target for FY22 is of INR 40bn.

Change in estimates: We raise our FY21/22E EPS estimate by 57.3/56.9% to INR 27.1/27.2 to factor in overall performance in 9MFY21.

We value Oil India's standalone business at INR 59 (5.5x Dec-22E EPS) and its investments at INR 60. The stock is currently trading at 4.3x FY22E EPS.

Shares of OIL INDIA LTD. was last trading in BSE at Rs.116.1 as compared to the previous close of Rs. 115.65. The total number of shares traded during the day was 34286 in over 477 trades.

The stock hit an intraday high of Rs. 116.8 and intraday low of 115.6. The net turnover during the day was Rs. 3987964.

Source : Equity Bulls

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