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Mirroring oil price
We agree that there are concerns over lack of production growth for OIL, however we think that the current valuations (3.8x FY21 EV/EBITDA and 6.5x FY21 PER) indicate strong pessimism.
HIGHLIGHTS OF THE QUARTER
* FY19, revenue was up 28.9%YoY to Rs 137.35bn owing to 33% jump in oil price realisation to Rs 4,783/bbl and NG realisation was up 14.9% YoY to USD3.1/mmbtu. Crude oil sales volumes were down 8% YoY to 3.06mmt.
* Q4FY19 crude oil sales volumes were 0.777 mmt (-6.6% YoY and -4.5% QoQ). Sales were low owing to planned shutdown of IOCL’s Guwahati refinery. Net oil realisation came in at Rs 4,353/bbl (+4.2% YoY and - 9.4% QoQ). For FY19, volumes were at 3.233 mmt (- 4.7% YoY). The refinery is now back in operation and started receiving crude from Oil India, thus volumes are restored.
* The company has made a one-time provision of Rs 10.26bn towards contribution to Employee Pension Scheme. It has been disclosed as an exceptional item in the P/L. As a result OIL reported a loss of Rs2.09 in 4Q. Adjusting for this one-off, the PAT stood at Rs4.79bn.
* Near-term outlook:
OIL’s stock performance will move in tandem with the crude prices. We do not expect sharp fall in crude prices considering the talks between OPEC and Russian oil producers.
* Gas sales volumes in Q4 were 0.620 bcm (+6.3 YoY and -4% QoQ). Gas realisation was up 13.7% YoY to USD 3.22/mmbtu. For the full year, volumes were 2.51 bcm (+3.9% YoY) and realisations at USD3.07/mmbtu.
Upstream companies were out of flavor despite realizing market price for crude oil, mainly on account of lower provisioning of budgetary support in FY19 (Rs 248bn). The subsidy sharing concern allayed when the Govt. committed to settle Rs 430bn of subsidy from its own pocket. Moreover, we expect the oil prices to remain muted owing to the robust supply from US Shale, despite production cut from OPEC and non-OPEC countries. Hence, given that (1) >80% revenue comes from crude oil, (2) There is no overhang of subsidy sharing, upstream companies should be re-rated. Our TP is Rs 234/sh (6x Mar-21E standalone + Rs 90 from investments). Maintain BUY.
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HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475
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