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High crude oil prices drive better realization

* Oil India (OINL) reported in-line oil sales at 0.76mmt, with gas sales above our estimate at 0.59bcm for 1QFY23. Strong net oil realization was in line with our estimate and stood at USD112.7/bbl led by high crude prices (up 66% YoY). OINL’s reported EBITDA was lower than our estimate at INR26.3b (+114% YoY) due to higher-than-expected operating cost for the quarter

* Brent remained high amid geopolitical risks and demand concerns while uncertainty over the government’s windfall tax would keep realizations under check for the time being

* OINL has been unable to raise its oil & gas production meaningfully in the recent past. Crude oil production was up by only 4% YoY to 0.78mmt and its gas production rose 8% YoY to 0.77bcm.

 * A majority of its gas production growth has been coming from Baghjan field and OINL targets ~5mmscmd of gas from this field (up from the current production level at ~2mmscmd) over the next 3-5 years

* Domestic APM gas price is also likely to go up by ~50% from Oct’22 and this should support OINL’s profitability in 2HCY22.

*  Factoring this, we forecast OINL’s domestic oil & gas production to stand at 6.2/6.4mmtoe in FY23E/24E, respectively, and we raise our FY23 EBITDA estimate by 4% keeping our FY24E EBITDA unchanged.

* We model gas price assumptions of USD7.3/mmBtu and USD5.5/mmBtu for FY23E and FY24E, respectively. The stock trades at a 51% discount to its oneyear forward long-term P/E average of 7.9x. We use an SOTP-based fair value of 2.5x FY24E adj. EPS of INR60.2 and add investments to arrive at our TP of INR228. Maintain BUY.

Higher realizations (in line); miss on EBITDA

* OINL reported revenue in line with our estimate at INR59.6b (+99% YoY). This was aided by in-line volumes and realization at USD112.7/bbl:

* Oil sales stood at 0.76mmt (+6% YoY, +4% QoQ)

* Gas sales stood at 0.59bcm (-2% YoY, +7% QoQ) in 1QFY23

* EBITDA missed our estimate and came in at INR26.3b (-11% est., +114% YoY) led by higher opex. Higher interest cost and lower other income resulted in a PAT of INR15.5b (-19% est.; +206% YoY)

Valuation and view – maintain BUY

* The NRL expansion would be completed by FY24–25E, with a capex of INR280b. The viability gap funding would be only INR10b. The capex would be funded via 70:30 debt:equity; and this equity proportion would be entirely funded by internal accruals of NRL only. The commissioning of the refinery expansion (from 3mmt to 9mmt) is expected by FY24–25

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