MENU

Published on 11/08/2022 5:29:01 PM | Source: Motilal Oswal Financial Services

Buy Oil India Ltd For Target Rs.228 - Motilal Oswal

Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel  https://t.me/InvestmentGuruIndia 

Download Telegram App before Joining the Channel

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

 

To Read Complete Report & Disclaimer Click Here

 

 

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

 

Above views are of the author and not of the website kindly read disclaimer