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Result Highlights‐ Higher Crude Oil Price and Other Income aid Earnings   

* 4QFY21 Profitability:

Operating Profit and PAT stood at Rs 4.24bn and Rs 8.5bn (‐8.6% YoY; ‐6.3% QoQ), as against at operating loss (Ebitda) of Rs 11bn and Rs 0.94bn in the 4QFY20 and 3QFY21. A recovery in crude oil realization to an average of USD 59.8/bbl (3Q: USD 44.1/bbl), along with higher other income of Rs 13.3bn, backed by high dividend payout from IOCL, aided 4Q earnings  

* FY21 Profitability:

The FY21 Ebitda & PAT stood at Rs 12.7bn (‐51.2% YoY) and Rs 17.4bn (‐33% YoY), respectively. The YoY decline in annual profitability stemmed from a) ~6% YoY lower crude oil and natural gas production, b) 26% YoY lower crude oil realization, c) 38% YoY lower natural gas realization and d) exceptional expense of Rs 4.5bn towards Baghjan field blowout.  

* Crude Oil Production:

The crude oil production for the 4QFY21 and FY21, stood 5.5% YoY lower at 0.72mmt and 2.96mmt respectively. Backed by on‐going EOR programs, OINL is looking forward to improve production to 3.05mmt in FY22.  

* Natural Gas Production:

The natural gas production for 4QFY21 and FY21, stood at 6.8mmscmd (‐0.7% YoY) and 6.8mmscmd (‐7%YoY), respectively. The targeted production in FY22 is estimated at ~8.5mmscmd.   

* Capex:

OINL, incurred a capex of Rs 46bn, during the FY21, the estimated capex for FY22 stand at Rs 41bn

* Dividend:

The company declared a final dividend of Rs 1.5/sh, in addition to Rs 3.5/sh of interim dividend, implying a dividend yield of 3.3%

* NRL Acquisition:

OINL acquired 43.6% shares of BPCL in the Numaligarh Refinery (NRL) for a total cash consideration of Rs 69.9bn, thereby taking its stake in NRL to 69.63% and changing the accounting status of investment from ‘Associate’ to ‘Subsidiary’.

View & Valuation

While, FY21 earnings were riddled with several challenges for OINL, viz. Covid‐19 pandemic, historically low crude oil prices and blowout incident in Baghjan field, going ahead we expect profitability to normalize as a) crude oil prices have recovered and are trending above ~USD 70/bbl as we write, b) natural gas prices through muted at present are likely to be revised upwards in Oct’21, c) crude oil and natural production is likely to improve on backs of EoR activity undertaken and fast track development of new gas fields.  

We assume coverage of OINL with an ADD rating and a TP of Rs 175/sh, implying a target P/E multiple of 7.3x FY23e, as against 6.3x stock is currently trading at.  

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