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Lower SAED, firm crude aid profitability

Our view

OINL’s 3QFY23, operating profit at Rs 28.5bn (+125.3% YoY; +54.5% QoQ), stood above estimates on lower than estimated operating expense, even as Revenue at Rs 58.8bn, stood marginally below our estimates. While Crude production stood at 0.81mmt (7% YoY & 2% QoQ) the natural production stood at 8.76mmscmd (7% YoY; -2% QoQ). Gross crude oil realization while 12% lower QoQ, nevertheless stood 12% YoY higher at USD 88.3/bbl. However, 56% QoQ lower SAED at Rs 5.03bn, resulted in a 2% QoQ higher net-realization at USD 77.1/bbl (2Q: USD 75.6/bbl). Profitability was also aided by 191% YoY & 39% QoQ higher natural gas realization at USD 8.57/mmbtu. Maintain ADD on expectation of improvement in crude oil and natural gas production.

Result Highlights

* Profitability: Reported EBITDA and PAT for 3QFY23 stood at Rs 28.5bn (+125% YoY; +54% QoQ) and Rs 17.5 (+40% YoY; +1% QoQ). The sequential improvement in operating profit was driven by 56% QoQ lower SAED and 79% QoQ lower other operating expenses, despite 12% QoQ lower gross crude realization of USD 88.3/bbl. The YoY growth was led by 12% higher crude realization, 190% YoY higher natural gas (NG) realization and 78% lower operating expenses. The other income however was 89% lower YoY & QoQ, leading to blunting of Ebitda growth at PAT level. The 9MFY23 Ebitda and PAT stood at Rs 73.4bn (+115% YoY) and Rs 50.2bn (+121% YoY) primarily on a) 22% higher net crude realization & 216% YoY higher Natural gas realization and b) 5% YoY higher crude production & 8.4% YoY higher natural gas production during the period.

* Crude Oil Production: The crude oil production for the quarter stood at 0.81mmt (+7%YoY; +2% QoQ). Backed by on-going drilling and production enhancement programs, OINL is looking forward to improve production to 3.6mmt and then eventually to above 4mmt post FY25.

* Natural Gas Production: The natural gas production stood at 8.76mmscmd (+7% YoY; -2% QoQ). On the lines of production growth in crude, natural production is also expected to grow to 10-11 mmscmd by FY25 and then 13-14mmscmd beyond FY25, with a large part of incremental production coming from Baghjan field. ? NRL: NRL’s core GRM stood at USD 13.48/bbl (2QFY23: USD 13.84/bbl), leading to a 3QFY23 Ebitda and PAT of Rs 11.2bn (-4% YoY; +5% QoQ) and Rs 7.9bn (+1%YoY; +10% QoQ)

* Windfall Tax (SAED): The windfall tax for the quarter stood at Rs 5.03bn (~USD 11.2/bbl) as against Rs 11.3bn (USD 25/bbl) in the previous quarter, resulting in a net realization stood at ~USD 77.1/bbl (2Q FY23: 75.6/bbl)

* Interim Dividend: OINL declared second interim dividend of Rs 10/sh, in addition to a dividend of Rs 4.5/sh declared earlier during the 9MFY23.

Valuation

We value OINL at a Mar’24 TP of Rs 265/sh on SOTP basis, as we roll estimates forwards. The SA business is valued at Rs 198/sh, on DCF basis over FY25-40e (WACC: 12%; Terminal Value: 0), implying a EV/EBITDA of 3.1x FY25e and investment in NRL at Rs 33/sh, with listed investment contributing ~ Rs 35/sh. Our TP implies a target P/E multiple of 4.6x FY25e, as compared to 3.9x the stock is currently trading at.

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