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Healthy earnings despite SAED

Our view

The 2QFY23 operating profit at Rs 18.5bn (+102% YoY; -30% QoQ), stood marginally better than our estimates on better than estimated crude oil realization. The PAT at Rs 17.2bn, however, stood materially better than estimates on account of higher other income of Rs 8.9bn, boosted by dividend income from NRL. NRL in-turn reported an Ebitda and PAT of Rs 10.7bn (-22% YoY; -46% QoQ) and Rs 7.3bn (-24% YoY; -48% QoQ), on backs of QoQ lower GRM of USD 13.8/bbl. The crude oil production during the quarter and 1HFY23 stood 4% higher YoY at 0.79mmt and 1.57mmt, respectively. OINL has targeted to raise its crude production to 3.6mmt and then eventually to above 4mmt post FY25.

Result Highlights

* Profitability: Reported EBITDA and PAT stood at Rs 18.5bn (+102% YoY; -30% QoQ) and Rs 17.2 (+241% YoY; +11% QoQ), on backs of a) 41% YoY higher gross crude oil realization at USD 100.6/bbl, b) 8% YoY & 3% QoQ weaker INR and c) 4% YoY higher crude oil production

* Crude Oil Production: The crude oil production for the quarter stood at 0.79mmt (+4%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 for the quarter stood at 8.94mmscmd (+8% YoY; +11% 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.

* Capex: The planned capex for FY24 stands at Rs 45bn in standalone business and Rs 80bn in NRL.

* NRL: NRL’s core GRM stood at USD 13.8/bbl (1QFY23: USD 32.4/bbl), leading to a 2QFY23 Ebitda and PAT of Rs 10.7bn (-22% YoY; -46% QoQ) and Rs 7.3bn (- 24% YoY; -48% QoQ)

* Windfall Tax (SAED): The windfall tax for the quarter stood at Rs 11.3bn (~USD 24/bbl) as a result the net realization stood at ~USD 75/bbl

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 3.5x the stock is currently trading at.

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