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Higher operating expense drive a miss

Our view

OINL’s 4QFY23, operating profit at Rs 23.5bn (+20% YoY; -18% QoQ), stood below estimates on higher than estimated operating expense (+389% QoQ), even as Revenue at Rs 56.5bn, stood in-line with estimates. Crude production stood at 0.80mmt (+7% YoY & -1% QoQ) the natural production stood at 8.7mmscmd (+11% YoY; -1% QoQ). The net-crude oil realization at USD 76.1/bbl stood mostly flat QoQ but 22% lower on YoY basis. The natural gas realization however stood 184% YoY higher aiding profitability for the 4QFY23 & FY23. Maintain BUY on expectation of a) improvement in crude oil and natural gas production going ahead and b) higher contribution in earning from NRL, post capacity expansion to 9mmt (from 3mmt).

Result Highlights

* Profitability: Reported EBITDA and PAT for 4QFY23 stood at Rs 23.5bn (+20% YoY; -18% QoQ) and Rs 17.9 (+10% YoY; +2% QoQ). The YoY growth in operating profit was driven by 5% YoY higher crude oil and natural gas sales volume, along with 184% YoY higher natural gas realization even as net realization for crude stood 22% lower YoY at USD 76.1/bbl. The sequential decline in operating profit however was on account of 43% QoQ higher employee expense and 389% QoQ higher other expense. The FY23 Ebitda and PAT stood at Rs 96.9bn (+80.4% YoY) and Rs 68.1bn (+75% YoY) primarily on a) 8.4% higher net crude realization & 206% YoY higher Natural gas realization and b) 5% YoY higher crude sales and 1.4% YoY higher NG sales.

* Crude Oil Production: The crude oil production for the quarter stood at 0.80mmt (+7%YoY; -1% 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 8.7mmscmd (+11% YoY; -1% 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 20.38/bbl for the quarter and USD 19.86/bbl for FY23 (FY22: USD 14.33/bbl), leading to a 4QFY23 Ebitda and PAT of Rs 11.4bn (-31% YoY; +2% QoQ) and Rs 7.7bn (-32%YoY; -4% QoQ) and FY23 Ebitda & PAT of Rs 53.2bn (2.8% YoY) and Rs 37bn (+3.9% YoY).

* Windfall Tax (SAED): The windfall tax for the quarter stood at Rs 2.52bn (~USD 5.2/bbl) as against Rs 5.03bn (USD 11/bbl) in the previous quarter, resulting in a net realization stood at ~USD 76.1/bbl (3Q FY23: 77.1/bbl). The total windfall tax for the FY23 stood at Rs 18.9bn (~USD 13.8/bbl).

* Dividend: OINL declared final dividend of Rs 5.5/sh in addition to interim dividend of Rs 14.5/sh.

Valuation

We value OINL at a Mar’24 TP of Rs 325/sh on SOTP basis. The SA business is valued at Rs 208/sh, on DCF basis over FY25-40e (WACC: 12%; Terminal Value: 0), implying a EV/EBITDA of 3.0x FY25e and investment in NRL at Rs 79/sh, with listed investment contributing ~ Rs 37/sh. Our TP implies a target P/E multiple of 5.2x FY25e, as compared to 4.3x the stock is currently trading at.

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