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Surge in oil price to drive strong rebound

Oil India’s (OIL) Q4FY21 recurring standalone EPS was in the black vs in the red in Q4FY20, driven by oil price and dividend rise. Q4 consolidated recurring EPS was up 77% YoY due to jump in share of profit in NRL on increase in stake. We have raised FY22-FY23E Brent estimate by 13-8% to US$67.5-65/bbl and APM gas price estimate by 4-37% to US$2.6-4.25/mmbtu to factor the rise in underlying gas prices. It has led to upgrade in FY22E-FY23E consolidated EPS by 17% and target price by 13% to Rs232 (55% upside). Factoring oil and gas price based on futures and higher GRM for NRL (higher excise benefit than earlier) would mean further upside to FY22-FY23E EPS of 14-5% and to FV of 8%. We reiterate BUY on OIL.

* Q4 EPS in the black on oil price rebound: OIL’s Q4FY21 standalone recurring EPS stood at Rs8.5/share vs minus Rs1.9/share in Q4FY20 driven by 15% YoY rise in oil price realisation and 34% YoY rise in other income (dividend up 137% YoY). Oil sales volume was down 6% YoY but gas up 5% YoY in Q4. Consolidated EBIT was up 5.9x YoY driven by 2.1-6.9x YoY surge in oil and refinery products’ (NRL) EBIT. Gas EBIT loss widened to Rs2.7bn vs Rs1.8bn in Q4FY20 hit by 44% YoY fall in gas price realisation. Q4 consolidated recurring EPS was up 77% YoY as stake rise in NRL boosted share in profit. FY21 recurring standalone EPS was down 29% YoY and consolidated down 21% YoY hit by lower oil & gas price realisation.

* Raise FY22-FY23E EPS by 17% and target price by 13%: Brent is at US$67.7/bbl in FY22-TD and at US$73/bbl now while FY22-FY23E price based on futures is US$70.5-66.6/bbl. APM gas price based on the prevailing formula and futures works out to US$2.6-4.73/mmbtu in FY22E-FY23E. To factor in the improved oil and gas price outlook, we have raised FY22-FY23E Brent estimate to US$67.5-65/bbl (US$60/bbl earlier) and APM gas price to US$2.6-4.25/mmbtu (US$2.5-3.1/mmbtu earlier). It has led to an upgrade in FY22E-FY23E consolidated EPS by 17% and target price (LT Brent at US$60/bbl) by 13% to Rs232 (implies 55% upside). Current share price reflects long-term Brent price of just US$46/bbl. We estimate FY22E EPS to be up 54% YoY.

* Further upside of 14-5% to FY22-23E EPS and 8% to FV: If oil and gas price is higher in line with futures and NRL’s FY22E GRM at US$37/bbl (US$32/bbl in base case), upside to OIL’s FY22-FY23E EPS would be 14%-5% and to its FV 8% at Rs250/share. High excise duty on auto fuels appears likely to continue for longer than expected and hence upside appears likely to NRL’s GRM. Rs2/share of FV upside is due to higher oil & gas price and Rs16/share due to NRL’s higher GRM; we value OIL’s 69.63% stake in NRL at 3x FY22E EBITDA. OIL’s stake in NRL was up to 80.16% in Mar’21, is down to 77.06% now and is slated to fall to 69.63% once it sells stake to Assam government, which raises its stake up to 26%.

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