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EBITDA beat due to lower opex; BUY on strong dividend play

Oil India’s 3QFY23 standalone EBITDA was higher at INR 28.6bn vs. JMFe/consensus of INR 24.7bn/ INR 21.3bn primarily due to significantly lower opex of INR 1.7bn (vs. INR 5.9bn in 2QFY23). Further, sales volume and net realisation were slightly better than expected. NRL’s GRM (before excise duty benefit) was steady at USD 13.5/bbl and EBITDA was INR 11.2bn during the quarter. The board approved a second interim dividend of INR 10/share (in addition to the first interim dividend of INR 4.5/share); total FY23 dividend could be around INR 24/share (assuming 40% payout). We maintain BUY (TP revised to INR 275) as the stock is a strong dividend play and also because CMP is discounting only ~USD 50/bbl of net crude realisation while our TP is based on FY24 net crude realisation of USD65/bbl. Further, the company is a key beneficiary of higher domestic gas price. At CMP, Oil India is trading at 4.6x FY24E EPS and 0.6x FY24E BV (vs. 3-year avg of ~0.8x).

* Standalone EBITDA higher due to lower opex: Oil India’s 3QFY23 standalone EBITDA was higher at INR 28.6bn vs. JMFe/consensus of INR 24.7bn/ INR 21.3bn primarily due to significantly lower opex of INR 1.7bn (vs. INR 5.9bn in 2QFY23): a) Insurance, rent and other expense declined to INR 1bn in 3QFY23 (vs. INR 3.6bn in 2QFY23); b) reversal in provision for dry well write-off of INR 0.2bn (vs. provision of INR 0.2bn in 2QFY23); c) lower dry well write-off of INR 0.2bn (vs. INR 1.3bn in 2QFY23). PAT at INR 17.5bn was also significantly higher than JMFe/consensus of INR 15.8bn/ INR 15.3bn despite lower other income of INR 1.0bn.

* Sales volume and net realisation also slightly better than expected: In 3QFY23, crude sales volume was 1.2% below JMFe at 0.772mmt (down 0.5% QoQ and up 6.3% YoY) though production was 1.3% above JMFe. However, computed gross crude realisation was higher at USD 85.3/bbl and net crude realisation, adjusted for windfall tax of USD 11.2/bbl (or INR 16.4bn), was also higher at USD 73.9/bbl (vs. JMFe of USD 72.6/bbl). Separately, gas sales volume was 5.2% above JMFe at 0.64bcm (down 2.3% QoQ but up 1.3% YoY) and production was 3.3% above JMFe; further domestic gas realisation was also slightly higher at USD 8.8/mmbtu.

* NRL GRM steady at USD 13.5/bbl: NRL’s GRM (before excise duty benefit) was in line at USD 13.5/bbl in 3QFY23 (vs. USD 13.8/bbl in 2QFY23); crude throughput was also in line at 0.77mmt. Hence, NRL’s EBITDA was at INR 11.2bn in 3QFY23 (vs. INR 10.7bn in 2QFY23) and PAT was at INR 8.0bn in 3QFY23 (vs. INR 7.3bn in 2QFY23). NRL’s capex was at INR 13.6bn in 3QFY23 (vs. INR 16.0bn in 2QFY23 and INR 11.8bn in 1QFY23).

* BUY on strong dividend play and as CMP discounting only ~USD 50/bbl of net crude realisation: We have raised FY23 EBITDA by ~8% to align with 9MFY23 results and raised our FY24-25 EBITDA estimate by ~15% due to increase in our domestic gas price assumption to USD 6.5/mmbtu as per the ceiling price recommended by the Parikh committee (vs. USD 5.6/mmbtu assumed earlier); we have revised TP to INR 275/share (from INR 260, partly offset by lower P/E multiple to 5.0x from 6.5x assumed earlier in line with global peers). We maintain BUY as CMP is discounting only ~USD 50/bbl of net crude realisation while our TP is based on FY24 net crude realisation of USD65/bbl. Every USD5/bbl change in net crude realisation results in our EPS and valuation changing by ~14% - Exhibit 6. Further, Oil India is also a key beneficiary of higher domestic gas price. At CMP, Oil India is trading at 4.6x FY24E EPS and 0.6x FY24E BV (vs. 3-year avg of ~0.8x).

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