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Earnings beat on lower opex; output in line but sales volume lower

Oil India’s 1QFY24 standalone EBITDA was higher at INR 23.3bn vs. JMFe/consensus of INR 21.8bn/ INR 22.6bn due to lower dry well write-off, other expenditure and contract cost. Crude and gas production volume and realisation are largely in line; however, sales volume was significantly below expectation. Further, NRL’s 1QFY24 GRM declined sharply to negative USD15.6/bbl as utilisation declined to only 9% due to a fire accident; hence, NRL’s EBITDA was at negative INR 52mn in 1QFY24 (vs. +INR 11.4bn in 4QFY23). We maintain BUY (TP of INR 315) as the stock is a strong dividend play and also because CMP is discounting USD 55-60/bbl of net crude realisation while our TP is based on FY25 net crude realisation of USD 65/bbl. At CMP, Oil India is trading at 4.9x FY25E EPS and 0.6x FY25E BV (vs. 3-year avg of ~0.8x). 

* Standalone EBITDA 4-6% above JMFe/consensus due to lower dry well write-off and other opex: Oil India’s 1QFY24 standalone EBITDA was higher at INR 23.3bn vs. JMFe/consensus of INR 21.8bn/ INR 22.6bn due to: a) lower dry well write-off (at INR 0.5bn vs. JMFe of INR 1.5bn and INR 2.5bn in 4QFY23); b) lower other expenditure (at INR 2.0bn vs. JMFe of INR 4.0bn and INR 3.6bn in 4QFY23); and c) lower contract cost (at INR 3.1bn vs. JMFe of INR 4.3bn and INR 4.3bn in 4QFY23). Crude and gas production volume and realisation are largely in line; however, sales volume was significantly below expectation. PAT was also higher at INR 16.1bn vs. JMFe/consensus of INR 13.5bn/ INR 14bn, aided by higher other income and slightly lower taxes.

* Crude and gas production volume and realisation largely in line; however, sales volume lower: In 1QFY24, crude sales volume was 3% below JMFe (at 0.75mmt, down 2.2% QoQ and down 2.5% YoY) though crude production was 2% above JMFe (at 0.82mmt, up 2.5% QoQ and up 5.3% YoY); this is due to sales as % of production declining to 91% in 1QFY24 vs. average of 96-97%. However, computed net crude realisation adjusted for windfall tax was in line at USD 71.9/bbl (vs. USD 73.4/bbl in 4QFY23) with windfall tax being at USD 2.5/bbl in 1QFY24. Further, gas sales volume was 7% below JMFe (at 0.54bcm, down 11.8% QoQ and down 8.4% YoY) though gas production was marginally above JMFe (at 0.75bcm, down 2.5% QoQ and down 2.2% YoY); this is due to sales as % of production declining to 73% in 1QFY24 vs. average of 80%. However, domestic gas realisation was slightly higher at USD 6.9/mmbtu.

* NRL 1QFY24 GRM declined sharply to negative USD15.6/bbl as utilisation declined to only 9% due to fire accident: NRL’s GRM (before excise duty benefit) declined sharply to negative USD15.6/bbl in 1QFY24 (vs. +USD20.4/bbl in 4QFY23) as utilisation declined to only 9% during the quarter (throughput of 70tn vs. 733tn) due to a fire accident. Hence, NRL’s EBITDA was at negative INR 52mn in 1QFY24 (vs. +INR 11.4bn in 4QFY23).

* BUY on strong dividend play, CMP discounting only ~USD 55-60/bbl of net crude realisation: We maintain BUY as CMP is discounting only ~USD 55-60/bbl of net crude realisation while our TP is based on FY25 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. At CMP, Oil India is trading at 4.9x FY25E EPS and 0.6x FY25E BV (vs. 3-year avg of ~0.8x).

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