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Oil & gas surge to drive strong growth & upside

Oil India’s (OIL) Q1FY22 recurring standalone EPS was in the black vs in the red in Q1FY21, driven by oil price realisation rise. Q1 consolidated recurring EPS was up 2.8x YoY with subsidiary NRL’s profit being up 60% YoY. Given the surge in UK NBP and US Henry hub (HH) gas prices and futures, 45% upside to our FY23E APM gas price estimates appears likely.

Upside seems likely for subsidiary NRL’s GRM too as cut in excise duty on auto fuels, which we expected earlier, appears unlikely now. Thus, based on latest oil and gas futures and NRL’s FY22E GRM at US$37/bbl (US$32/bbl in base case), we estimate 13% upside to OIL’s FY22E EPS and 14% to its FY23E EPS. Reiterate BUY.

* Q1 EPS in the black on oil price rebound: OIL’s Q1FY22 standalone recurring EPS stood at Rs4.7/share vs minus Rs1.4/share in Q1FY21 driven by 2.1x YoY rise in oil price realisation. Oil sales volumes were down 2% YoY, but gas up 6% YoY in Q1. Consolidated EBIT was up 3.6x YoY driven by 38.3-1.6x YoY surge in oil and refinery products’ (NRL) EBIT. Gas EBIT loss widened to Rs0.9bn vs Rs0.6bn in Q1FY21, hit by 27% YoY fall in gas price realisation. Q1 consolidated recurring EPS was up 2.8x YoY with subsidiary NRL’s profit being up 60% YoY.

* FY22E-FY23E Brent at latest futures 4-3% higher than base case: Based on latest futures, FY22E Brent is 4% higher than our estimate of US$67.5/bbl at US$70.2/bbl and FY23E Brent is 3% higher than our estimate of US$65/bbl at US$67.2/bbl. Assuming FY22E-FY23E Brent based on latest futures, there would be 5% upside to FY22E ESP estimate and 4% upside to FY23E EPS estimate.

* UK NBP and HH strength may mean 45% upside for OIL’s FY23E APM gas price: HH and UK NBP prices and futures continue to be strong given the strong demand, supply constraints and gas inventories in Europe being at least at 11-year low. Based on UK NBP and HH futures, we estimate OIL’s FY23E APM gas price at US$6.15/mmbtu to be 45% higher than our estimate of US$4.25/mmbtu.

* FY22E-FY23E EPS up 54-9% YoY; 13-14% upside to EPS: We estimate FY22E EPS to be up 54% YoY on 51% YoY jump in Brent to US$67.5/bbl. At FY22E Brent based on latest futures and NRL’s FY22E GRM at US$37/bbl (US$32/bbl in base case), upside to OIL’s FY22E EPS would be 13%. 65% YoY rise in APM gas price to US$4.25/mmbtu is estimated to drive 9% YoY rise in FY23E EPS.

Upside to FY23E EPS would be 4% at Brent based on latest futures. 45% higher APM gas price than base case based on latest futures would mean 10% upside to EPS. Overall upside to FY23E EPS due to higher oil and gas price than estimated would be 14%. OIL’s share price discounts long-term Brent of just US$47/bbl. It is attractive at FY22-FY23E P/E of 4.1-3.8x, EV/EBITDA of 3.8-3.5x, P/BV of 0.67- 0.60x and dividend yield of 9.7-10.9%.

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