IGI Logo

Higher realization driven by high crude oil prices

* Oil India (OINL) reported lower-than-estimated EBITDA at INR18.5b (+102% YoY) in 2QFY23. Oil and Gas sales volumes were in line with our estimates at 0.78mmt and 0.66bcm, respectively, for 2QFY23. Net oil realization, after accounting for the impact of windfall tax came in at USD76.8/bbl (our est. USD73.2/bbl) for the quarter fueled by high crude oil prices (up 45% YoY).

* Although Brent prices have cooled-off from its peak of ~USD120/bbl in Jun’22 to ~USD95/bbl currently, we expect crude prices to remain elevated amid ongoing geopolitical concerns and active production management by OPEC+.

* The levy of windfall tax by the center with fortnightly revision had raised concerns on the realizations of upstream companies. However, the government has adjusted windfall taxes in line with crude oil fluctuations, as mentioned in our earlier report. We expect OINL to at least enjoy realizations of USD75/bbl after impact of windfall taxes.

* OINL guides for the growth in production; oil production is expected to be ~3.2/3.6mmt in FY23/FY24 and gas production is likely to be ~3.6/4mmt in FY23/FY24.

* Factoring in the above, we forecast OINL’s domestic oil and gas production to stand at 6.2/6.4mmtoe in FY23/FY24, respectively, and we raise our FY23 EBITDA estimate by 10% keeping FY24 EBITDA unchanged.

* We build in gas price assumptions of USD7.3 per mmBtu / USD5.5 per mmBtu for FY23E/FY24E. The stock trades at a 42% discount to its one-year forward long-term P/E average of 7.7x. We use an SOTP-based fair value of 2.5x FY24E standalone adj. EPS of INR63.8 and add investments to arrive at our TP of INR244. Maintain BUY.

Miss on EBITDA but beat on PAT

* Revenue came in at INR46.4b (+40% YoY, -22% QoQ) in 2QFY23.

* EBITDA came in at INR18.5b (-15% our est., +102% YoY, -30% QoQ).

* Depreciation was at INR4.2b v/s INR3.8b in 1QFY23 (INR4.2b in 2QFY22).

* PAT was at INR17.2b in 2QFY23 (+16% est., +241% YoY, +11% QoQ).

* Net oil realization after impact of windfall taxes came in at USD76.8/bbl (our est. of USD73.2/bbl; +8% YoY, -32% QoQ).

* In 2QFY23, the Board approved winding up of Oil India (USA) Inc. USD31m has been repatriated to OINL subsequent to the divestment.

* During 1HFY23, OINL tested the carrying value of investment in Oil India (USA) Inc. for impairment and made an impairment provision of INR1.4b.

* In 1HFY23, OINL’s revenue was up 68% YoY to INR106.1b while EBITDA rose 109% YoY to INR44.9b, with adj. PAT at INR32.8b (v/s INR10.1b in 1HFY22).

Valuation and view – maintain BUY

* The NRL expansion would be completed by FY24-25E, with a capex of INR280b. The viability gap funding would be only INR10b. The capex would be funded via 70:30 debt: equity; and this equity proportion would be entirely funded by internal accruals of NRL only. The commissioning of the refinery expansion (from 3mmt to 9mmt) is expected by FY24-25.

* Healthy upstream realizations coupled with recently announced 41% hike in APM prices will be the key drivers for EPS growth in FY23E-FY24E.

* We use an SOTP-based fair value of 2.5x FY24E standalone adj. EPS of INR63.8 and add investments to arrive at our TP of INR244. Maintain BUY.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer