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EBITDA beat due to lower opex and higher net crude realisation

Oil India’s 2QFY23 standalone EBITDA was higher at INR 18.5bn vs. JMFe/consensus of INR 17.2bn/ INR 17.5bn primarily due to lower contract cost (at INR 3.7bn vs. JMFe of INR 4.2bn) and lower provision for dry well write-off (at INR 0.2bn vs. INR 3.9bn in 1QFY23). Further, net crude realisation, adjusted for windfall tax of USD 23.8/bbl, was higher at USD 72.9/bbl (vs. JMFe of USD 70.8/bbl). Crude sales volume was largely in line with JMFe at 0.776mmt (up 1.6% QoQ and up 5.0% YoY) while gas sales volume was 3.3% above JMFe at 0.66bcm. We maintain BUY (TP of INR 250) 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. Further, the company is a key beneficiary of the higher domestic gas price in FY23 given sustained high global gas prices. At CMP, Oil India is trading at 5.6x FY24E EPS and 0.6x FY24E BV (vs. 3-year average of ~0.8x).

* Standalone EBITDA higher due to lower opex and higher net crude realisation: Oil India’s 2QFY23 standalone EBITDA was higher at INR 18.5bn vs. JMFe/consensus of INR 17.2bn/ INR 17.5bn primarily due to lower contract cost (at INR 3.7bn vs. JMFe of INR 4.2bn) and lower provision for dry well write-off (at INR 0.2bn vs. INR 3.9bn in 1QFY23). PAT at INR 17.2bn was significantly higher than JMFe/consensus of INR 11.0bn/ INR 11.1bn due to higher other income (of INR 8.9bn vs. JMFe of INR 4.0bn) and lower taxes (tax rate of 18.4% vs. JMFe of 26%). The board approved a dividend of INR 4.5/share.

* Crude sales volume in line but net realisation higher: In 2QFY23, crude sales volume was largely in line with JMFe at 0.776mmt (up 1.6% QoQ and up 5.0% YoY). However, computed gross crude realisation was higher at USD 96.7/bbl and net crude realisation, adjusted for windfall tax of USD 23.8/bbl (or INR 11.3bn), was also higher at USD 72.9/bbl (vs. JMFe of USD 70.8/bbl). Separately, gas sales volume was 3.3% above JMFe at 0.66bcm (though production was largely in line with JMFe) while domestic gas realisation was in line at USD 6.1/mmbtu.

* NRL GRM impacted due to windfall tax impact: NRL’s GRM (before excise duty benefit) declined to USD 13.8/bbl in 2QFY23 (vs. USD 32.4/bbl in 1QFY23) due to reduction in domestic Refinery Transfer Price (RTP) on account of levy of windfall tax on export of Diesel, ATF and Petrol w.e.f. 1 st Jul’22; crude throughput was in line at 0.77mmt. Hence, its EBITDA declined to INR 10.7bn in 2QFY23 (vs. INR 19.9bn in 1QFY23). NRL’s capex was at INR 15.9bn in 2QFY23 (vs. INR 11.8bn in 1QFY23).

* Maintain BUY as Oil India as CMP discounting only ~USD 50/bbl of net crude realisation: We maintain BUY on Oil India (unhanged TP of INR 250) 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 change by ~14% - Exhibit 6. Further, Oil India is also a key beneficiary of higher domestic gas price. At CMP, Oil India is trading at 5.6x FY24E EPS and 0.6x FY24E BV (vs. 3-year average of ~0.8x).

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