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Healthy realization despite windfall taxes

* Oil India (OINL) reported higher-than-estimated EBITDA at INR28.6b (+125% YoY) in 3QFY23 due to lower-than-estimated other operating expenses during the quarter. Oil sales volumes were in line with our estimates at 0.77mmt while gas sales volumes were 5% below our estimates at 0.61bcm. Net oil realization, after accounting for the impact of windfall tax, came in at USD77.1/bbl for the quarter.

* Although Brent price has cooled-off from its peak of ~USD120/bbl in Jun’22 to ~USD85/bbl currently, we expect crude to remain elevated at ~USD90/bbl during FY23-FY25, amid ongoing geopolitical concerns and active production management by OPEC+.

* While the levy of windfall tax by the Center with fortnightly revision had raised concerns on the realizations of upstream companies, the government has adjusted windfall taxes in line with crude oil fluctuations. Our estimate suggests that the government is allowing a post-windfall realization of USD68- 81/bbl and we expect the same to remain at ~USD70/bbl for FY24-25E. ? We model gas price assumptions of USD5.7/mmBtu for FY23-FY25E and forecast OINL’s domestic oil & gas production to stand at 6.1 and 6.2mmtoe in FY24 and FY25, respectively.

* The stock currently trades at a P/E multiple of 5.4x FY24E EPS. We value the stock at 4x Dec’24E standalone adj. EPS of INR43.2 and add investments to arrive at our TP of INR272. Maintain BUY.

Beat on both EBITDA and PAT

* OINL’s revenue, net of SAED, was in line at INR53.8b (+44% YoY).

* EBITDA was 30% above our est. at INR28.6b (+125% YoY) due to lower-thanestimated other operating expenses at INR1.1b (v/s 5.3b in 2QFY23).

* Depreciation was at INR4.5b in 3QFY23 v/s INR4.2b in 2QFY23 (INR4.7b in 3QFY22). ? PAT stood at INR17.5b (+8% of est., +40% YoY)

* Gross oil realization was in line with our estimate at USD88.3/bbl (+12% YoY) while net oil realization after the impact of windfall taxes came in at USD77.1/bbl.

* The Board declared an interim dividend of INR10/share during the quarter.

* For 9MFY23, revenue was up 59% YoY at INR159.9b. ? EBITDA rose 115% YoY at INR73.4b, with adj. PAT was at INR50.2b (v/s INR22.6b in 9MFY22).

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