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Weak quarter due to NRL shutdown

Our view

OINL’s 1QFY24, operating profit at Rs 23.2bn (-12% YoY; -1% QoQ), stood below estimates, Revenue at Rs 46.5bn (-22% YoY; -18% QoQ). Crude production stood at 0.82mmt (+5% YoY & +2% QoQ) the natural production stood at 8.2mmscmd (flat YoY; -6% QoQ). The net-crude oil realization at USD 74.3/bbl (-34% YoY; -2% QoQ). The natural gas realization stood 11% YoY but 22% lower QoQ. NRL refinery was shut down for 75 days in total due to planned maintenance & later fire incident, it has restarted in last week of June, and running at full capacity utilization. NRL expansion work to increase capacity from 3mmt to 9mmt to complete in FY26. Crude offtake was low during the quarter as there was planned shutdown at BPCL & BVFCL. Guidance maintained of growing volumes at 5% for the year. Northeast grid expected to be completed by FY26, phase 1 of which to complete by Nov’23, it will lead to growth in crude & natural gas volumes.

Result Highlights

? Profitability: Reported EBITDA and PAT for 1QFY24 stood at Rs 23.3bn (-12% YoY; -1% QoQ) and Rs 16.1bn (+4% YoY; -10% QoQ). Net realization for crude stood 34% lower YoY at USD 74.3/bbl.

? Crude Oil Production: The crude oil production for the quarter stood at 0.82mmt (+5%YoY; +2% QoQ).

? Natural Gas Production: The natural gas production stood at 8.2mmscmd (flat YoY; -6% QoQ).

? NRL: NRL’s core GRM stood at USD (15.59)/bbl for the quarter, leading to a 1QFY24 Ebitda and PAT of Rs -51.7mn and Rs -775mn. The refinery was shut down for 75 days for planned maintenance & later fire incident took place.

? Windfall Tax (SAED): The windfall tax for the quarter stood at Rs 1.13bn (~USD 2.3/bbl) as against Rs 2.5bn (USD 5.2/bbl) in the previous quarter, resulting in a net realization of ~USD 74.3/bbl (4Q FY23: 76.1/bbl)

Valuation

We value OINL at a Mar’24 TP of Rs 335/sh on SOTP basis. The SA business is valued at Rs 208/sh, on DCF basis over FY25-40e (WACC: 12%; Terminal Value: 0), implying a EV/EBITDA of 3.0x FY25e and investment in NRL at Rs 84/sh, with listed investment contributing ~ Rs 44/sh. Our TP implies a target P/E multiple of 5.4x FY25e, as compared to is currently trading at 4.4x.

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