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Outlook intact amid stable performance

* Oil India (OINL) reported in-line EBITDA at INR23b (down 12% YoY) in 1QFY24. Oil sales volumes were 5% below our estimates at 0.75mmt, while gas sales declined 8% YoY to 0.54bcm, due to lower offtake from customers amid maintenance shutdowns. Net oil realization, after accounting for the impact of windfall tax, came in at USD74.3/bbl for the quarter.

* We expect the crude prices to gradually increase to ~USD90/bbl by 4QFY24 and remain at that level in FY25 amid active production management by OPEC+ leading to supply tightness during the second of fiscal year.

* Although the levy of windfall tax by the Center with a fortnightly revision raised concerns on 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 it to remain at ~USD70/bbl from 2QFY24 onwards.

* The implementation of the Kirit Parikh Committee’s recommendations from Apr’23 has provided much-needed respite to upstream companies, as they had to sell gas below the cost of production for quite a long time. We build in gas price assumptions of USD6.5/mmBtu for FY24-FY25E.

* The stock currently trades at a P/E multiple of 6.4x FY24E EPS. We value the stock at 6x FY25E standalone adj. EPS and add investments to arrive at our TP of INR345. We reiterate our BUY rating on the stock.

EBITDA in line, but beat on PAT

* Revenue was below our estimate at INR46.4b (down 22% YoY).

* EBITDA stood at INR23.3b (down 12% YoY).

* PAT stood at INR21b (flat YoY), due to lower-than-expected interest and tax expenses.

* Interest expense stood at INR1.7b vs. INR2b in 1QFY23.

Operational performance

* Oil sales stood at 0.75mmt (vs. our estimate of 0.78mmt, down 2% YoY).

* Gas sales stood at 0.54bcm (vs. our estimate of 0.57bcm, down 8% YoY).

* Oil realization stood at USD74.3/bbl (vs. our estimate of USD75.5/bbl, down 34% YoY).

* Realization was net of windfall tax.

Valuation and view – reiterate BUY

* Standalone capex guidance stands at INR49b for FY24. The NRL expansion would be completed by FY25, for a total capex of INR280b. The peak debt will be at INR180b and will be entirely on NRL’s book.

* We use an SOTP-based fair value of 6x FY25E standalone adj. EPS and add investments to arrive at our TP of INR345. We reiterate our BUY rating on the stock.

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