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NRL fire impacts consolidated earnings; FY24E prospects remain strong

Oil India’s (OIL) adjusted EBITDA of INR 23.3bn was down 13% and PAT of INR 16.1bn was up 4%, ahead of I-sec estimates of INR 22.9bn EBITDA and INR 15bn PAT. Consolidated EBITDA of INR 22.7bn and PAT of INR 14bn declined sharply by 54% and 50% YoY respectively, due to fire at Numaligarh Refinery (NRL) leading to shutdown of the plant for 75 days and a loss of INR 776mn for the quarter (vs Q4FY23 PAT of INR 7.7bn). Due to lower offtake from NRL, oil and gas sales of 1.3mtoe declined 7% YoY / 5% QoQ. Prospects remain strong over FY24E / FY25E driven by: i) steady increase in oil & gas output (~4% growth p.a.), ii) greater monetisation opportunities in gas via the imminent NE grid commissioning, iii) resumption of NRL operations from Q2, and iv) steady realisations for both oil & gas. Reiterate BUY.

Volume growth stymied by lower NRL offtake

Oil output at 0.82mt was up 5% YoY and gas output at 0.75bcm was down 3% YoY, with the lower gas output attributable to lower offtake from NRL. Sales volume of oil fell 7% YoY as NRL offtake was lower, while gas sales decline of 8% YoY was caused by NRL shutdown. Management has put in place ambitious plans to boost oil production to annualised levels of 4mt by FY25-FY26 (from ~3.18mt in FY23) and gas output to even higher levels of 5bcm (FY23: 3.18bcm). Company aims to accomplish these targets by focusing on high-impact areas and OALP field development. Given the strong results in Q1 and reinforced guidance, we have raised volume growth estimates by ~100bps for FY24E and FY25E, with stronger growth expected on the gas front as the NE gas grid sees the first phase commissioning by end of CY23E.

Despite windfall tax and new domestic pricing, oil & gas realisations should stay above historical averages

Brent crude prices seem to have settled around USD 80/bbl for now though we do expect a tighter demand-supply balance by H2FY24E. However, due to the additional ‘windfall’ tax, net realisations seem capped at USD 76-77/bbl for the next 12-18 months. Additionally, with reduction in the domestic gas price by USD 2/mmbtu, gas prices should average USD 6.5/mmbtu for FY24E and FY25E. While these prices are lower vs FY23, we note that they are well above long-term historical averages for OIL.

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