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Hold Oil India Ltd For Target Rs.165

EBITDA miss on higher opex, lower output; outlook hinges on oil prices

* Q4FY21 standalone EBITDA/PAT stood at Rs4.25bn/8.48bn. EBITDA was a 59% miss on much higher-than-expected contract costs/sundry expenses. PAT was 3% above our estimate on higher dividend income and a lower tax rate of 26%.

* OIL’s total liquids output (days unadj.) fell 5% yoy/4% qoq to 0.72mmt (5% miss), while gas was up 1% yoy/down 4% qoq to 0.65bcm (6% miss). LPG output rose 3% yoy/2% qoq to 8.7kt. Transportation income increased 21% yoy to Rs779mn but was down 26% qoq.

* Nominated Block (NB) crude realization rose 36% qoq to USD59.8/bbl while discount to Brent widened to USD0.9/bbl from USD0.5 in Q3. Net debt rose to Rs143bn HoH due to purchase of NRL stake. OIL booked Rs701mn as Baghjan blowout exceptional item in Q4.

* We raise FY22/23E EPS by 83%/80% and TP by 65% to Rs165, assuming USD60+ Brent, lower opex and higher dividend income. We assign a lower holdco discount for NRL but cut core EV/EBITDA multiple to 3.5x from 4x, awaiting more clarity on output. Retain Hold.

Highlights: Revenue was an 8% miss on 5-6% lower-than-expected oil-gas output. Other expense of Rs8.9bn includes contract costs and insurance-rent-sundry expenses. EBIT for crude/LPG was Rs6.6bn/121mn, while gas/transport EBIT was negative Rs2.7bn/631mn. Other Income jumped 34% yoy/3.6x qoq due to dividends. For FY21, EBITDA/APAT fell 51%/66% to Rs12.7bn/7.5bn on 27%/35% decline in oil/gas realizations and 5%/6% fall in crude/gas output. Final dividend of Rs1.5/sh was recommended (Rs3.5/sh interim), implying 31% payout. FY21 capex, ex. NRL, was Rs46bn. Of 80.16% stake in NRL, 10.53% will be taken over by Assam govt in FY22 for Rs16.87bn. OIL took impairment in overseas assets in FY21. 1P/2P reserve accretion was 7.41/6.03mmtoe in FY21, totaling 105.55/190.84mmtoe.

Guidance: OIL has an intensive 3-year drilling program in focus assets (Lakwagaon, Balimara, Baghjan, Khumchai and Baghewala) and expects total output to rise to 7.0- 7.2mmtoe by FY24-25. Baghjan appraisal has proved to be better than expected. OIL has got permission for extended reach drilling, and won’t need to enter eco-sensitive zones. FY22 crude/gas production guidance is 3.05mmt/3.1-3.2bcm. It expects production to bottom out. OIL won 2 blocks each in Assam and Rajasthan (total 4) under OALP 5. Capex guidance for FY22 is Rs41.08bn - Rs4-5bn on survey, Rs17-18bn on drilling and remaining on capital equipment-Mozambique. FY23 capex should also be Rs40-45bn. Standalone/consol. debt as of FY21-end was Rs150bn/180bn, with Rs63bn/90bn on NRL/Mozambique. OIL does not expect impairment in Mozambique due to insurgency force majeure, and the project should be back in 6 months. NRL expansion capex is likely to be revised up to Rs280bn.

Valuation: We value NRL stake at a 20% holdco discount to BPCL sale value and IOCLRussian stakes at 30% discount each. Retain Hold/EW. Key risks: adverse oil-gas prices, policy issues, local tensions, cost overruns, operational outages and dry holes.

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