Buy Oil India Ltd For Target Rs.585 by Motilal Oswal Financial Services Ltd
NRL expansion on track; volume growth in focus
* Oil India (OINL)’s 3QFY25 result was in line at the EBITDA level, as oil and gas sales and realizations came in line with our estimates. PAT was 13% below our estimates, as other income came in below estimates. The company reported an oil realization of USD73.8/bbl in 3Q, at USD0.8/bb discount to Brent. Amid tighter US sanctions on Russian and Iranian oil exports and elevated seasonal energy demand, Brent has averaged USD77.3 in 4QFY25YTD. After scrapping the windfall tax, higher QoQ crude prices shall result in higher realization in 4Q for OINL.
* The core story still broadly remains intact – Numaligarh Refinery Limited (NRL)’s expanded capacity is on track for commissioning by Dec’25. The company continues to focus on exploration and aims to achieve 4mmt/ 5bcm oil/gas production by FY27/FY28.
* OINL remains a strong conviction at 1.3x FY26E P/B (standalone) valuation. With FY26E RoE at ~14.7%, the current valuations appear attractive. We see limited downside from the current levels as we build in crude prices to average USD70/bbl in FY26/FY27. We arrive at our TP of INR585 as we model an oil and gas production of 3.65mmt and 3.47bcm in FY26, respectively. We value the standalone business at 8x Dec’26E P/E, existing NRL stake at 3.0x FY24 P/B, and include the value of equity invested to date in NRL capacity expansion. Reiterate BUY.
Other key takeaways from the conference call
* Production volume guidance: FY25/FY26/FY27 oil production is likely to be 3.48mmt /3.65mmt/4mmt. FY25/FY26/FY27 gas production is anticipated to be 3.3bcm /4bcm /5bcm.
* In 3Q, NRL’s GRM stood at USD2.1/bbl. Inventory losses were ~USD2/bbl.
* NRL has achieved 73% mechanical completion (INR230b+ capex incurred) and shall achieve completion by Dec’25. The refinery shall be 60%/75%/100% operational in the first few years of commissioning.
* NRL's petrochemical project is expected to achieve completion by Dec’28 (capex at INR9.9b out of INR72.b already incurred).
* OINL has secured over 100,000 sq. km in new exploration acreage.
EBITDA in line; lower other income drags PAT
* Revenue was in line with our estimate at INR52.4b (-10% YoY). ? Oil sales came in at 0.83mmt (our estimate of 0.84mmt). Gas sales stood at 0.68bcm (our estimate of 0.65bcm).
* Oil realization was USD73.8/bbl (our estimate of USD73/bbl). ? EBITDA also came in line with our estimate at INR21.3b (flat YoY).
* In 3Q, forex loss stood at INR1.8b.
* However, the reported PAT was 13% below our estimate at INR12.2b due to lower-than-expected other income and higher-than-expected finance costs.
NRL’s performance:
* PAT stood at INR3.9b (vs. PAT of INR8.6b during 3QFY24), led by a subdued GRM of USD2.1/bbl in 3QFY25 (vs. GRM of USD12.7/bbl in 3QFY24).
* Crude throughput stood at 808tmt (vs. 853tmt in 3QFY24) and distillate yield stood at 87.3% (vs. 88.9% in 3QFY24).
* In 9MFY25, while net sales and EBITDA were similar YoY, APAT dipped 11% YoY. In 4QFY25, we estimate net sales/EBITDA/APAT to decline 6%/4%/ 27%.
* The Board declared an interim dividend of INR7/share (FV of INR10/ share)
Valuation and view
* Production growth guidance remained robust, with drilling activity and development wells in old areas contributing to this growth. OINL is also implementing new technologies to raise production. Capacity expansion for NRL (from 3mmt to 9mmt) is also anticipated to be completed by Dec’25, which will drive further growth.
* OINL remains a strong conviction at 1.3x FY26E P/B (standalone) valuation. We value the stock at 8x Dec’26E standalone adj. EPS and add investments to arrive at our TP of INR585. Reiterate BUY.
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