Buy Oil India Ltd For Target Rs. 649 - Prabhudas Liladhar Capital Ltd
Production growth to remain key monitorable
Quick Pointers:
* Net oil realization stood at US$74.5/bbl, while gas realization came in at US$6.5/mmBtu
* Production target of 4mmt of oil and 5bcm of gas by FY28E
Oil India (OINL) reported growth of 2.8% QoQ growth in oil production while gas sales fell by 2.5% QoQ. Oil price realization rose marginally from USD73.8/bbl in Q3FY25 to USD74.5/bbl in Q4FY25. Despite higher oil realization and flat gas realization combined with growth in oil sales, sales grew by 2.8% QoQ. However, higher other expenditure led to EBITDA of Rs19.8bn, -7% QoQ (PLe Rs20.9bn, consensus Rs22.7bn). Lower than expected DDA and higher other income resulted in PBT of Rs20bn, +30% QoQ despite decline in EBITDA. As a result PAT grew 30% QoQ to Rs15.9bn (PLe Rs12bn, consensus Rs16.3bn). Long-term production guidance stands at 4mmt of oil and 5bcm of gas by FY28E. For FY25, EBITDA stood at Rs87.7bn, -5% YoY while PAT stood at Rs61bn, -23% YoY. We build a conservative rise to 3.9mmt of oil and 4.3bcm in FY27E, respectively from 3.4mmt and 3.3bcm in FY25. Given the significant production increase on the horizon, we re-iterate our ‘BUY’ rating valuing the standalone business at 9x FY27 adj EPS and adding the value of investment in NRL to arrive at our TP of Rs649.
Volume remains the key: In past five years, the company has shown 2% and 3% CAGR in oil and gas production respectively. It maintains long term volume guidance of 4mmt and 5bcm. However, this is subject to expansion of DNPL, completion of IGGL and commissioning of NRL expansion. In the meantime, growth would be aided from reduced flaring and access to mainland.
NRL expansion to be commissioned from Dec’25: Commissioning of Rs300bn NRL expansion is expected to start in Dec’25. The crude pipeline from Paradip to NRL is expected to be completed by Dec’25 too and the expansion of NSPL product pipeline from 1.7mmtpa to 5.5mmtpa is expected to be completed in time. Indo-Bangladesh pipeline of 1mmtpa is already witnessing flow of 0.4mmtpa currently
Analyst meet KTAs: 1) Capex of Rs86bn incurred on standalone while capex of Rs70bn is expected in FY26. Additionally, Rs90bn capex is expected on NRL in FY26, 2) no cost escalation expected in NRL or PP plant, 3) 60 wells drilled in FY25; expect 75-80 wells to be drilled in FY26, 4) infrastructure for NRL expansion is ready in terms of crude sourcing and product placement, BPCL is expected to source crude for NRL, 5) 50% excise duty benefit on NRL is expected to continue, except for the export; export is expected to see lower product placement cost and premium pricing which would offset loss of excise duty to large extent, 6) in the long run,current 7mmscmd of gas production is likely to rie to 13mmscmd with completion of Namrup fertilizer plants among others.
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