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Core story intact; attractively priced

* Oil India (OINL)’s 2QFY25 financial result was a miss at the EBITDA level and following the conference call, we cut our FY25/26 PAT by 2/5%, mainly as we moderate our volume growth assumptions. The core story still largely remains intact – Numaligarh Refinery Limited (NRL)’s expanded capacity is on track for commissioning in FY26 and Indradhanush Gas Grid phase I has already achieved mechanical completion. Despite a marginal cut to our PAT estimates, OINL remains attractively priced after the recent correction, and we estimate the standalone business (adjusted for value of investments and NRL stake) is trading at FY26 PE of 5.8x. We reiterate our BUY rating on the stock with a revised TP of INR660/share

* OINL’s 2QFY25 EBITDA was 11% below our estimates, mainly due to gas sales (0.65bcm) coming in significantly below our est. of 0.74bcm and a 14% rise in other opex on a YoY basis. The sharp rise in other opex was largely due to dry wells-related write-offs. OINL’s oil/gas production stood at 0.88mmt/0.80bcm,+5%/-1% YoY, respectively. PAT was 10% above our expectations, mainly due to higher other income.

* In the 2Q Earnings Call, management guided for a ~5% YoY increase in oil and gas production during FY26. NRL has achieved 70% physical completion and is slated to start in Dec’25. Approval from the ministry for the revised capex of NRL, amounting to INR320b (INR280b as of now), is yet to be received. As of 30 Sep’24, NRL’s debt stood at INR115b. Standalone/consolidated capex of INR70b/INR120b is planned to be incurred in FY25, with 75% being incurred on the upstream segment. OINL plans to drill 70+ wells in FY25.

*  We arrive at our TP of INR660/share as we build in the oil and gas production of 3.7mmt and 3.5bcm in FY26, respectively. We value the standalone business at 9x 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.

Miss on EBITDA amid weaker-than-expected gas sales; higher other opex

*  Revenue was in line with our estimate at INR55.2b (-7% YoY).

* Oil sales came in at 0.84mmt (our estimate of 0.84mmt, -2% YoY). Gas sales stood at 0.65bcm (our estimate of 0.74bcm, -1% YoY).

* Oil realization, net of windfall tax, was USD73.9/bbl (our estimate of USD73/bbl).

*  EBITDA came 11% below our estimate at INR21.8b (-12% YoY).

* However, the reported PAT was 10% above our estimate at INR18.3b (est. INR16.7b) due to higher-than-expected other income.

* NRL performance:

* PBT stood at INR2.5b (vs. PBT of INR9.9b during 2QFY24), led by a muted GRM of USD2.3/bbl in 2QFY25 (vs. GRM of USD16.4/bbl in 2QFY24).

* Crude throughput stood at 683tmt (vs. 778tmt in 2QFY24) and distillate yield stood at 84.1% (vs.85.3% in 2QFY24).

* In 1HFY25, while net sales grew 8% YoY to INR113.6b, EBITDA/APAT declined 3%/6% YoY to INR46.5b/INR33b, respectively. In 2H, we estimate net sales to remain similar YoY, while EBITDA/PAT to grow 33%/12% YoY.

* The Board has declared an interim dividend of INR3/sh (FV of INR10/sh).

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 increase production. Capacity expansion for NRL (from 3mmt to 9mmt) is also expected to be completed by Dec’25, which will drive further growth.

* OINL remains a strong conviction at 1.5x FY26E P/B (standalone) valuation. We value the stock at 9x Dec’26E standalone adj. EPS and add investments to arrive at our TP of INR662. Reiterate BUY.

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