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Oil India clocked Q2FY25 SA EBITDA of Rs21.8bn – an 11% miss, mainly due to higher provisions and lower-than-expected output. The SA PAT miss, however, was lower at 6% on higher Other Income and lower ETR. Crude production rose 5% YoY to 0.88mmt (2% miss), while gas was 3% below estimate at 0.80bcm (down 1% YoY on customer offtake issues). NRL’s EBITDA fell 46% QoQ to Rs4bn, largely on lower basic GRM of USD2.3/bbl (impacted by inventory loss of USD4.5/bbl). Management guided to oil/gas output of ~3.5mmt/3.4bcm for FY25; first phase of IGGL and DNPL expansion should be commissioned by Dec24 and Mar-26, respectively, supporting gas output growth. We trim Sep-25E TP by 5% to Rs665 with ~2% consol EPS cut and reducing implied target P/E to 11x from 11.5x on NRL GRM volatility. We cut FY25E EPS 10%; retain BUY

Result Highlights

OIL’s crude sales-to-production ratio was flat QoQ at 96%, with gas slightly lower at 81% (from 83% QoQ). Crude realization for Q2FY25 stood at USD79.3/bbl ex-windfall, whereas gas realization was slightly down QoQ at ~USD6.9/mmbtu. Employee costs were down 8% YoY and 1% QoQ at Rs4.5bn (9% below estimate). Other Expenses rose 40% YoY/24% QoQ to Rs11.6bn (32% above estimate) due to dry wells and provisions. DD&A was up 10% QoQ at Rs5.0bn. Interest costs rose 17% QoQ to Rs2.3bn. Other Income increased 21% YoY to Rs8.6bn vs our estimate of Rs8bn. Total statutory levies were 6% lower than estimate at Rs16.5bn, mainly on lower cess and windfall levy. NRL’s volume fell 11% QoQ to 0.68mmt; basic GRM stood at USD2.3/bbl (vs USD6.4/bbl QoQ). NRL capex, as per PPAC, was Rs22.4bn in Q2. Share of profit from associates/JV in consolidated accounts were Rs2.26bn in Q2FY25 vs Rs1.24bn QoQ. Consolidated adj EPS for Q2 was down 10% YoY/up 7% QoQ at Rs12.4 (bonus adjusted). Capex target for FY25 for SA/NRL is Rs60-70/100-120bn. Board declared an interim dividend of Rs3/sh.

Management KTAs

Management has guided to range-bound to slightly-higher natural gas output for Q3FY25 (vs earlier quarters) due to seasonally lower offtake from tea gardens. Management expects that 4-5% growth in oil & gas production is likely to continue in the near term. NRL’s 6mmtpa refinery expansion project has seen 70% physical progress and Rs200bn capex has already been incurred out of project cost of Rs280bn, while debt was Rs115bn. NRL has also sought ministerial approval for upward revision in NRL’s expansion project cost to Rs320bn. NRL has recently received approval for petchem project of 360ktpa at a capex of Rs70bn to be completed in 3 years. Customer offtake issue is being addressed through underground gas storage on war footing and 2 wells have been identified. The new North Bank gas pipeline would take 2 years to complete.

Valuation

We value OIL on SOTP basis, comprising of SA and NRL, using DCF methodology; investments are valued at our TP/BV with 30% holdco discount. We cut FY25E consolidated EPS by 10% based on H1 run-rate and weaker GRMs, while largely retaining FY26-27E consolidated EPS as lower NRL earnings are offset by premium gas pricing. Key risks: Adverse oil and gas prices, policy issues, local tensions, cost overruns, outages, and dry holes.

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