Buy Oil India Ltd for Target Rs 672 by Elara Capital
Policy shifting to E&P capex over windfall gain
The stock price of Oil India (OINL IN) rose 14% in the past three months, outperforming the benchmark Nifty Index, down 7%, due to improving upstream outlook. The key shift is not merely higher crude, but the policy stance around it — despite crude staying elevated and fiscal pressures rising, the government avoided windfall burdens and instead moved to improving upstream economics by reducing royalty. This suggests policy preference for E&P capex, domestic production growth and energy security. We reiterate BUY with a higher TP of INR 672 (from INR 575).
Q4 standalone revenue up 8% and PAT up 12% YoY on higher crude oil realization:
OINL’s reported standalone PAT of INR 17.9bn in Q4FY26 was up 12% YoY and above our estimate of INR 14.2bn, led by higher crude realization, improved oil output and higher other income. Consolidated PAT rose to INR 24.2bn versus INR 15.0bn in Q4FY25, supported by strong GRM at Numaligarh Refinery (NRL) at USD 21.2/bbl, up 128% YoY. Crude realization improved to USD 77.9/bbl, while oil production rose 6% YoY, partly offset by 6% drop in gas production
NRL expansion to improve earnings mix:
Capacity expansion at NRL from 3MTPA to 9MTPA in FY27 would reduce the dependence on upstream crude volatility, provide more predictable EBITDA. Throughput expansion to 8.4/9.0MTPA by FY28E/FY29E can drive consolidated revenue, though our EBITDA growth assumptions of 59% in FY26-29E is conservative due to lower GRM and excise-duty concession assumptions.
Gas monetization, the optional upside:
Anticipated commissioning of Dulaijan-Numaligarh pipeline (DNPL) by Q1FY27 and Indradhanush Gas Grid (IGGL) section by end-FY28 should lift evacuation capacity from 10.6mmscmd to 15.6mmscmd, a ~50% rise, supporting ~1.8BCM incremental annual capacity. This improves visibility for converting OINL’s under-developed gas reserves into production and connects to pan-India markets.
Royalty revision signals clear government push toward upstream investment cycle:
Instead of imposing additional windfall taxes or extracting incremental revenues from upstream PSUs, the government has chosen to improve domestic E&P economics by reducing royalty rates. We believe this indicates initial signs of a broader policy objective to accelerate oil & gas production by encouraging upstream capex and reducing India’s import dependence
Retain Buy with a higher TP of INR 672:
We raise our TP to INR 672 from INR 575, driven by higher crude assumptions – USD 98/bbl in FY27E (from USD 65/bbl) and USD 85/bbl in FY28E (from USD 65/bbl). So, we raise FY27E EPS by 44% and FY28E by 13%, partly offset by the decline in NRL’s EBITDA by 15% for FY27E and 7% for FY28E on lower excise duty benefits. We introduce FY29E estimates. We reiterate BUY on stronger upstream realization, improving production, supportive policy and rising contribution from NRL expansion. We value OINL on SOTP, valuing standalone operations at 7.5x (unchanged) FY28E EV/EBITDA. We value OINL’s 69.6% stake in NRL at INR 200/share at 6.0x FY28E EBITDA (from INR 185/share) on USD 13.9/bbl GRM. We introduce FY29E estimate.
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