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Production set to trailblaze

Earnings decline led by lower realization

Oil India (OINL IN) reported an EBITDA of INR 21.1bn, lower than INR 24.4bn estimated. EBITDA declined 26%/15% YoY/QoQ, led by a YoY drop in oil & gas realization and INR 2.4bn provision for GST demand. PAT declined 9% YoY to INR 15.8bn (Elara: INR 17.0bn).         

Crude oil production up 6% YoY; FY23-26E supply CAGR at 8-16%

Production of oil rose 6% YoY and 3% QoQ to 0.86mn tonnes. Production of gas increased 2%/1% YoY/QoQ to 8.9mmscmd. OINL has guided for 4mn tonnes of oil (8% CAGR in FY23-26E) and 5BCM of gas production (16% CAGR in FY23-26E) by FY26.         

OINL may double its output in next five years

OINL has 780mmboe oil & gas proved reserves, while only 28% of proved reserves are developed versus ONGC’s 63%. This implies that OINL has a massive 72% undeveloped oil & gas reserves, with nil exploration risk, and only requires development and infrastructure connectivity. GAIL’s Barauni-Guwahati gas pipeline may be ready by mid-2024 and NRL refinery expansion may be completed by September 2025. So, there would be no demand constraint from H2FY26, for both crude oil and natural gas. Despite guidance of 40% production growth in FY23-26, OINL’s developed reserves (of total proved reserves) may still be low at 40%, which implies that OINL may further increase its production by ~50% over FY26 levels.                

Valuation: Upgrade to Buy; TP raised to INR 685

We up TP to INR 685 from INR 329 on expectations of 12% oil & gas production CAGR in the next five-years due to massive 72% undeveloped proved reserves availability. We upgrade OINL to BUY from Accumulate. We assume long-term crude at USD 75/bbl and APM gas at USD 7.5/mmbtu (unchanged). We value OINL standalone at 6.0x (from 4.0x) FY26E EBITDA, 69.6% stake in NRL at INR 185/share @5.5x FY26E EBITDA and Mozambique stake at INR 18/share.

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