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Earnings miss on lower volume & realisation; weak show by NRL too

Oil India’s 2QFY25 standalone EBITDA, at INR 24.8bn, was significantly lower than JMFe of INR 28.3bn (and slightly lower than consensus of INR 25.2bn) due to lower crude & gas sales volume and net crude realisation. Hence, PAT, at INR 18.3bn, was also lower than JMFe of INR 20.7bn (though in line with consensus of INR 18.1bn) with higher dry-well write-off partly offset by higher other income and lower taxes. Further, NRL’s 2QFY25 EBITDA was significantly lower at INR 4.0bn due to weak GRM of USD 2.25/bbl (before excise duty benefit). Hence, consolidated EBITDA was also lower QoQ at INR 28.3bn in 2QFY25 (vs. INR 32.2bn in 1QFY25). We maintain BUY (revised TP of INR 685) given our expectation that OPEC+ will continue to support crude ~USD 75-80/bbl and the government allowing ONGC/Oil India to make net crude realisation of ~USD 75/bbl. Further, Oil India’s earnings is likely to grow at a strong 15-17% CAGR over the next 3-5 years driven by: a) sharp 20-30% output growth in the next 2-3 years aided by commissioning of the Indradhanush gas pipeline; and b) expansion of NRL refinery from 3mmtpa to 9mmtpa. At CMP, Oil India is trading at 5.5x FY27E EPS and 1.1x FY27E BV

* Standalone EBITDA significantly lower due to lower crude & gas sales volume and net crude realisation; PAT also lower due to higher dry-well write-off: Oil India’s 2QFY25 standalone EBITDA at INR 24.8bn was significantly lower than JMFe of INR 28.3bn (and slightly lower than consensus of INR25.2bn) due to lower crude & gas sales volume & net crude realisation. Hence, PAT at INR 18.3bn was also lower than JMFe of INR 20.7bn (though in line with consensus of INR 18.1bn) with higher dry-well write-off (at INR 2.9bn vs. JMFe of INR 1.0bn) partly offset by higher other income (at INR 8.6bn vs. JMFe of INR 7.0bn) and lower taxes (20.4% vs. JMFe of 25.2%). Consolidated EBITDA was also lower QoQ at INR 28.3bn in 2QFY25 (vs. INR 32.2bn in 1QFY25) due to lower EBITDA from NRL on account of weak GRM and lower throughput; consolidated PAT was at INR 20.2bn (or EPS of INR 12.4). The board approved an interim dividend of INR 3/share (or 15% of 1HFY25 standalone EPS of INR 20.3/share).

* Crude sales volume and realisation lower; gas sales volume also lower: In 2QFY25, crude sales volume was 7.3% below JMFe (at 0.84mmt, up 0.6% QoQ but down 1.8% YoY) as crude production was 3.3% below JMFe (at 0.88mmt, up 0.5% QoQ and up 4.8% YoY) and sales as % of production was lower at 96% vs. historical 99-100%. Further, computed net crude realisation adjusted for windfall tax was also lower at USD 71.6/bbl vs. JMFe of USD 73/bbl with windfall tax being higher at USD 5.3/bbl in 2QFY25 (vs. JMFe of USD 4.5/bbl). Further, gas sales volume was 4.6% below JMFe (at 0.65bcm, down 0.9% QoQ and down 4.6% YoY) as gas production was 3.7% below JMFe (at 0.8bcm, down 2.3% QoQ and down 1.4% YoY). Domestic gas realisation was largely in line at USD 6.8/mmbtu.

* NRL 2QFY25 GRM weak at USD 2.25/bbl (before excise duty benefit), results in lower EBITDA at INR 4.0bn: NRL’s GRM (before excise duty benefit) was significantly lower at USD 2.25/bbl in 2QFY25 (vs. USD 6.4/bbl in 1QFY25); crude throughput was also lower QoQ at 683mmt or 91% utilisation vs. JMFe of 701mmt (and vs. 764mmt in 1QFY25) Hence, NRL’s EBITDA was significantly lower at INR 4.0bn in 2QFY25 vs JMFe of INR 6.2bn (and vs. INR 7.3bn in 1QFY25); hence, PAT was also sharply lower at INR 1.8bn vs. JMFe of INR 3.6bn (and vs. INR 4.3bn in 1QFY25).

* Maintain BUY on Oil India as it is a play on sustained high crude price scenario and strong production growth outlook: We maintain our FY25-FY27 estimates; however, our TP has been revised to INR 685 (from INR 695) due to decline in value of other investments (which is valued at CMP less 20% holding discount). We reiterate BUY given our expectation that OPEC+ will continue to support crude ~USD 75-80/bbl and the government allowing ONGC/Oil India to make net crude realisation of ~USD 75/bbl. Further, Oil India’s earnings is likely to grow at a strong 15-17% CAGR over the next 3-5 years driven by: a) sharp 20-30% output growth in next 2-3 years aided by commissioning of Indradhanush gas pipeline; and b) expansion of NRL refinery from 3mmtpa to 9mmtpa (given the management guidance of excise duty benefits continuing for the expanded capacity as well). Every USD 5/bbl rise/fall in net crude realisation results in increase/decrease in our EPS and valuation by ~7-10% — Exhibit 7-8. Further, Oil India is also a robust dividend play (4-5%). At CMP, Oil India trades at 5.5x FY27E EPS and 1.1x FY27E BV.

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