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EBITDA miss on lower production and sales of both oil and gas

Oil India’s earnings saw lower-than-estimated EBITDA and PAT on weaker volumes while the realizations in line with expectations. Crude production & natural gas both experienced YoY and QoQ increase (but was lower than the company target due to less than planned workover wells & lower offtake by customers. Depreciation, finding cost, and statutory levies showed marginal increase, other expenses were higher than expected while other income included dividend income from its investments. We maintain a BUY rating, with a revised TP of Rs 710/sh, and find decent upside on current CMP despite a downward revision in FY26 volume assumptions.

Result Highlights

* Performance: EBITDA was at Rs 21.8bn down 12.3% YoY and 11.5% QoQ. The adj. PAT at 18.3bn was down 31.8% YoY but up 25% QoQ. The volumes were weaker than our estimates, EBITDA was below our estimates on weaker production and sales volumes on both oil and gas.

* Crude production and sales: the oil production was up 4.8% YoY and flat QoQ at 0.875 mmt (but was lower than the company target due to less than planned workover wells and lower contribution from old wells) weaker than our expectations. Oil sales were down 1.8% YoY and up 0.6% QoQ.

* Natural gas production and sales: the production was down 1.4% YoY and 2.3% QoQ at 799 mmscm (but was lower than the company target due to lower upliftment of gas and less than planned workover, drilling and old wells). Natural gas sales were down 0.9% YoY and 4.6% QoQ. The sales as % of production was ~81 which is still lower.

* Crude and Gas realization: Gross crude realization was down 8.5% YoY and 6.7% QoQ to USD 79.2/bbl, in line with the international brent prices, whereas gas realization was at USD 6.5/mmbtu. Net crude realization was down 2.1% YoY and 1% QoQ to USD 73.9/bbl (Windfall taxes of USD 5.3/bbl vs USD 10.3/bbl QoQ).

* Numaligarh Refining (NRL) performance: The performance was weaker with EBITDA at Rs 4bn (vs Rs 7.3bn in Q1FY25 and Rs 10.8bn in Q2FY24). The PAT is lower at Rs 1.75bn, down 76.2% YoY and 59.3% QoQ due shutdowns leading to lower refining throughput and GRMs. The GRMs were also impacted by a decline in product cracks and possible inventory losses. The GRMs at USD2.3/bbl (vs USD6.4/bbl in Q1FY25 and USD16 in Q2FY24).

* Finding cost: as per our calculations, at USD16.1/bbl, it is higher than last 3-yr average of USD15/bbl. The statutory levies as a % of revenue stood at 26.2% (versus 27.2% YoY and 26.9% QoQ). The other income at Rs 8.6bn (up 20.6% YoY and 429% QoQ) on dividend received from its investments. The company has declared an interim dividend of Rs 3/share, a 15% payout for H1FY25 to be paid by 4th Dec’24.

* H1FY25 performance: EBITDA/Adj. PAT at Rs 46.5/33bn vs Rs 48.2/43bn same period last year. Crude production was up 5.5% at 1.75 mmt, natural gas production was up 4% at 1.62bcm. Net crude realization was flat at USD 74.2/bbl.

Valuation

We maintain a BUY rating on Oil India, with a revised TP of Rs 710/sh, and find decent upside on current CMP despite a downward revision in FY26 volume assumptions. Our TP of Rs 710/sh comprises a) Rs 457/sh for the stand-alone domestic business, valued on 6x EV/EBITDA FY27e, b) Rs 206/sh for NRL on EV/EBITDA of 8x FY26e, c) Rs 48/sh for investment in listed equities, valued at 30% hold-co discount to market price.

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