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Fortifying growth through integrated expansion

Oil India Limited (OIL) remains a key player as a leading integrated company across the energy value chain in India. The company is on track to meet its ambitious target of 4mmt of oil and 5bcm of gas production by FY26, backed by accelerated drilling activities in its rich Baghjan field, which will see the number of wells increase from 61 to ~80 in FY25 and 100 by FY27. The company is positioned to capitalize on favorable pricing with crude expected to average ~USD70/bbl & natural gas ~USD6.75- 7/mmbtu for FY26-27 supported by global demand-supply balance and suitable Indian government policies. The ongoing Numaligarh Refinery (NRL) expansion is set to triple its capacity to 9mtpa by Dec’25. Infrastructure projects like the Indradhanush Gas Grid (IGGL) will connect remote gas fields to key markets enhancing accessibility across India’s northeastern states, unlocking opportunities for increased domestic gas sales and reducing reliance on gas imports. We build-in NRL’s GRMs at ~USD14- 14.5/bbl through FY26-27, the company’s expanding downstream presence will offer higher profitability compared to its upstream operations, allowing for enhanced shareholder value. We maintain a BUY rating on the stock with a TP of Rs 833/shr.

Oil India’s growth strategy to establish itself as an integrated energy player:

Maximizing exploration and production: Oil India is aggressively expanding its upstream activities to meet its ambitious production target of a 4mmt crude oil production by FY26, with a milestone of 3.8mmt expected by FY25, while aiming to expand its gas portfolio by producing 5bcm of gas, focusing on both oil and gas reserves, particularly in the Baghjan field, which holds significant potential for both resources and exploring new OALP areas, coupled with seeking equity stakes overseas. The field’s accelerated development includes increasing the number of wells from 61 to ~80 in FY25.

Strengthening pipeline network for market access: Focusing on establishing an integrated gas grid in the northeast through projects like IGGL a 2,600km natural gas pipeline network connecting the northeastern states, expected to significantly boost gas sales by connecting previously inaccessible gas fields to industrial consumers, power plants, and households. Oil India is developing dedicated pipelines for efficient resource evacuation, such as the natural gas pipeline from Duliajan to Numaligarh through DNP Ltd is undergoing capacity augmentation from 1mmscmd to 2.5mmscmd by mid-2025 and Paradip-Numaligarh crude oil pipeline (PNCPL) which is a 1,635km pipeline to transport imported crude oil to the expanded NRL by mid-2025.

Refining capacity expansion: NRL’s refining capacity is being expanded from 3mtpa to 9mtpa by FY25, with ~65% project completion. This expansion is expected to cater to the rising demand for petroleum products in northeastern India, reducing import dependency and creating new market opportunities for Oil India’s crude production. The refinery’s strong GRMs, projected to average ~USD14-14.5/bbl between FY26- 27, will contribute to significant profitability and operational leverage. The equity contribution required from Oil India will not be more than Rs30bn as internal accruals has been strong. The gas demand post expansion at NRL would be at 2mmscmd.

Valuation

We maintain a BUY rating on Oil India, with a TP of Rs 833/sh and it remains our top pick in the space. Our TP of Rs 833/sh comprises a) Rs 525/sh for the standalone domestic business, valued on 6x EV/EBITDA FY27e, b) Rs 254/sh for NRL on EV/EBITDA of 8x FY26e, c) Rs 54/sh for investment in listed equities, valued at 30% hold-co discount to market price.

Increasing oil & gas production

Oil India is aggressively expanding its upstream activities to meet its ambitious production target of a 4mmt crude oil production by FY26, with a milestone of 3.8mmt expected by FY25 having a very well laid down plan to increase accelerated drilling activity in the drilling fields of improving the recovery, while aiming to expand its gas portfolio by producing 5bcm of natural gas by FY26 targeting 3.8-3.9bcm in FY25, focusing on both oil and gas reserves, particularly in the Baghjan field, which holds significant potential for both resources and exploring new OALP areas, coupled with seeking equity stakes overseas. The field’s accelerated development includes increasing the number of wells from 61 to ~80 in FY25 and 100 by FY27. Enhanced Oil Recovery (EOR) techniques such as hydro-fracturing and artificial lift optimization have been successfully applied to maximize output from aging fields.

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