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EBITDA miss on lower crude realization despite better volumes

Our View

Oil India’s earnings saw lower-than-estimated EBITDA and PAT on weaker crude realizations while the volumes for both oil & gas stood better than expectations. Crude production & natural gas both experienced YoY and QoQ increase while the sales volume grew higher than the production as the ratio improved especially for gas which added to strong volumes. Depreciation, finding cost, and statutory levies showed marginal increase. Other expenses in line, while other income was weaker than expected with no interest/dividend income from their investments. We rollover the valuation to FY27 from FY26 earlier, with a revised TP of Rs 855/sh, and find decent upside on current CMP, maintaining it as our top pick in the space.

Result Highlights

* Performance: EBITDA was at Rs 23.7bn up 5.9% YoY and 5.6% QoQ. The adj. PAT at 14.7bn was down 9.1% YoY and 27.7% QoQ. The volumes were better than our estimates, EBITDA was below our estimates on weaker crude realization and a sharp fall in other income which further impacted the PAT.

* Crude production: was up 6.2% YoY and 2.7% QoQ at 0.871 mmt (but was lower than the company target due to less than planned workover wells) but better than our expectations.

* Natural gas production: was up 9.8% YoY and 1.6% QoQ to 818 mmscm (but was lower than the company target due to lower upliftment of gas and less than planned workover, drilling and old wells. There was a lower offtake by RRUVNL, Ramgarh, Rajasthan due to technical problems/shutdown/damage due to fire incident of gas turbine) but higher than our expectations.

* Crude and Gas realization: Gross crude realization was up 10.2% YoY and 1.6% QoQ to USD 84.9/bbl, in line with the international brent prices, whereas gas realization was at USD 6.5/mmtbu. Net crude realization was 0.5% YoY and down 5.3% QoQ to USD 74.62/bbl (Windfall taxes of USD 10.3/bbl vs USD 4.5/bbl the last qtr).

* Numaligarh Refining (NRL) performance: The performance was weaker with EBITDA at Rs 7.33bn (vs Rs 11bn in Q4FY24 and a loss of Rs 52mn in Q1FY24 due to shutdown). The PAT is down better on YoY basis but down 33.1% QoQ to Rs 4.3bn due to lower GRMs and lower utilizations sequentially. The GRMs which would also be affected by a decline in product cracks and possible inventory losses. The GRMs at USD6.4/bbl (vs USD13.3/bbl in Q4FY24 and negative USD15.6 in Q1FY24).

* Finding cost: as per our calculations, at USD13.9/bbl, it is lower than last 3-yr average of USD14.8/bbl. The statutory levies as a % of revenue stood at 26.9% (versus 25.5% YoY and 27% QoQ).

* The other income at Rs 1.6bn (sharply down 51.6% YoY and 80.6% QoQ).

Valuation

We maintain a BUY rating on Oil India and rollover the valuation to FY27 from FY26, with a revised TP of Rs 855/sh, and find decent upside on current CMP. Our TP of Rs 855/sh comprises a) Rs 523/sh for the stand-alone domestic business, valued on 6.0x EV/EBITDA FY26e, b) Rs 276/sh for NRL on EV/EBITDA of 8x FY26e, c) Rs 56/sh for investment in listed equities, valued at 30% hold-co discount to market price.

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