Buy Oil India Ltd for the Target Rs. 500 by JM Financial Services Ltd
Oil India’s 1QFY26 standalone EBITDA at INR 20.6bn was higher than JMFe of INR 19.5bn (but lower than consensus of INR 22.8bn) on better gas sales volume and realisation though it was partly offset by slightly lower crude sales volume and realisation. However, PAT at INR 8.1bn was sharply lower than JMFe/consensus of INR 10.2bn/INR 14.2bn, primarily due to impairment loss of INR 3.1bn in respect of two overseas blocks in Bangladesh. NRL’s 1QFY26 GRM was weak at USD 5.02/bbl (before excise duty benefit), resulting in lower EBITDA at INR 7.9bn. Consolidated EBITDA was slightly lower QoQ at INR 28.1bn in 1QFY26 (vs. INR 30.1bn in 4QFY25) primarily due to lower EBITDA from NRL. We maintain BUY (unchanged TP of INR 500) based on our Brent crude price assumption of USD 70/bbl (while CMP is discounting ~USD 60/bbl of net crude realisation). Further, Oil India’s earnings is likely to grow at a robust ~16% 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 Indradhanush gas pipeline; and b) expansion of NRL refinery from 3mmtpa to 9mmtpa. At CMP, Oil India trades at 6.3x FY27E EPS and 1.0x FY27E BV.
* Standalone EBITDA higher than JMFe (but lower than consensus) on better gas sales volume and realisation, while PAT lower than estimates due to impairment loss of INR 3.1bn: Oil India’s 1QFY26 standalone EBITDA at INR 20.6bn was higher than JMFe of INR 19.5bn (but lower than consensus of INR 22.8bn) on better gas sales volume and realisation though it was partly offset by slightly lower crude sales volume and realisation. However, PAT at INR 8.1bn was sharply lower than JMFe/consensus of INR 10.2bn/INR 14.2bn, primarily due to impairment loss of INR 3.1bn in respect of two overseas blocks in Bangladesh (SS04 and SS09) after the company exited these blocks, and also aided by lower other income (at INR 1.8bn vs. JMFe of INR 3.5bn). Hence, standalone 1QFY26 EPS was lower at INR 5/share. Consolidated EBITDA was slightly lower QoQ at INR 28.1bn in 1QFY26 (vs. INR 30.1bn in 4QFY25) primarily due to lower EBITDA from NRL. However, consolidated PAT was higher QoQ at INR 19bn, aided by higher share of profit of associate/JVs at +INR 7.2bn (vs. negative INR 2.7bn in 4QFY25).
* Crude sales volume and realisation slightly lower than JMFe (though production in line); while gas sales volume and realisation was better than JMFe: In 1QFY26, crude sales volume was slightly lower than JMFe (at 0.82mmt, down 3.1% QoQ and down 1.4% YoY) though crude production was largely in line with JMFe (at 0.853mmt, up 1.1% QoQ but down 2.1% YoY) as sales as % of production was lower at 96% vs. historical 97- 99%. Further, computed net crude realisation was also slightly lower at USD 63.9/bbl vs. JMFe of USD 64.4/bbl. However, gas sales volume was 2.2% higher than JMFe (at 0.7bcm, up 4.5% QoQ and up 2.8% YoY) though gas production was in line with JMFe (at 0.827bcm, up 2.6% QoQ and up 1.1% YoY). Further, domestic gas realisation was also slightly better at USD 6.9/mmbtu. Separately, the company highlighted that during the quarter it made a hydrocarbon discovery at Namrup-Borhat OALP block and commenced gas production from the Bakhritibba Discovered Small Field (DSF) block located in Rajasthan's Jaisalmer District.
* NRL’s 1QFY26 GRM weak at USD 5.02/bbl (before excise duty benefit), resulting in lower EBITDA at INR 7.9bn: NRL’s GRM (before excise duty benefit) was weak at USD 5.02/bbl in 1QFY26 (vs. JMFe of USD 9.0/bbl and vs. USD 9.3/bbl in 4QFY25); further, crude throughput was also slightly lower at 799tmt or 107% utilisation (and vs. JMFe of 824tmt and vs. 810tmt in 4QFY25). Hence, NRL’s EBITDA was lower at INR 7.9bn in 1QFY26 vs. JMFe of INR 9.8bn (and vs. INR 10bn in 4QFY25); PAT was also consequently lower at INR 4.9bn vs. JMFe of INR 6.3bn (and vs. INR 6.2bn in 4QFY25).
* Maintain BUY on expectation of crude stabilising ~USD 70/bbl while CMP discounting ~USD60/bbl; also driven by robust oil & gas production growth expectation and expansion of NRL refinery: We have cut our FY26 PAT estimate by 2.9%, accounting for impairment loss of INR 3.1bn in 1QFY26 in respect of two overseas blocks in Bangladesh; however, our TP is largely unchanged at INR 500. We reiterate BUY based on our Brent crude price assumption of USD 70/bbl (while CMP is discounting ~USD 60/bbl of net crude realisation). Further, Oil India’s earnings is likely to grow at a robust ~16% 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 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 7/bbl rise/fall in net crude realisation results in increase/decrease in our consolidated EPS and valuation by ~7-8% — Exhibit 8-9. Further, Oil India is also a robust dividend play (4-5%). At CMP, Oil India trades at 6.3x FY27E EPS and 1.0x FY27E BV.
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