Buy Oil India Ltd for the Target Rs 625 by Emkay Global Financial Services Ltd
We reiterate BUY on OIL and raise TP (Sep-27E) by ~9% to Rs625 from Rs575 as we expect consolidated AEPS to increase from ~Rs40 in FY25-26 to ~Rs62/65/74 in FY27/28/29E, driven by higher O&G realizations and GRMs and sharp rise in NWG sales and NRL capacity. OIL already achieved 4mmtpa crude output target of Mission 4+, with current rate at ~11ktpd. Management expects further uptick to 4.2mmtpa by FY29. Gas currently is constrained by evacuation issues, but 3 offtake channels—DNPL-IGGL connectivity, NRL expansion, and new Duliajan Feeder Line (DFL)—over FY27-28-end would help push production up by >60% to 5bcm by FY29, with all new gas qualifying as premium NWG. OIL aims 10-12mmtoepa output by FY30, which we believe could be 9-10mmtoe from existing and 2-3mmtoe from new areas. SA AEPS should rise from Rs26 in FY26 to Rs64 in FY29. The refining scenario is equally attractive as our FY29-30E EBITDA of Rs75-80bn (on expanded capacity) could be achieved in FY27-28 itself (Rs19bn earned in 1Q) given the current distillate shortage and GRM spike; this should cap debt increase. We estimate OIL’s consolidated ROIC to increase from 10% in FY26 to ~15% in FY27-29E and FCFF yield to rise from negative 8-9% in FY26-27 to +4-6% in FY28-29E as the major capex cycle ends. We raise FY27E EPS by 10% and retain FY28/29E EPS.
Outlier production growth in crude oil; gas to see massive jump in 2 years
OIL has reported 11% yoy crude output growth in 1QFY27, at 3.8mmtpa, while Jul26/current output is further up and sustaining at ~4mmtpa (>15% yoy growth). This is against weak oil output of most Indian peers. Gas, in turn, was down 8% yoy in 1Q, at ~3.0bcm, while Jul-26/current is at ~3.1bcm (down 0-1% yoy). However, this is solely because of demand issues. DNPL expansion from 1 to 2.5mmscmd is already done and declared a common carrier by PNGRB, with a 25-30-day NRL shutdown for IGGL hookup only pending (target to complete in next 2-3 months); 3.5mmscmd DFL work is also in progress for COD by FY28-end. Hence, gas production by FY29 should reach 5bcm or 13.7mmscmd. We visited the almost-ready new 5mmscmd FGGS in Baghjan.
Current refining upcycle supporting NRL; EBITDA at Rs75-80bn pa run-rate
NRL expansion has faced delays and ~33km of ROU for new Paradip crude line is pending, but management has maintained FY27-end COD target. We visited the facility, and phase-wise commissioning is underway. Despite this, NRL is currently clocking expanded capacity EBITDA due to a sharp uptick in diesel and wax cracks from the global refining shortfall. In 1QFY27, NRL’s basic core GRM was $34/bbl despite $29/bbl of windfall taxes, with pure GRM at $63/bbl. EBITDA was hence at Rs19bn. Discussions with BPCL on expanded capacity offtake are underway as the latter will continue to face 1.5-2.0/4.5- 5.0mmtpa shortfall in MS-HSD, with a tripartite agreement signed between BPCL, NRL, and OIL. A pipeline from Siliguri to East UP is also planned to alleviate the CST burden.
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