Neutral Oil India Ltd for the Target Rs 485 by Motilal Oswal Financial Services Ltd
Strong oil growth offsets weak gas volumes
* Oil India’s (OINL) 1QFY27 revenue stood 9% above our estimate at INR79.6b. Oil sales came in 8% above our estimate, while gas sales were 11% below our estimate at 0.92mmt/0.62bcm. Oil production increased 11% YoY to 0.95mmt. Gas production declined 8% YoY to 0.76bcm. Oil realization was USD98.7/bbl (4% above our estimate of USD95.2/bbl). EBITDA was 6% above our estimate at INR43.4b (+83% YoY). Exploration cost write-offs stood at INR2.5b. Adjusted PAT was 12% above our estimate at INR28.7b.
* Things we liked about the result: 1) Oil production recorded strong 11% YoY growth to 0.95mmt in 1QFY27, with the current run rate remaining healthy as the company has guided to achieve 1mmt production in 2QFY27; 2) NRL's GRM performance was robust at USD36/bbl (vs USD5/bbl in 1QFY26); 3) Management's well drilling target also remains encouraging, with FY27 drilling activity guided to increase to ~100 wells (42 exploratory + 57 development) from 74 wells in FY26, reflecting an accelerated exploration push. 4) The completion of the ~200m DNPL feeder line stretch, expected in the next 2-3 months, should aid gas volumes by 1.5mmscmd.
* Key investor concerns:
1) Gas offtake issues led to weak 1Q gas production, which declined 8% YoY to 0.76bcm. Timely connectivity of the DNPL (expected in 2-3 months) and IGGL feeder lines (FY28-end) remains a key monitorable for gas volume growth.
2) The pace of NRL's commissioning and subsequent ramp-up (full capacity expansion to 9mmtpa targeted by Mar'27) will also be a key monitorable going forward. CDU and VDU are slated to start in Oct’26 (vs. Jul’26 earlier).
Higher-than-expected realization drives EBITDA beat; robust NRL performance
* OINL’s revenue stood 9% above our estimate at INR79.6b.
* Oil sales came in 8% above our estimate, while gas sales were 11% below our estimate at 0.92mmt/0.62bcm.
* Oil production increased 11% YoY to 0.95mmt. Gas production declined 8% YoY to 0.76bcm.
* Oil realization was USD98.7/bbl (4% above our estimate of USD95.2/bbl).
* EBITDAX stood 6% above our estimate at INR43.4b.
* Exploration cost write-offs stood at INR2.5b (INR1.5b/INR4.6b in 4QFY26/1QYF26).
* Adjusted PAT was 12% above our estimate at INR28.7b.
* Other income and tax rate stood above our estimate.
* Numaligarh refinery’s 1QFY27 performance:
* PAT stood at INR13.1b (vs. PAT of INR4.9b during 1QFY26), as GRM stood at USD35.95/bbl.
* Crude throughput stood at 791.2tmt (799.3 in 1QFY26), and distillate yield was at 87.6% (vs. 85.4% in 1QFY26).
* OINL recognized a provision of INR2.9b in 1QFY27, including an interest of INR1b. Total cumulative provision toward Service Tax and GST stood at INR50.4b as of 30 Jun’26.
* Arunachal Gas Private Limited (50:50 JV with BPCL) allotted 2.5m equity shares (face value: INR10/share) to the company during 1QFY27. The JV will develop and operate the CGD network in Arunachal Pradesh.
Valuation and view
* Over the past few quarters, OINL has struggled to ramp up production/sales, with limited YoY growth. While we like the increased exploration intensity (which is key to building a robust development pipeline), we believe this is likely to be accompanied by higher dry-well write-offs, which could weigh on earnings. Further, the benefits of a higher proportion of gas from new wells are likely to be largely offset by subdued gas realizations amid a weaker crude oil price outlook.
* The company aims to drill 100 wells by FY27. This will be the highest number of wells drilled annually in the history of OINL. The NRL refinery segment is expected to achieve 75% capacity utilization by FY28’end.
* We revise our SoTP-based TP to INR485 as we model a 5.4%/8.1% CAGR for oil and gas production volumes over FY26-28.
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