PL Stock Report: Oil India (OINL IN) - Q1FY24 Result Update - Strong operating performance - BUY

Oil India (OINL IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs277 | TP: Rs341

Q1FY24 Result Update - Strong operating performance

Quick Pointers:

§ Gas realization down to US$6.5/mmbtu post revision in domestic prices

§ Oil production increased 2.5% QoQ while gas production fell 4.5% QoQ owing to offtake issues with customers

Oil India’s (OINL) results were above estimates with EBITDA/PAT of Rs 23.2 bn (-1% Q/Q, PLe: Rs 22.1 bn) and Rs 16.1 bn ( -9.8% Q/Q, PLe: Rs 13 bn) respectively on a standalone basis. Total oil and gas production fell marginally by 1% QoQ to 1.5 MMT primarily due to decline in gas production. The company aims to achieve its targeted production of 4 MMT of oil and 5 BCM of gas by FY25 end and on a conservative basis we have built in a 3% CAGR both in oil and gas production over FY23-25. The stock is trading at 6.3x FY25 EPS and 5x FY25 EV/EBITDA. We maintain our ‘Buy’ rating on the stock, valuing it on SoTP based fair value of 6x FY25 EPS and add investments to arrive at our TP of 341.

Operating margins largely maintained: Revenue came in at Rs 46.4 bn, down 18% QoQ due to decline in oil and gas realization. Oil realization post accounting for windfall tax stood at US$74.3/bbl, down US$1.8/bb QoQ while gas realization fell by US$2/mmbtu to US$6.5/mmbtu. EBITDA at Rs 23.2 bn was down 1% QoQ while PAT declined by 9.8% QoQ to Rs 16.1 bn due to higher depreciation, interest and lower other income.

Volumes decline sequentially: Crude oil production was up 2.5% QoQ to 0.82 MMT. However, gas production at 0.745 BCM declined 4.5% QoQ due to offtake issues with customers. This led to total volume falling marginally by 1% QoQ to 1.565 MMT. On a YoY basis oil production grew 5.4% while gas production fell 3.4%. Crude oil sales 0.747 MMT were down 2.5% QoQ while gas sales at 0.54 BCM declined by 8% QoQ. On a YoY basis, oil and gas sales fell 2.2% and 8.4%, respectively.

Company outlook: Although crude oil prices have risen and are currently trading at around US$85/bbl, we believe net oil realization after adjusting for windfall tax to be capped at US$70/bbl. Gas prices have been revised as per the Kirit Parikh committee’s recommendation from US$8.57/mmbtu to a ceiling of US$6.5/mmbtu for the next two years. This will provide stability to the company on the pricing front. On the production front, the company aims to achieve its targeted production of 4 MMT of oil and 5 BCM of gas by FY25. However, on a conservative basis we have built in a 3% increase both in oil and gas production. We anticipate oil production to reach 3.37 BCM and gas production to reach 3.37 BCM in FY25.

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