PL Stock Report: Oil India (OINL IN) - Q2FY24 Result Update – Disputed taxes drag profitability - BUY

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

Rating: BUY | CMP: Rs302 | TP: Rs368

Q2FY24 Result Update – Disputed taxes drag profitability

Quick Pointers:

♦ Net oil realization stood at US$75.5/bbl, while gas realization came in at US$6.5/mmBtu.

♦ Gas sales grew 20% QoQ with resumption of NRL and BCPL pants.

We cut our FY24E EPS estimate by 52.1% on account of extraordinary expense for provision for disputed taxes and change FY25E estimate by 21% post in changes in EBITDA estimates. Oil India’s (OINL) reported EBITDA and PAT of Rs 24.9 bn (+7% Q/Q, PLe: Rs 23 bn) and Rs 3.3 bn ( -80% Q/Q, PLe: Rs 14.3 bn) respectively on standalone basis. Decline in PAT was on account of provision of Rs 23.6bn towards disputed taxes on royalty of crude oil and natural gas. Total oil and gas production grew by 1.8% and 8.7% QoQ. Net oil realization post windfall tax is likely to be maintained at ~US$70-75/bbl, while gas realization would be US$6.5/mmBtu. We build in a 3% CAGR both in oil and gas production over FY24-26E. The stock is trading at 5.5x FY25 P/E and 4x FY25 EV/EBITDA. Maintain ‘Buy’ rating valuing it on SoTP based fair value of 5x FY26 EPS with added investments to arrive at TP of 368 (earlier Rs 341).

Operating profit grows 7% QoQ: EBITDA increased 7% QoQ to Rs 24.9bn. Other income came in at Rs 7.1bn, up 112% QoQ on account of dividend income from IOCL, NRL and its overseas subsidiary. The company had an extraordinary expense of Rs 23.6bn for GST on royalty of crude oil and natural gas, which led to an 80% QoQ decline in PAT to Rs 3.3bn. On YoY basis, EBITDA grew 35% while PAT fell 81%. For H1FY24, EBITDA grew 7.4% YoY, while PAT fell 40.8% YoY.

Volumes declined sequentially: Crude oil production was up 1.8% QoQ to 0.84 mmt. Gas production at 0.83 bcm grew 8.7% QoQ. On a YoY basis, oil production grew 5.7% while gas production fell 1.6%. Crude oil sales at 0.85 mmt were up 14.3% QoQ while gas sales at 0.65 bcm increased 20% QoQ with resumption in customer offtake. On a YoY basis, oil sales grew 10% while gas sales fell 1%. Going ahead, we build in a 3% volume CAGR to 3.5 mmt of oil and 3.5 bcm of gas in FY26.

Conference call highlights: 1) The company stated that GST on royalty is 18% and they will continue to provide for this tax, going forward. 2) Other income came in higher due to dividend income from IOCL, NRL and Singapore subsidiary. 3) No new oil field discovery made in India. On the Mozambique project, the company has incurred capex of US$1.4bn of the US$1.8bn approved by the Board. Incremental capex on the project would be done through debt. 4) Seismic cost for Q2 stands at Rs 1.1bn. 5) The company will get more clarity on the Venezuela project in one or two quarters. 6) Production target stands at 3.5-3.6 mmt for oil in FY24;2-3% growth is expected in natural gas.

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