Buy Oil India Ltd For A Decent Gain of 47% As Recommended By HDFC Securities

With a target price of 320, HDFC Securities recommends buying Oil India Ltd stock for a good gain of around 47%. The stocks market price was Rs 217 at the time of the brokerages buy call, and it is currently trading at Rs 221. Oil India Limited (OIL) is Indias second-largest national oil and gas corporation and is a Navratna company. It is a state-owned firm of the Indian government that is administered by the Ministry of Petroleum and Natural Gas. According to the brokerage, the companys Sales in Q2 were INR 33bn (+53% YoY, +10% QoQ). Crude realisation in rupee terms was at INR 5,154/bbl (+67% YoY, +7% QoQ). EBITDA came in at INR 9bn (HSIE INR 13bn, -26% QoQ), owing to higher provision of INR 5bn and exploration write-off of INR 1bn. Crude oil realisation increased to USD 69.6/bbl, (+67% YoY, +7% QoQ); gas realisation was at USD 1.9/mmbtu, (-47% YoY, +3% QoQ). Oil sales volumes were at 0.74mmt (+2% YoY, +2% QoQ), while gas sales volumes were at 0.67bcm, (+70.2% YoY, +11% QoQ). HDFC Securities has clarified that the companys standalone Capex budgets for FY22 and FY23 are INR 41bn and INR 42bn respectively. (2) The NRL refinery expansion to 9mmt will incur CAPEX of ~INR 300bn, which will be payable over FY24-26. (3) The company has guided oil production for FY23/24E at 3-3.1mmt and gas production at 3.2-3.25bcm. (4) The exploration write-offs were high in Q2 due to the commercial unviability of blocks at KG basin and Mizoram. However, management expects no major write-offs in the near future.Advertisement The brokerage has reported in its research report that Our BUY recommendation on Oil India with a target price of INR 320 is premised on (1) increase in crude price realisation and (2) improvement in domestic gas price realisation (at USD 2.9/mmbtu). We expect oil price realisation to increase to ~USD 68/bbl in FY22E and USD 70/bbl in FY23E vs. USD 44/bbl in FY21, given the expected global economic rebound, post COVID. Q2FY22 revenue was 1% below our estimates while EBITDA was 32% below, owing to higher-than-expected operating expenses (on account of provisions and write-offs). RPAT came in 32% below our estimate, impacted by higher depreciation, which was offset by higher other income and lower interest cost. We value Oil Indias standalone business at INR 173 (5.5x Mar-23E EPS) and its investments at INR 147. The stock is currently trading at 4x FY23E EPS. This stock is picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.