Oil India rating: Maintain ‘buy’ with target price of Rs 115

The stock trades at a ~30% discount to its long-term PE average, with a strong dividend payout of >50%.

Oil and gas sales were ~7% lower year on year (YoY) and flattish quarter on quarter (QoQ), with net realisation at $30.4/bbl, in line with decline in crude prices. Expenditure incurred to control the blowout at the Baghjan field is recorded as an exceptional item. Crude prices have moved up the trough and stabilised at $42–45/bbl over the last couple of weeks. We believe prices would stabilise at around $40–50/bbl as OPEC+ production cuts continue, further aided by demand revival. We expect no incremental change in production volumes for both oil and gas in the near term. The company stated it intends to add gas production of ~5msmcmd from 2024–25 (on 7.5mmscmd currently), while arresting decline in oil production. We model-in crude oil prices of $40/bbl / $50/bbl for FY21/FY22, respectively, and highlight that a change of $1/bbl in oil price impacts ebitda by 4%. The stock trades at a ~30% discount to its long-term PE average, with a strong dividend payout of >50%. We maintain ‘buy’.

Crude oil production in Q1FY21 fell 8% YoY to 0.75mmt and gas by 4% YoY to 0.65bcm. Total production was at 1.40mmtoe (-6% YoY). On similar lines, oil sales declined 8% YoY to 0.73mmt and gas sales 6% YoY to 0.58bcm. Total sales were at 1.31mmtoe (-7% YoY). Net oil price realisation was in line with estimates at $30.4/bbl v/s $66.3 in Q1FY20. Decline was in line with the fall in oil prices. Oil India reported ebitda of Rs 2 billion (-48% est.; -85% YoY). DD&A stood at Rs 3.6billion (translating to $4.6/boe). Expenditure of Rs934 million incurred to control the blowout at the Baghjan field is recorded as an exceptional item. The company has also received an income tax refund from Guwahati HC, resulting in tax reduction of Rs138 million. Reported PAT loss for the quarter was at Rs 2.5billion (v/s estimated gains of Rs1.7 billion and Rs 6.2billion in Q1FY20). Adjusting for the aforementioned exceptional item, adjusted PAT stands at loss of Rs1.6 billion for the quarter.

The company stated that on May 27, it witnessed a blowout at one of its gas-producing wells at the Baghjan field during workover operations. Oil India capped Well 5 at the Baghjan field by placing a blowout preventer (BoP) stack on the well head. Due to the blowout, the company reported production loss of about 72mmscm of natural gas. The company expects oil and gas production in FY21 to be marginally lower YoY. In line with the guidance, we build-in oil production decline of 3% YoY (at ~3mmt) and flat production for gas (at ~2.7bcm) in FY21, with a ~4% Y-o-Y increase in oil (3.14mmt) and gas (2.8bcm) production in FY22. The stock trades at 5.6x FY22E EPS of Rs17.8. We use an SOTP-based fair value of 8x FY22E adjusted EPS of Rs 14.4 and add investments to arrive at target price of Rs 115. Maintain ‘buy’.