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  • Stock recommendation: Oil India Ltd – BUY – TP Rs.245

    Publish date: August 16, 2018


    Result Update

    Higher crude oil/natural gas realization, weaker currency and higher gas sales volume led to significant jump in operating profit. Reported PAT is better than our estimate but sequentially lower on account of lower other income (base effect), higher exploration cost written off and higher insurance, rent, CSR, sundry expenses. Going forward, higher international crude oil price and weaker currency will support future earnings, we opine.

    Key Highlights

    • OIL's PAT for Q1FY19 is marginally better than our estimates. It has reported a PAT of Rs. 7 bn against our expectation of Rs.6.6 bn mainly on account of higher revenue.
    • We expect the stock to remain in focus due to couple of triggers - rising international crude oil prices resulting in better realization, weak currency improves realization for all products, potential increase in domestic natural gas price in H2FY19 and news flow of merger with IOC. However, key headwind remains uncertainty regarding subsidy burden imposed by the government on upstream companies. OIL India is available at less than its book value due to subsidy concern.

    Valuation & Outlook

    • We expect OINL to report an EPS of Rs. 27.1 FY19E and Rs.28 in FY20E reflecting higher oil and gas realization, rupee depreciation and higher sales volume.
    • On the basis of our estimates, we believe the stock is now attractively valued at 0.8x P/BV and 7.4x P/E on the basis of FY20E. We now recommend BUY on OINL with an unchanged price target of Rs. 245. Improvement in crude oil/gas prices, production ramp-up and weak rupee due to geo-political risk will be key positives for the company which will improve the earnings going forward.

          

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