Buy Oil India, target price Rs 110: Motilal Oswal


Motilal Oswal has given a buy rating to Oil India Ltd with a target price of Rs 110. The share price moved down by -0.99 per cent from its previous close of Rs 95.65. The stock’s last traded price is Rs 94.70.

Oil India’s 4QFY20 oil and gas sales were in line with brokerage estimates. However, EBITDA (excluding impairment) was 5 per cent lower than estimates. The company recorded impairment and write offs of Rs 17.8 billion during the quarter. For FY20, oil sales were down 5 per cent year on year to 3.06 mmt and gas sales were down 4 per cent year on year to 2.4bcm, as operations were hampered due to (a) CAB (Citizen Amendment Bill) related protest for 10-15 days, and (b) lockdown in the last week of March. The company stated that current production is at ~90 per cent of the normal levels.


Investment Rationale


Oil India has stated that it witnessed blowout at one of the gas producing wells in Baghjan field during work-over operation on 27th May’20. The effort to control the blowout at the earliest is still on with expert teams of Oil India, ONGC and international experts. Due to the blowout, there is a production loss of about 80,000 scmd of natural gas, which is only 1 per cent of Oil India’s daily natural gas production.

The company has mentioned that marginal decline in production could be expected for FY21. The company said that it intends adding gas production of ~5msmcmd starting 2024-25 (on current 7.5mmscmd), while arresting the decline in oil production.

The Numaligarh Refinery acquisition is likely to be done by a consortium of Oil India and other Indian PSUs. The company expects the acquisition to happen simultaneously with the privatization of BPCL.

Motilal Oswal has modelled crude oil prices of $40/50/bbl for FY21/FY22E. It is to be noted that a change of $1/bbl in oil price impacts EBITDA by 4 per cent. The stock trades at 5.6 times FY22E EPS of Rs 17.1. The brokerage has used an SOTP-based fair value of 8 times FY22E adjusted EPS of Rs 13.7 and added investments to arrive at a price target of Rs 110. It maintains a buy rating.

Oil India-MotilalOswalJune302020

Source: Motilal Oswal


Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 2607.38 crore, down -11.83 per cent from last quarter sales of Rs 2957.19 crore and down -15.82 per cent from last year same quarter sales of Rs 3097.26 crore. The company reported net profit after tax of Rs 1122.20 crore in the latest quarter.

Promoter/FII Holdings


Promoters held 56.66 per cent stake in the company as of March 31, 2020, while FIIs held 6.58 per cent, DIIs 19.23 per cent and public & others 17.53 per cent.





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