Oil India Q1 Results Review - Outlook Intact Amid Stable Performance: Motilal Oswal

Motilal Oswal Report

Oil India Ltd. reported in-line Ebitda at Rs 23 billion (down 12% YoY) in Q1 FY24. Oil sales volumes were 5% below our estimates at 0.75 million metric tonne, while gas sales declined 8% YoY to 0.54 billion cubic metre, due to lower offtake from customers amid maintenance shutdowns.

Net oil realisation, after accounting for the impact of windfall tax, came in at $74.3/barrel of oil for the quarter.

We expect the crude prices to gradually increase to ~$90/bbl by Q4 FY24 and remain at that level in FY25 amid active production management by OPEC+ leading to supply tightness during the second half of fiscal year. 

Although the levy of windfall tax by the Center with a fortnightly revision raised concerns on realisations of upstream companies, the government has adjusted windfall taxes in line with crude oil fluctuations.

Our estimate suggests that the government is allowing a post-windfall realization of $68-81/bbl and we expect it to remain at ~$70/bbl from Q2 FY24 onwards.

The implementation of the Kirit Parikh Committee’s recommendations from April 2023 has provided much-needed respite to upstream companies, as they had to sell gas below the cost of production for quite a long time. We build in gas price assumptions of $6.5/metric million British thermal unit for FY24-FY25E.

The stock currently trades at a price/earning multiple of 6.4 times FY24E EPS.

We the stock at six times FY25E standalone adjusted earnings per share and add investments to arrive at our target price of Rs 345. We reiterate our 'Buy' rating on the stock.

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