Accumulate Oil India; target Rs 1525: Prabhudas Lilladher

“Oil India (OIL) is in advance talks for potential overseas acquisition of producing property in the African region. The company is likely to give a non-binding agreement for the same in the next 2-3 months. The reserve is around 200m barrels and the potential acquisition cost is around Rs 50-60bn, translating into EV/boe of US$4.8-5.8/boe. The same compares favourably to the opportunity cost (F&D cost of US$5.45/bbl in FY11).”

“Management believes the preferred option for the divestment of government stake is likely to be block-trade, wherein the government offloads its stake to the institutional investor. OIL expects government to provide minimum net realisation of around US$60/bbls for the current fiscal. The company has asked the government to take average of the last five years for calculating the proportionate share of upstream companies against the current practice of last three year’s average.”

“OIL has been delivering impressive performance on the core operating parameters such as production growth, coupled with efficient operations, resulting in low finding, development and lifting cost. Key catalysts affecting the stock price continues to be subsidy sharing and outlook with regards to deployment of significant cash balance. The stock is currently trading at attractive 7.3x FY2013E EPS. We continue to maintain ‘Accumulate’ on the stock, with a target price of Rs 1,525/share (a multiple of 10x FY2013E EPS),” says Prabhudas Lilladher research report.

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