Buy Oil India; target of Rs 565: Motilal Oswal

Motilal Oswal is bullish on Oil India and has recommended buy rating on the stock with a target of Rs 565 in its August 9, 2012 research report.

“Oil India's reported 1QFY13 EBITDA was largely in-line at INR11b as impact of lower subsidy at INR20.2b (v/s est INR25.2b) was offset by lower sales of oil at 0.935mmt (-3% YoY, -4% QoQ) and gas at 485mmscm (-5% YoY, -3% QoQ). Oil India's 1QFY13 oil and gas volume was impacted by Numaligarh refinery fire and lower off take from gas customers. Reported PAT stood at INR9.3b (+9% YoY and 109% QoQ) v/s est of INR7.5b led by a) lower D,D&A expense at INR2b (v/s est INR3.9b) due to fewer dry wells, and b) higher other income at INR4.8b (v/s est INR3.7b) due to implied higher yield on deposits.”

"In 1QFY13, OIL subsidy share stood at INR20.2b (v/s est. INR25.2b) and its share in upstream subsidy stood at 13.4% (similar to FY12). OIL's 1QFY13 reported gross realization stood at USD109.8/bbl and subsidy burden at USD55.9/bbl resulting in net realization of USD53.9/bbl (v/s USD59.6/bbl in 1QFY12 and USD38.9/bbl in 4QFY12)."

"We remain positive on OIL due to its strong operational foothold: (1) steady production growth, (2) high share of oil in its reserves (55% in 1P and 62% in 2P), and (3) attractive valuations, trades at 50% discount to its global peers on EV/BOE (1P basis). The stock trades at 7.4x FY14E EPS of INR64.7 and has an implied dividend yield of ~4%. Our target price of INR565 is based on average of three methodologies: (1) P/E of 9x FY14E, (2) 4x FY14E EV/EBITDA and (3) DCF (with WACC of 11.5%). Maintain buy,” says Motilal Oswal research report.

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