Sell Oil India; target of Rs 464: Nirmal Bang

Nirmal Bang is bearish on Oil India and has recommended sell rating on the stock with a target of Rs 464 in its August 09, 2012 research report.

“Oil India reported 1QFY13 net profit of Rs9,300mn (up109% QoQ and 9.4% YoY), higher by 11%/18% from Bloomberg/our estimates, respectively. Earnings got a boost from: (1) Lower subsidy burden compared to our estimate, (2) Lower dry well expenses, and (3) Fall in other expenses; on the other hand, lower realisation on gas sales surprised us. We retain our Sell rating on the stock with a revised target price of Rs464 following no growth triggers in the near term and the surprise on the volume growth front priced in the stock, but we upgrade our FY13E/FY14E EPS estimates by 6.5%/3.5%, respectively.”

“Oil production was down 1.67% YoY and 1.98% QoQ at 0.94mnt and gas output was down 4.53% YoY and 2.61% QoQ at 0.49bcm. Oil and gas production on YoY basis turned negative after five quarters of positive growth and we expect the declining trend on YoY basis to continue in 2QFY13, after which growth is expected to turn positive. We expect oil production volume at 3.96/4.01mmt in FY13E/FY14E and that of gas at 8.01/9.0 mmscmd in FY13E/FY14E. Despite beating street estimates by a wide margin on the back lower subsidy burden, we believe the company’s subsidy burden would increase in 2HFY13 to average upstream subsidy burden at 39%.”

“Oil India would be reeling under the twin overhang of upstream subsidy burden and upstream distribution as long as the government continues with its ad-hoc mechanism of subsidy distribution. With the prospects of a diesel price hike fading in the wake of a poor monsoon, we see the subsidy overhang continuing to bother investors. We retain our Sell rating on the stock with a revised price target of Rs464 from Rs450 earlier,” says Nirmal Bang research report.

Institutional holding more than 40% in Indian cos  

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