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 July 9, 2012 research report.

“Oil India management indicated a provisional subsidy of USD56/bbl guidance from the government for 1QFY13. This translates into upstream sharing of 30% for 1QFY13. However, we believe that similar to previous years, subsidy sharing will be finalized towards the end of the year. Historically, Oil India's net realization has been at premium to ONGC. However, if flat discount of USD56/bbl is adopted in future, then the trend will reverse and be positive for ONGC as its gross realization is higher than Oil India.”

“We currently model Brent oil price of USD105/100/90/bbl in FY13/FY14 /long term, and upstream sharing at 40% in both FY13 and FY14. With under-recovery estimate of INR1.4t for FY13 and given the FY13 Govt. fiscal deficit target at 5.1%, we believe price hikes are inevitable. We expect price hikes for controlled products, viz, Diesel, Kerosene and LPG, to come any time soon. We remain positive on Oil India due to its strong operational foothold: (1) steady production growth, (2) high share of oil (55% in 1P and 62% in 2P) in its reserves, and (3) attractive valuations, trades at >50% discount to its global peers on EV/ BOE (1P basis). The stock trades at 8.5x FY13E EPS of INR57.2 and has an implied dividend yield of ~4%. Our TP ofINR565/share is based on average of three methodologies: (1) P/E of 9x FY14E, (2) 4xFY14E EV/EBITDA and (3) DCF (WACC of 11.5%). Maintain Buy,” says Motilal Oswal research report.

FIIs holding more than 30% in Indian cos

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