Buy Oil India; target of Rs 65: Motilal Oswal

Motilal Oswal is bullish on Oil India and has recommended buy rating on the stock with a target of Rs 65 in its May 29, 2012 research report.

“Oil India reported 4QFY12 EBITDA at INR4.8b and PAT at INR4.4b (-21% YoY, -56% QoQ). Full year FY12 PAT stands at INR34.5b (INR57.3/sh, +19% YoY). 4QFY12 EBITDA was impacted by a) higher other expenditure at INR3.5b (+110% YoY and 140% QoQ) and b) higher staff cost at INR3.6b (+53% YoY and +37% QoQ), partly compensated by lower statutory levies at INR5.2b (-15% YoY and -28% QoQ).”

“In 9MFY12, OIL shared 12.1% of the upstream subsidy, but for full year FY12 govt. increased OIL’s share to 13.4%, resulting in higher burden in 4QFY12. Subsidy in 4QFY12 stood at INR28.7b, which was 15.9% of total upstream share. 4QFY12 net realization at USD38.9/bbl (v/s USD52.9/bbl in 4QFY11 and USD57/bbl in 3QFY12) was marred by higher subsidy burden at USD80.8/bbl. For FY12, net realization stood at USD59.8/bbl against USD58.5/bbl in FY11. The Government of India shifted the allocation within upstream from PAT basis to volume basis. This increased subsidy share of Oil India from 12% in 9MFY12 to 13% in FY12 resulting in cut in our FY13/14 EPS estimate by ~5%. 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 7.5x FY13E EPS of INR60.1 and has an implied dividend yield of 4.2%. Our target price of INR565/share (v/s earlier INR590/sh) is based on average of three methodologies: (1) P/E of 9.5x FY13E, (2) 4.5x FY13E EV/EBITDA and (3) DCF (WACC of 11.6%). Maintain Buy,” says Motilal Oswal research report.

Institutional holding more than 40% in Indian cos

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