Buy Oil India; target Rs 585: Kotak Securities

Kotak Securities' report on Oil India (OIL)

In Q3FY15, OINL has reported 18% QoQ decline in net profit to Rs. Rs.4.98 Bn largely reflecting lower crude oil realization, lower LPG realization and lower gas sales volume. The Company's performance is lower than our estimates. We have now tweaked our estimates to reflect lower crude oil prices and gas prices (due for revision on 1st April 2015). We expect OINL to report an EPS of Rs. 49 FY15E and Rs. 58 in FY16E. On the basis of our estimates, the stock at current market price of Rs. 502 is attractively valued at 8.7x P/E and 7.0x P/cash earnings on the basis of FY16E. We maintain BUY on OINL with a revised price target of Rs. 585 (earlier Rs 657).

OIL's Q3FY15 net realized crude price decreased sharply to US$ 37/bbls versus US$ 45/bbls in Q2FY15 and US$ 52/bbls in Q3FY14 mainly due to fall in global crude oil price. OIL's subsidy burden in Q3FY15 was at Rs.14.4 bn or US$38/bbls in crude price oil equivalent terms. OIL's share of subsidy burden on upstream companies was at 9% in Q3FY15 versus 14% in Q2FY15 and 14% in Q3FY14. OIL's share of under recovery is mainly to IOCL and BPCL. Buy the stock with a target price of Rs 585", says Kotak Securities research report.

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