Buy Oil India; target of Rs 589: LKP

LKP's report on Oil India (OIL)

"OIL's Q2FY14 operating profit of Rs 13.3bn was higher than our estimate of Rs 10.9bn on account of higher crude oil sales during the quarter. Net revenue for the quarter stood at Rs 27.14bn (yoy +13 percent qoq +37 percent). OIL's subsidy burden for the quarter increased 12.7 percent sequentially to Rs 22.3bn while its net realization increased by 14.1 percent qoq to $52.3/bbl as crude oil price rose by 6.3 percent. During the quarter, Numaligarh refinery resumed operations post its breakdown in the previous quarter. Consequently oil sales increased by 7.1 percent qoq to 0.926mmt (yoy -1.8 percent). Gas sales during the quarter increased by 1.5 percent qoq to 0.53bcm (yoy -3.3 percent). OIL's operating profit for the quarter increased by 90.6 percent sequentially to Rs 13.3bn. However, dry well expense increased by 2.8x to Rs 2.78bn resulting in net profit growing at a lower rate of 48.4 percent qoq to Rs 9.04bn was in line with our estimate."

"We have valued OIL at 9x FY15e earnings, giving a 5.6 percent discount to our valuation multiple of 9.5x for ONGC on account of smaller size of OIL and the regional risk it faces. We maintain our BUY rating on OIL with a price target of Rs 589. At the CMP, the stock is trading at 7x and 3.3x FY15e EPS and EBITDA respectively," says LKP research report.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More