Buy Oil India; target of Rs 782: ICICIdirect

ICICIdirect.com`s research report on Oil India“Oil India (OIL) reported its Q1FY15 results, which were marginally above our estimates. The topline increased 26.6% YoY to Rs 2655.3 crore, above our estimate of Rs 2479.9 crore. Crude oil production at 0.8 MMT was in line with our expectation while net realisation of $52.4/bbl was also in line with our estimate. EBITDA at Rs 1255.2 crore came above our estimate of Rs 1094.8 crore on account of lower than estimated subsidy burden of Rs 1846.6 crore against our estimate of Rs 2034 crore as the subsidy was calculated on Q4FY14 production instead of Q1FY15.” “Overall, we estimate the crude oil production at 3.7 MMT and 3.9 MMT in FY15E and FY16E, respectively. We estimate the gas production at 2.9 bcm and 3 bcm for FY15E and FY16E, respectively. In case of the Mozambique asset, where Oil India has a 5% stake, the recent reserve upgrades bolsters the investment decision of the company. The investment also alleviates concerns regarding cash utilisation of Oil India. The management has also indicated that they had bid for Murphy’s asset in Malaysia with ONGC. The outcome of the bid is awaited. We believe that a gas price hike is inevitable. However, we need more clarity on part of the new government. We have not assumed any gas price hike for FY15E. However, from FY16E, we have assumed a gas price of $7.4/mmbtu. An increase of US$1/mmbtu in gas price would increase Oil India’s EPS by Rs 5. We maintain our BUY recommendation on the stock, with a target price of Rs 782 (average of 10x FY17E EPS and 1.3x FY17E BVPS),” says ICICIdirect.com research report.  

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