Hold Oil India; target of Rs 260: Sharekhan

Sharekhan's research report on Oil India

Q3FY23 standalone PAT of Rs. 1,746 crore, rose 40% y-o-y, substantially above our estimate due to a sharp decline in exploratory cost write-off and lower provisions. Oil/Gas EBIT increased by 14%/79% q-o-q to Rs. 1,543 crore/Rs. 1,091 crore reflecting cost control and higher APM gas price (up 41% q-o-q to $8.57/mmBtu). Operational performance was mixed with in-line net oil realisation at $77/bbl but crude oil/gas sales volume at 0.77 mmt/0.61 bcm was 2%/4% below our estimate. Management guided for oil/gas production of 3.4mmt/3.3 bcm for FY24E, which implies a CAGR of 6%/4% over FY22-24E aims to further increase oil/gas production to 4 mmt/5 bcm. We believe that earnings of upstream PSUs would peak out in FY23 and decline going forward due to likely capping of domestic gas price and normalization a crude oil price.

Outlook

We maintain our Hold rating on Oil India with a revised PT of Rs. 260 as ad hoc tax policy changes create earnings uncertainty and valuation concerns. Dividend yield of ~7% limits meaningful downside from current levels.

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Oil India - 10 -03 - 2023 - khan