Hold Oil India; target of Rs 280: Sharekhan

Sharekhan's research report on Oil India

Q4FY23 standalone operating profit of Rs. 2351 crore (down 18% q-o-q) was 17% below our estimate due to higher operating cost (rise in employee costs and exploration cost write-off). However, the miss in PAT was at only 3% as high opex largely gets offset by higher other income and lower depreciation/interest cost/tax rate. Oil/Gas EBIT declined by 4.5%/25% q-o-q to Rs. 1,474 crore/ Rs. 824 crore. Volume performance was also weak with 4%/8% miss in oil/gas sales volumes to 0.77mmt/0.59 bcm, down 1%/3.9% q-o-q while net oil realisation came in at $76/bbl (versus estimate of $77/bbl). We believe that earnings of upstream PSUs have peaked out in FY23 and would decline going forward due to a cap of $6.5/mmBtu on domestic gas price and normalization of crude oil price.

Outlook

We maintain our Hold rating on Oil India with a revised PT of Rs. 280 as ad hoc tax policy changes create valuation concerns. Dividend yield of ~7% limits meaningful downside from current levels.

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