Hold Oil India; target of Rs 290: Sharekhan

Sharekhan recommended Hold rating on Oil India with a target price of Rs 290 in its research report dated August 09, 2023.

Broker Research

August 14, 2023 / 11:29 IST

Hold

Sharekhan's research report on Oil India

Q1 standalone operating profit of Rs. 2,329 crore (largely flat q-o-q) lagged our estimate as a steep decline in oil & gas sales volumes offset the benefit of lower well write-offs and provisions. PAT of Rs. 1,613 crore was 5% above estimates led by higher other income and lower-than-expected DD&A costs. Gas EBIT fell by 25% q-o-q to Rs. 619 crore while oil EBIT was marginally up by 2% q-o-q to Rs. 1,504 crore. Volume performance disappointed with a 7%/15% miss in oil/gas sales volume at 0.75 mmt/0.54 bcm, down 2.5%/7.2% q-o-q due to shutdown at NRL/BCPL. Net oil realisation also fell by 2.4% q-o-q $74.3/bbl. The management maintained its oil/gas production guidance of 3.4 mmt/3.3 bcm for FY24 and 4 mmt/5bcm for FY25 and expects volume to recover as both NRL/BCPL are now operating at normal utilisation rates. 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 for domestic gas prices and normalisation of crude oil prices.

Outlook

We maintain a Hold rating on Oil India (OIL) with a revised PT of Rs. 290 as ad-hoc tax policy changes create valuation concerns. Dividend yield of 6-7% limits meaningful downside from current levels.

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