Hold Oil India; target of Rs 106: Sharekhan

Sharekhan's research repor on Oil India

Weak Q1FY21 results with net loss of Rs249 crore (versus a net profit of Rs. 625 crore in Q1FY20) due to weak oil and gas realisation, declined by 54.1% y-o-y and 29% y-o-y respectively, high operating expenses, Rs. 93 crore cost for the Baghjan blowout and lower other income. Oil sales volume and realisation declined by sharply by 8.1% and 54.1% y-o-y to 0.73mmt and $30.4/bbl respectively. Weak oil and gas realisation/production outlook, high capex plan of Rs.4,000-4,200 crore despite low oil & gas prices and negative value from investment in Mozambique E&P assets would act as an overhang on stock.

Outlook

We downgrade Oil India to Hold (from Buy) with revised SoTP-based PT of Rs. 106 given a weak earnings outlook (expect 44% PAT decline over FY20-FY22E) on low oil & gas realisation and muted RoEs of 4-7% over FY2021E-FY2022E.

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