Centrum Broking
Oil India (Buy)
CMP: ₹179.3
Target: ₹245
Oil India (OIL) reported a loss of ₹210 crore for the quarter, mainly driven by i) exceptional item of ₹1,030 crore relating to provision made for pension; ii) higher operating expenses; and iii) lower production volumes. Adjusting for the exceptional item, adjusted PAT at ₹480 crore, below CENe of ₹680 crore. Reported EBITDA of ₹1,120 crore (+5 per cent y-o-y) vs CENe ₹1,210 crore was impacted due to higher other expenses of ₹650 crore. FY19 EBITDA/adj. PAT came at ₹5,730 crore/₹3,280 crore growing by+33 per cent/17 per cent y-o-y. In Q4, OIL’s O+G production came at 1.5mmtoe (-2 per cent y-o-y, -5 per cent q-o-q), in line. Production during the quarter was impacted due to shutdown of 3-4 installations in Assam due to political disturbances. In FY19, O+G production at 6.2 mmtoe (-1.6 per cent y-o-y).
Valuation: We value OIL’s standalone business based on DCF methodology, 7x FY21E PER for the subsidiaries NRL/BCPL, attributing value of $2/boe to Vankor and Taas investments and listed investments (IOC) at 20 per cent discount to CMP. The derived target price of ₹245/shares, implies a target multiple of just 8.4x FY21E EPS (currently trading at 6.3x FY21E EPS). Despite weakness in Q4 and muted production, valuations remain attractive and well below five-year band. Even after assuming a conservative production growth profile, we see resilience in earnings and see significant upside.