3.17% Yield: Sharekhan Recommends Buy On Multibagger Maharatna CPSE For Rs 755 TP; 85% Dividend Payout Soon

Maharatna CPSE, Oil India, has finally declared its much-awaited interim dividend on March 8. After a payout of the first interim dividend to the tune of 35%, Oil India has now declared the second interim dividend aggregating to 85%. Brokerage Sharekhan has recommended buying Oil India for a target price of Rs 755 per share. The brokerage believes the company's Numaligarh Refinery Limited's (NRL's) expansion will reflect value for Oil India. Notably, Oil India also declared that NRL to invest in the implementation of its Rs 635.28 Crore project.

Oil India Share Price:

Oil India shares closed at Rs 630.20 apiece, down by 0.54% on BSE with a market cap of Rs 68,339.22 crore. Oil India is currently near its 52-week high of Rs 647.40, while its CMP is higher by 161.87% from its 52-week low of Rs 240.65 apiece.

In a year, Oil Indi's share price has rallied by 135.64%, and in 5 years, the upside is 252.84% on BSE.

Oil India Dividend:

In its board meeting on March 8, Oil India's board approved a second interim dividend of Rs 8.50/- per share (85% of paid-up capital) for the financial year 2023-24. The Second Interim Dividend 2023-24 will be paid on or before 07th April, 2024. While the Record Date is fixed on 18th March 2024, to determine eligible shareholders.

For FY24, the first interim dividend payout is of 35% amounting to Rs 3.5 per share. In FY23, the company paid dividends up to 200% amounting to Rs 20 per share.

Currently, Oil India has a dividend yield of 3.17%.

Oil India NRL:

The board also approved investment by its Material Subsidiary - Numaligarh Refinery Limited for the implementation of the Coke Drum Structural Package (CDSP) project costing Rs. 635.28 Crore.

Sharekhan Target Price On Oil India:

In its latest research note, leading brokerage, Sharekhan said, "We see a risk-reward scenario turning favourable for Oil India Limited (OIL), given: 1) a healthy earnings outlook for the core oil and gas E&P business, led by a likely increase in oil and gas production over FY25-26 and 2) potential value creation from NRL's expansion to 9mtpa (from 3mtpa currently)."

Sharekhan's note highlighted that Oil India's management expects oil/gas production to register a robust CAGR of 8%/26% over FY2024EFY2026E, led by higher drilling activity.

Further, the brokerage added, "The current oil/gas price regulations provide earnings/cashflow visibility, while NRL expansion would create long-term value for OIL. Moreover, the valuation (including earnings contribution from NRL) of 6.8x its FY2026E EPS seems reasonable, and the stock offers a healthy dividend yield of 3-4%. The valuation would look further attractive if we included incremental earnings from NRL expansion. A potential IPO for NRL could unlock value for investors going forward. Hence, we upgrade OIL to Buy (from Hold) with an increased price target (PT) of Rs. 755 (reflects higher value for NRL)."

However, Sharekhan also pointed out that among key risks for Oil India could be -- a sharp decline in international oil and gas prices and lower-than-expected production (In case of delayed ramp-up from new fields) could impact earnings outlook and valuation. Any unwarranted capex for overseas/domestic acquisition could raise capital allocation concerns. Delay in commissioning of capacity expansion at NRL could impact earnings/valuation.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.