Brokerage Recommends Buy This Mid Cap Navratna Stock For 26% Gains, Target Price Rs 255

HDFC Securities placed a "buy" call on Oil India Limited (OIL) with a target price of Rs 255 per share. Given the target price, the brokerage claims a potential upside of 26% from its current level. The brokerage in the report has stated, "Q2FY23 revenue/EBITDA/APAT stood at INR 58/18/17bn, above our estimate owing to lower-than-expected statutory levies and higher other income. Oil and gas production broadly came in line."

Oil India is a fully integrated Exploration & Production company in the upstream sector. It is a Navratna Company, a state-owned enterprise of the Government of India, under the administrative control of the Ministry of Petroleum and Natural Gas. It is the second-largest national oil and gas company in India. With a market capitalisation of Rs 21,904.98 crore, it is a mid cap Navratna company.

Stock outlook & Returns

On the NSE, the current market price (CMP) of OIL is Rs 202.10 per share, trading 0.75% up as compared to the previous close at the time of writing. It recorded its 52 week high level on 10 June 2022 at Rs 306 and the 52 week low at Rs 167.85 on 28 September 2022, respectively.

The stock performed well in terms of return over the past couple of months. In 1 month, it gave 8.43% and in 3 months, it gave 6.15% positive returns, respectively. However, over a year, the stock gave ha fallen, giving 8.9% negative returns. It has given 26.04% positive returns in the past 3 years. In the past 5 years, it has given 14.02% negative returns.

Standalone performance

Standalone financial performance

According to the brokerage, Sales in Q2 were INR 58bn (+74% YoY, - 3% QoQ). EBITDA stood at INR 18bn (+2x YoY, -30% QoQ), above our estimate, owing to lower-than-expected statutory levies. Net crude realisation post windfall tax in rupee terms was at INR 5,864/bbl, (USD 23.8/bbl, +14% YoY, -31% QoQ). APAT stood at INR 17bn (+3.4x YoY, +11% QoQ), above our estimate led by higher other income of INR 9bn.

Standalone operational performance

According to the brokerage, In Q2, gross crude oil realisation was at USD 97.3/bbl, (+40% YoY, -11% QoQ) while the implied net crude oil realisation adjusting for the windfall tax stood at USD 73.5/bbl; gas realisation was at USD 6.1/mmbtu, (+3.3x YoY, flat QoQ). Oil and gas production was in line at 0.79mmt and 0.82bcm. Oil sales volume was at 0.78mmt (+5% YoY, +2% QoQ), in line with our estimate, while gas sales volume was at 0.66bcm (-3% YoY, +10% QoQ), above our estimate.

Call takeaways

1) The management has maintained their standalone Capex guidance for FY23/24 at ~INR 40-45bn.

2) The company has guided oil production at 3.2/3.6mmt and gas production at 3.5/4bcm for FY23/24 respectively, driven by accelerated production from the existing fields; the company targets to improve the oil production to 4.2mmt and gas production to 5bcm by FY25.

3) The Numaligarh Refinery (NRL) expansion from 3MTPA to 9MTPA is on schedule and is expected to be completed by end of 2025; NRL Capex incurred to date stood at INR 65bn.

4) Out of the total Capex incurred for NRL expansion, only INR 13-16bn has been drawn out of debt; most of the Capex is currently being funded through internal accruals.

5) Q2 consolidated gross debt stood at INR 175bn vs INR 150bn at the end of Q1.

Change in estimates

The brokerage said, "We revise upwards our consolidated EPS estimates for FY23/24 by +1.7/+6.8% to INR 71.1/56.5, to factor in higher oil and gas production for the standalone business, higher GRM estimates for NRL, partially offset by lower gas prices for FY24 and higher expenses. Our target price remains unchanged at INR 255/sh."

It added, "We value Oil India's standalone business at INR 117 (3x Mar-24E EPS) and its investments at INR 138. The stock is currently trading at 3.5x FY24E EPS."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.