Buy This Navratna Stock For 65% Gains, Revenue Grew 74% YoY, Declared Dividend Of Rs 5/Share

The brokerage firm Motilal Oswal has given a buy call to Oil India Ltd, a Navratna Stock, for a target price of Rs 367. Recently, the company has declared a final dividend of Rs 5/share.

Stock Outlook

According to the NSE, today it was opened at Rs 226, currently trading at Rs 222.65, the current market price (CMP). According to the brokerage's target price and the CMP, the stocks have the potential to gain 65% during the targeted period. In the last 1-year, the Oil India's share price surged more than 60%, however, in the last 1 month, it has fallen. It hit the 52 week low at Rs 130.70, last year on 27 May, on the other hand, it touched the 52 week high at 267.80 in the same year on 1 October.

Realization from oil better even as oil and gas sales remain flat YoY

According to the brokerage firm, Motilal Oswal, "Oil India reported a lower than our estimate EBITDA of Rs 19.6b. Oil sales were in line at 0.73mmt, with gas sales below our estimate at 0.56bcm in 4QFY22. Net oil realization stood at USD98.1/bbl in 4QFY22. Oil India made two new hydrocarbon discoveries in FY22. It became the first company in India to commission a pilot plant of 100kW capacity for production of Green Hydrogen in Assam. Four major Infrastructure projects were also commissioned to enhance its oil and gas production capabilities. According to EIA, OPEC's spare capacity stands ~4mnbopd as of Feb'22, which is also uncertain. OPEC/US may raise oil output for the time being, and release oil from SPRs globally, which will provide a temporary respite. Oil India has been unable to meaningfully raise its oil and gas production. Crude oil production was flat YoY at 3mmt in FY22, although its gas production rose 17% to 2.9bcm. We forecast its domestic oil and gas production to stand at 6.2/6.5mmtoe in FY23/FY24 v/s 5.9mmtoe in FY22. We also raise our FY23 EBITDA/EPS estimate by 6%/8% due to an increase in APM gas costs. We factor in a gas price of USD7.3/USD5.5/mmBtu for FY23/FY24. The stock trades at a 34% discount to its one-year forward long-term P/E average of 8x."

Brokerage views on the stocks of Oil India

According to the brokerage firm, "Revenue grew 74% YoY and 20% QoQ to Rs 44.8b. EBITDA came in at Rs 19.6b (21% lower than our estimate). Depreciation stood at Rs 2.1b in 4QFY22 v/s Rs 4.7b/Rs 4.2b in 3QFY22/ 4QFY21. PAT stood at Rs 16.3b (16% lower than our estimate, up 92% YoY and 31% QoQ). In FY22, the Government of Assam paid Rs 16.9b for the NRL equity shares. It tested the carrying value of investment in Oil India (USA) for impairment and reversed the impairment loss by Rs 1b. In FY22, revenue grew 69% YoY to INR145.3b EBITDA rose 324% YoY to Rs 53.7b, with adjusted PAT at Rs 38.9b (v/s Rs 17.4b in FY21). The company declared a final dividend of INR5/share."

Brokerage Suggests buy for a target price of Rs 367/share

The NRL expansion will be completed by FY24-25E, at a capex of Rs 280b. Viability gap funding will be only Rs 10b. The capex will be funded in a debtto-equity ratio of 70:30. This equity proportion will be entirely funded by internal accruals of NRL only. The commissioning of the refinery expansion (to 9mmt from 3mmt) is expected by FY24-25. The management expects crude oil production of 3.6mmt/4mmt in FY23/FY24, with FY22 production at 3mmt. This incremental production will accrue from existing production fields. The stock trades at 5.1x FY24E EPS. "We use a SoTP-based fair value of 7.1x FY24E adjusted EPS of Rs 39.5 and add investments to arrive at our Target Price of Rs 367. We maintain our Buy rating," the brokerage has said.

About The Company - Oil India Ltd

Oil India Limited (OIL) is a fully integrated Exploration & Production company in the upstream sector, with origin dating back to the glorious year (1889) of oil discovery in India. The company is engaged in the exploration, development and production of crude oil and natural gas, transportation of crude oil and production of LPG. It also provides various E&P related services for oil blocks. A Navratna Company, Oil India Ltd is a state-owned enterprise of the Government of India, under the administrative control of the Ministry of Petroleum and Natural Gas and is the second-largest national oil and gas company in India.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the author, and the 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 taking any investment decisions.