ADD on Oil India - Excess provisions drag EBITDA - HDFC Securities

Mr. Harshad Katkar & Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities.

Oil India (Q4FY20 Results Review): Excess provisions drag EBITDA. ADD
(TP Rs 100, CMP Rs 94, MCap Rs 102bn)

Our ADD recommendation on Oil India with a TP of INR 100 is premised on rich OCF yield of 28/36% and divided yield of 3/7% over FY21/22E. We believe the current valuations are contextually low at 3.7x FY22 PER.

View on the result: EBITDA was below estimates owing to 2.6x higher opex.

Standalone financial performance: Sales for 4QFY20 stood at INR 26bn (-16/-12% YoY/QoQ). EBITDA stood at INR (11bn) owing to jump in Opex by 2.1/2.4x YoY/QoQ to INR 32bn led by (1) Impairment provision of INR 13bn for overseas assets, and (2) Dry well provision in KG basin of INR 3bn. APAT recovered to INR 7bn (+49/76% YoY/QoQ) owing to 40% YoY and QoQ dip in depreciation and depletion cost to INR 3bn as well refund of tax in 4Q. FY20 Sales/EBITDA/APAT stood at INR 121/26/24bn (-12/-53/-28%) largely owing to 16% fall in crude realisation to INR 4,028/bbl.

Standalone operational performance: 4Q crude oil realisation was USD 50.2/bbl (-19/-16% YoY/QoQ) whereas gas realisation was USD 3.2/mmbtu, -2/+1% YoY/QoQ. Oil sales vols were 0.75mmt, -3/+1% YoY/QoQ. Gas sales vols were 0.53bcm, -14/-11% YoY/QoQ. In FY20, crude vol/realization declined 2/16% to 3.1mnT/USD 57.4 while gas realization jumped 9% to USD 3.4/mmbtu and vols declined 3% YoY to 2.4BCM.

Adjustments in 4Q: (1) OIL opted for the new tax rate of 25.2% from FY20 and availed its deferred tax credit in 4Q. Accordingly, APAT comes to INR We adjusted INR 7bn post adjusting for INR 2bn of benefits availed. (2) Current tax of INR 3,534bn has been reversed in 4Q as a settlement of pending Direct Tax disputes.

Outlook for FY21/22: We expect crude oil production volumes to remain subdued at 3.0mmt in FY21 (vs. 3.1mmt in FY20) as Covid-19 has adversely impacted demand. In FY22, production should bounce back to 3.3mmt in FY22. Natural gas volumes dip frpm 2.4bcm in FY20 to 2.2 bcm in FY21 and recover to 2.4bcm in FY22. Oil prices should remain muted at USD 32/37 vs. USD 61 in FY20 given weak global macros, despite production cut from OPEC and non-OPEC countries. Gas realisation should remain flat at USD 2.7/mmbtu in FY21/22E (USD 2.8/mmbtu in FY20).

View on the balance sheet: Debt spiked by 18% YoY to INR 27bn as did Net Debt/EBITDA and Net Debt/Equity ratios to 2.6/0.3x from 0.7/0.1x in FY19.

Change in estimates: We cut our EPS est. for FY21E by 31% to INR 5.6 on account of (1) 3% lower revenues, and (2) 16% higher employee costs.

Our TP is INR 100 (6x EV/e Sep-21E standalone earnings and INR 77 from investments). The stock is currently trading at 4.4x FY22 EV/e.

Shares of OIL INDIA LTD. was last trading in BSE at Rs.94.8 as compared to the previous close of Rs. 93.7. The total number of shares traded during the day was 98427 in over 1463 trades.

The stock hit an intraday high of Rs. 95 and intraday low of 92.5. The net turnover during the day was Rs. 9240394.

Source : Equity Bulls

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