Avishek Datta Research Analyst Prabhudas Lilladher Pvt. Ltd.
- At an inflection point- as major oil and gas projects along with NRL expansion to come on stream by FY25E.
- Higher oil and gas realisations and strong GRMs to drive earnings.
We attended the analyst meet of Oil India (OINL). Management guided strong volume growth FY25E to be a watershed year, driven by commissioning of major oil and gas expansion along with Numaligarh Refinery's (NRL) expansion projects. Some key highlights are 1) Oil and gas production to increase by 30% and 70% respectively post completion of major projects in Assam 2) NRL refinery's expansion to 9MTPA from current 3MTPA to come on stream by FY25E 3) No imposition of windfall taxes after two years of depressed profits and 4) No price cap on gas prices. OINL is well placed to benefit from rising oil and gas prices and high GRMs and FY25E EBIDTA can increase to Rs210bn (FY22-Rs105bn) on higher volumes. We maintain our estimates and retain 'BUY' with a PT of Rs344 based on 3.5x EV/E FY24E.
Strong volume growth along with higher realisation: OINL has aggressive growth plans as it expects 30% increase in oil volumes to 4MTPA by FY25E, with commencement of brownfield expansion projects in Assam. Gas volumes will rise to 5bcm from current 3bcm, as the new gas pipeline in North East is commissioned. Gas evaluation challenge has led to lower production for OINL, however, start of the Indradhanush gas pipeline grid by FY25E (which connects eight states in North East) will boost gas demand fed by higher volumes from the Bagjan fields.
Cap on prices unlikely to be imposed: OINL doesn't expect any cap on gas prices and remains hopeful of another hike in Oct-22. Gas prices have increased from USD2.9/mmbtu to USD6.1/mmbtu for H1FY23.
NRL refinery- a prized asset: NRL is a highly complex refinery with Nelson complexity of 9.2. Also OINL's diesel and petrol volume accounted for 69%/15% of product slate and will benefit from sharp upmove in product spreads currently. In FY22, NRL (OINL has 69.6% stake) posted EBIDTA/PAT of Rs50.5bn/Rs35.6bn with a growth of 16% YoY/17% YoY. NRL remains a prized asset, as it retains 50% of excise on fuel sales. FY22 core GRMs were at USD14.3/bbl vs USD4.0/bbl in FY21, while additional excise benefits were at Rs35bn or USD24.7/bbl vs USD36/bbl in FY21. Lower excise benefit was due to cut in duty rates in November' 21. At current excise rates, peak excise earnings will be at Rs80bn p.a, on the expanded capacity as per company and has no sunset clause.
Russian investments continue to payoff: OINL had invested USD990mn in Russian oil and gas fields in CY16. Till FY22 end, the company received USD660mn in dividends from those investments. The company has not seen any drop in production as higher discounts will be offset by commensurate increase in realizations.
Capex plans: OINL spent Rs42.8bn on capex in FY22 and expects similar capex in FY23E. Exploration drilling is to account for 24% of FY23E capex, while capital equipment will account for 35% of capex.
Shares of Oil India Limited was last trading in BSE at Rs. 278.55 as compared to the previous close of Rs. 250.80. The total number of shares traded during the day was 666776 in over 13089 trades.
The stock hit an intraday high of Rs. 284.40 and intraday low of 253.25. The net turnover during the day was Rs. 178600293.00.