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Buy Oil India; target of Rs 230: HDFC Securities

November 18
18:25 2019

HDFC Securities’ research report on Oil India

OIL reported net revenue of Rs 32.14bn, down 14.2% YoY due to 16.2% decreased in crude oil realisation to Rs 4,317/bbl, 1.8% fall in crude oil sales volumes offset by 23% jump in Gas realisation to USD 3.57/mmbtu. EBITDA was down 15.7/8.2% YoY/QoQ to Rs 12.43bn while APAT fell 27.2% to Rs 6.27bn given a 13.6% jump in depreciation and depletion cost to Rs 4.15bn. Oil price realisation was USD 61.3/bbl (-16.5/-7.6% YoY/QoQ). Gas price realisation was USD 3.57/mmbtu, +23.0/0.4% YoY/QoQ. Oil sales volume was 0.82mmt, -1.8/+4.6% YoY/QoQ while Gas volume was 0.66bcm, +2.5/+7.8%. There was no subsidy burden in 2Q. We expect crude oil and natural gas production volumes to increase at 3.0% and 2.0% CAGR over FY19-22E. The surge in oil supply from US coupled with fall in global oil demand owing to trade war between US-China will result in subdued oil prices in the near term. Thus, we expect oil realisation to fall from USD 66.33/bbl in 1Q to USD 61/bbl in FY21.

Outlook

We maintain BUY on OIL post an inline performance in 2QFY20. Though concerns over lack of production growth still persist, we think that the current valuations (2.8/2.1x FY21/22 EV/EBITDA and 5.2/5.0x FY21/22 PER) indicate strong pessimism.

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