YES Securities stated that the strength in crude oil prices is on account of a temporary mismatch in demand and supply and should moderate as supply situation eases.
Oil India Limited
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Oil India Limited share price was up over 2 percent in the morning session on November 12, a day after the company declared its Q2 earnings.
The state-owned firm on November 11 reported more than doubling of its September 2021 quarter net profit, on back of a surge in oil and gas prices. The net profit stood at Rs 504.46 crore, or Rs 4.65 a share, in July-September 2021 compared with Rs 238.95 crore, or Rs 2.20 per share, a year ago, the company said in a statement.
This was mainly because the price the firm got for crude oil produced rose to USD 71.35 per barrel in the second quarter of the current fiscal from USD 42.74 last year.
While oil production was almost unchanged at 0.76 million tonnes, natural gas output rose 1.78 percent. Turnover rose to Rs 3,678.76 crore from Rs 2,281.12 crore.
The stock was trading at Rs 222.00, up Rs 5.35, or 2.47 percent at 09:58 hours. It has touched an intraday high of Rs 223.95 and an intraday low of Rs 221.10.
Despite reporting more than double net profit in the September quarter, YES Securities has a sell recommendation on the stock with a target of Rs 185 per share, a downside of 20 percent from the current market price.
According to the research report, Oil India’s Q2 FY22 operating profit at Rs 910 crore (+24% YoY; -26% QoQ) stood below its (by 32%) and street ( by 35%) estimates on account of higher than estimated provisioning/expensing of dry well and exploration write offs. In addition, the earnings during the quarter was largely aided by 67% YoY & 6% QoQ higher crude oil prices, even as crude production was largely flat YoY.
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In its view, YES Securities stated that the strength in crude oil prices is on account of a temporary mismatch in demand and supply and should moderate as supply situation eases. In that backdrop with crude production on a natural decline and barely supported by IoR/EoR. It sees a possibility of earnings moderating going ahead.
The brokerage firm has downgraded the stock to sell, with a March 2023 target of Rs 185 per share.
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