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OIL India
Higher crude sales volumes boost profits; re-iterate Buy
Strong profits. OIL India reported net profit of `9.2bn (up 27% yoy
and 83% qoq), more than Street expectations and ours, bolstered by
strong crude sales volumes, which came 2% more than we expected
as stocks built up during 1Q due to the NRL shutdown were sold.
The lower subsidy led to net realisation rising to US$63.2/bbl
(US$49.7 in 1QFY11 and US$56.9 in 2QFY10).
Gas-price hike boosts profit. OIL India’s revenue in the domestic
gas segment grew 98% yoy on the back of the APM gas price hike,
leading to 2Q net profit being `1bn-1.1bn higher, as expected.
Aggressive E&P plans ahead. OIL India has an FY11 and FY12
capex plan of `85bn. Of this, `73bn is for exploration and
development of its domestic and international assets. Its balance
sheet is debt free and end-Sep ’11 cash reserves stood at ~US$2.2bn.
considering actual FY10 figures and a marginal increase in our
production estimate. We introduce FY13 estimates, forecasting a 10%
earnings CAGR through FY10-13.
Valuation. We raise our DCF-based target price to `1,600 (from
`1,500) as we roll forward our valuation to Sep ’11, a slight increase
in production forecast and a rise in the value of ‘other investments’.
Our valuation implies a PE multiple of 11.6x FY12e EPS. We
re-iterate our Buy rating on the stock. Risks: i) Unfavourable
regulations, especially subsidy-sharing policy; ii) volatile movement in
crude and product prices; iii) exchange rate.
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