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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oil India Ltd. ------------------------------------------------------------------- Maintain OUTPERFORM
Continuous increases in oil and gas productions but subsidy shares rise, too
● OILI reported 1Q12 EPS of Rs35.3, up 51% QoQ, 7% ahead of
our estimates. EBITDA was 4% below our estimates, but lower
dry well costs and higher other income drove the 6% EBIT beat.
● Production growth momentum continues, with oil/gas output up
1%/7% sequentially – all-time high production rates. Purchase of
gas by the Numaligarh refinery helped gas sales.
● Lower subsidy payments (on a 33% upstream share versus 39%
in FY11) in 1Q12 helped drive a 13% increase in USD realisations
per bbl in 1Q though 2% appreciation of the INR hurt revenue.
● OILI’s share of upstream subsidy increased from 10.9% in FY11
to 12.3% in 1QFY12 – a result of the government mechanism of
sharing upstream subsidy in the proportion of trailing PAT (threeyear
averages), dampening stronger (than ONGC) volume growth.
● We like OILI for the production rise and inexpensive valuations.
Yet, subsidy uncertainties and the overhang of a government
stock sale hurt the stock, both of which can be corrected upon
new subsidy policy announcement. Maintain OUTPERFORM.
1QFY12 EPS at Rs35.3
Oil India delivered 1Q12 EPS of Rs35.3 up 51% QoQ, 7% ahead of
our estimates. EBITDA at Rs11.6 bn was 4% below our estimates but
an 18% QoQ decline in DD&A (on lower dry well costs) helped EBIT
come in 6% ahead. Other income increased 15% QoQ to Rs3.8 bn
because of higher interest income (likely due to higher interest rates).
OILI’s crude production volume increased 1% QoQ to 0.97 MMT. Gas
production also increased 7% sequentially to 641 mmscm in the
quarter. OIL recorded its highest crude and gas production rates in
1Q12. Higher net realisations on crude and gas helped propel
revenue, but a stronger INR hurt the stock. Oil and gas sales
increased 2% and 9% QoQ to 0.97 MMT and 508 mmscm,
respectively.
Increasing subsidy shares
OILI’s share in upstream subsidies increased from 10.9% in FY11 to
12.3% in 1QFY12. Historically, ONGC and OIL India have paid
subsidies in proportions of their trailing full-year PAT (changed to the
average of trailing three-year PAT in FY11). Historically, OILI’s
earnings have grown faster than ONGC’s – OILI’s share in upstream
subsidy increased in 1QFY12 over previous year as a result. This
mechanism, penalising OILI for EPS growth and better (than ONGC)
operations performance can become a drag on earnings
We like OILI for its oil and gas production growth, which should allow
it to deliver better-than-ONGC earnings growth in the near term. Yet
the over hang of uncertain subsidy payments and a potential
government stock sale has hurt the share price performance. These
uncertainties can be resolved if the government announces a new
(and much expected) subsidy policy – though the timing remains
uncertain. Maintain OUTPERFORM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oil India Ltd. ------------------------------------------------------------------- Maintain OUTPERFORM
Continuous increases in oil and gas productions but subsidy shares rise, too
● OILI reported 1Q12 EPS of Rs35.3, up 51% QoQ, 7% ahead of
our estimates. EBITDA was 4% below our estimates, but lower
dry well costs and higher other income drove the 6% EBIT beat.
● Production growth momentum continues, with oil/gas output up
1%/7% sequentially – all-time high production rates. Purchase of
gas by the Numaligarh refinery helped gas sales.
● Lower subsidy payments (on a 33% upstream share versus 39%
in FY11) in 1Q12 helped drive a 13% increase in USD realisations
per bbl in 1Q though 2% appreciation of the INR hurt revenue.
● OILI’s share of upstream subsidy increased from 10.9% in FY11
to 12.3% in 1QFY12 – a result of the government mechanism of
sharing upstream subsidy in the proportion of trailing PAT (threeyear
averages), dampening stronger (than ONGC) volume growth.
● We like OILI for the production rise and inexpensive valuations.
Yet, subsidy uncertainties and the overhang of a government
stock sale hurt the stock, both of which can be corrected upon
new subsidy policy announcement. Maintain OUTPERFORM.
1QFY12 EPS at Rs35.3
Oil India delivered 1Q12 EPS of Rs35.3 up 51% QoQ, 7% ahead of
our estimates. EBITDA at Rs11.6 bn was 4% below our estimates but
an 18% QoQ decline in DD&A (on lower dry well costs) helped EBIT
come in 6% ahead. Other income increased 15% QoQ to Rs3.8 bn
because of higher interest income (likely due to higher interest rates).
OILI’s crude production volume increased 1% QoQ to 0.97 MMT. Gas
production also increased 7% sequentially to 641 mmscm in the
quarter. OIL recorded its highest crude and gas production rates in
1Q12. Higher net realisations on crude and gas helped propel
revenue, but a stronger INR hurt the stock. Oil and gas sales
increased 2% and 9% QoQ to 0.97 MMT and 508 mmscm,
respectively.
Increasing subsidy shares
OILI’s share in upstream subsidies increased from 10.9% in FY11 to
12.3% in 1QFY12. Historically, ONGC and OIL India have paid
subsidies in proportions of their trailing full-year PAT (changed to the
average of trailing three-year PAT in FY11). Historically, OILI’s
earnings have grown faster than ONGC’s – OILI’s share in upstream
subsidy increased in 1QFY12 over previous year as a result. This
mechanism, penalising OILI for EPS growth and better (than ONGC)
operations performance can become a drag on earnings
We like OILI for its oil and gas production growth, which should allow
it to deliver better-than-ONGC earnings growth in the near term. Yet
the over hang of uncertain subsidy payments and a potential
government stock sale has hurt the share price performance. These
uncertainties can be resolved if the government announces a new
(and much expected) subsidy policy – though the timing remains
uncertain. Maintain OUTPERFORM.
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