Oil & Natural Gas Corporation / Oil India: Subsidy conundrum :: Kotak Sec, report

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Subsidy conundrum. Media articles suggest that the MoPNG is working on a subsidysharing formula, which will allow reasonable net crude realizations for OIL and ONGC, assuming a gradual recovery in global oil prices. We await the final announcement in this regard, as it will require the consent of the finance ministry, which will have to manage subsidies from the fiscal budget. We will get more comfort if the government implements measures to curtail LPG subsidies after Delhi elections.

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Lower production reduces profits… • Oil India :: ICICI Securities, PDF link

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Oil India Ltd. (OIL) | Q2FY15 Result Update | PAT down 33% YoY due to higher subsidy burden :: India Nivesh

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Oil India Ltd - Q1FY14 Result Update :: LKP Research

Oil India Ltd - Q1FY14 Result Update

Lower crude oil sales affect Q1 performance

OIL’s Q1FY14 net profit of Rs6.1bn was lower than our estimate of Rs7.7bn mainly on account of lower crude oil sales. Net revenues for the quarter stood at Rs19.8bn (yoy -15.1% qoq -16.6%). OIL’s subsidy burden for the quarter was Rs19.8bn resulting in fall in its net realization to $45.9/bbl (yoy -14.8% qoq -17.2%) which was marginally lower than our estimate of $46.33/bbl. During the quarter, OIL’s oil sales were affected by plant shutdown in NRL. Consequently oil sales declined by 7.5% yoy to 0.865mmt (qoq -1.7%). However, gas sales during the quarter increased by 7.6% yoy to 0.52bcm. Operating profit for the quarter of Rs6.97bn was lower than our estimate of Rs9.1bn while operating profit margin was 35.2%.

For FY15e, we have increased our domestic gas price assumption from $4.2/mmbtu to $8.4/mmbtu and the share of upstream oil PSUs in the overall under recoveries to 65%. We have valued OIL at 9x FY15e earnings, giving a 5.6% discount to our valuation multiple of 9.5x for ONGC on account of smaller size of OIL and the regional risk it faces. We maintain our BUY rating on OIL with a revised price target of Rs589. At the CMP, the stock is trading at 7.3x and 3.7x FY15e EPS and EBITDA respectively.

Actual v/s Estimates

Y/E, Mar (Rs. m)	Q1FY14	Q4FY13	qoq (%)	Q1FY13	yoy (%)	LKP Estimates	Deviation (%/bps)
Revenue	19,809	23,766	-16.6%	23,333	-15.1%	21,463	-7.7%
EBITDA	6,971	8,808	-20.9%	10,962	-36.4%	9,093	-23.3%
EBITDA (%)	35.2%	37.1%	-187 bps	47.0%	-1179 bps	42.4%	-717 bps
PAT	6,091	7,646	-20.3%	9,299	-34.5%	7,694	-20.8%

LKP Research

Oil India, Q2FY13 Result Update:: Centrum

Operational performance improves QoQ
Although OIL’s subsidy burden increased sequentially, better
operational performance and higher other income led to 2.6% QoQ
jump in bottom-line at Rs9.5bn. Crude and natural gas production
jumped by 1.5% and 10.4% QoQ respectively. Subsidy sharing
however increased by 3.1% QoQ at Rs20.8bn. Higher cash balance on
the balance sheet led to 6.7% QoQ rise in other income at Rs4.0bn.
Thus, higher production and consequent higher sales of oil and gas
coupled with higher other income led to a sequential jump in bottomline.
Although, the stock looks attractive on current valuations, the
lack of any triggers is likely to keep valuations suppressed. Hence, we
downgrade the stock to ‘Neutral’ from Buy.
Revenue growth led by higher volumes; rupee depreciation helps
too: OIL reported 3.3% QoQ jump in revenues led by higher volumes and
~2% rupee depreciation. Net realisation for the quarter stood at
US$52.5/bbl against US$53.9/bbl in Q1. On a YoY basis however, the
performance was muted as the company earned US$86.3/bbl net
realisation in Q2FY12.
Higher crude and natural gas production: Crude and natural gas
production jumped by 1.5% to 0.96mmt and 10.4% to 0.69bcm QoQ
respectively. Crude production which was affected due to labour issues in
Q1 normalized in Q2 and startup of Numaligarh refinery and demand
from customers led to higher natural gas production.

Oil India Ltd Q2FY13 result update ::LKP Research

Q2FY13 Results marginally ahead of estimates

OIL’s Q2FY13 net profit of Rs9.5bn was marginally ahead of our estimate of Rs9.1bn. Net revenues for the quarter stood at Rs24bn (yoy -26.6% qoq +2.9%). OIL’s subsidy burden for the quarter was Rs20.8bn resulting in fall in its net realization to $52.5/bbl (yoy -39.1% qoq -2.5%). Crude oil sales volume declined on annual basis by 2.4% while gas production increased by 0.9%. On a sequential basis, however, gas sales increased by 13% on account of resumption of operations at Numaligarh refinery which witnessed a shutdown during the previous quarter. Operating profit for the quarter of Rs11.5bn was ahead of our estimate of Rs10.7bn while operating profit margin was 47.8%.

We maintain our BUY rating on the stock with a price target of Rs578. At the CMP, the stock is trading at 7.5x and 3.3x FY13e EPS and EBITDA respectively.

Actual v/s Estimates

Y/E, Mar (Rs. m)		Q2FY13		Q1FY13		qoq (%)		Q2FY12		yoy (%)		LKP Estimates		Deviation (%/bps)
Revenue		24,017		23,333		2.9%		32,703		-26.6%		23,304		3.1%
EBITDA		11,472		10,962		4.7%		16,202		-29.2%		10,701		7.2%
EBITDA (%)		47.8%		47.0%		79 bps		49.5%		-178 bps		45.9%		185 bps
PAT		9,546		9,299		2.6%		11,385		-16.2%		9,084		5.1%

LKP Research

Oil India: Attractive valuations; prefer OIL over ONGC :: Kotak Sec, PDF link

Oil India: Attractive valuations; prefer OIL over ONGC
` Favor OIL over ONGC given better risk-reward balance
` Stock discounting a fairly bleak scenario for net crude price realization
` Reiterate BUY with a target price of Rs590
` Fine-tune earnings for FY2013-15E

Oil India - TP: INR565 Buy:Motilal Oswal Securities

Expect step jump in gas production in 2014
INR60b earmarked for acquisitions; 1QFY13P subsidy at USD56/bbl
 Expect 1QFY13 provisional subsidy at USD56/bbl which translates into upstream
sharing of 30% for the quarter.
 Delay in cash deployment is hurting return ratios; however, management indicated it
is likely to announce an acquisition soon and has earmarked INR60b for the same.
 Planned capex for FY13 is INR33.8b with a target to drill 40/37 exploratory/
development wells (v/s 16/22 in FY12).
 We continue to like Oil India due to its (a) high share of oil (58% in 1P and 64% in 2P)
in its reserves, and (b) RRR of >1 for last 8 years to deliver consistent production
growth. Maintain Buy with target price of INR565

Oil India: Model Upstream, Earnings ‘Down’ Stream : Nirmal Bang

Model Upstream, Earnings ‘Down’ Stream After a surge of ~10% in Oil India’s stock price over the past one month on the back of softening crude oil prices, the valuation looks stretched with the market ignoring the twin blows of cess implementation from FY13 and the change in upstream subsidy distribution. We believe that given the change in the subsidy calculation method clubbed with its increasing exposure to unregulated oil, ONGC could emerge as a better play in Indian upstream space. We assign a Sell rating to Oil India with a target price of Rs450 as we believe all positives are priced in.

Oil India: Buy ::Business Line

Oil India, Voltamp Transformers, reports by Kotak Sec PDF links

Oil India Ltd -Cut to Neutral as cess raised while reforms appear unlikely 􀂄 :: BofA Merrill Lynch

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Oil India Ltd
Cut to Neutral as cess raised
while reforms appear unlikely
􀂄 FY13E EPS cut by 5% and PO by 18% to Rs1,331/share
The cess on crude oil has been raised from Rs2,575/ton (US$7.0/bbl) to
Rs4,635/ton (US$12.5/bbl) in the FY13 budget. This would mean a cut in OIL’s
FY13-14E EPS by 14%, but the cut is just 4-5% as we had under-estimated other
income, which we have raised. We have cut OIL’s PO by 18% to Rs1,331/share
from Rs1,618/share earlier. OIL’s revised PO implies 10% potential upside. We
downgrade OIL to Neutral given the hit from rise in cess and also as hope of
reforms is fading after the recent state election results.
EPS cut due to rise in cess by 80% (US$5.6/bbl)
The increase in cess on crude oil by 80% (US$5.6/bbl) to Rs4,635/ton
(US$12.5/bbl) has meant a cut in OIL’s FY13E EPS by 5%. If there is no diesel
price hike, or only a modest hike, OIL’s FY13 EPS is likely to be YoY lower. Share
in subsidy of OIL and its upstream peers is another crucial factor, which will
influence its earnings outlook.
Cut PO on rise in cess; PO at 10% discount to fair value
OIL’s theoretical fair value is down by 9% to Rs1,479/share due to the rise in cess
on crude. OIL trades at discount to its fair value when there is no progress on
reforms, there is uncertainty on subsidy sharing and earnings outlook is poor. We
are skeptical on reforms in the remaining two-year term of this government. When
there is no progress on reforms risk of adverse subsidy sharing also rises. We
have therefore fixed OIL’s PO at 10% discount to its fair value at Rs1,331/share.
What would make us bullish or bearish on OIL?
Hefty hike in subsidized products or steep fall in oil price and favorable subsidy
sharing, which improves earnings outlook, would make us more bullish. Sharply
higher oil price and adverse subsidy sharing would make us more bearish on OIL

Oil India:: Buy Target :Rs 1490 ICICI Securities, pdf link

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http://content.icicidirect.com/mailimages/ICICIdirect_OILIndia_Q3FY12.pdf
H i g h e r   s u  b s i d y   s h  a r e   i m p a  c t s   p r o f i t a b i l i t y…
Oil India (OIL) declared its Q3FY12  results with revenues at | 2,589.8
crore, EBITDA at | 1,428.2 crore and PAT of | 1014 crore. The results
were below our expectations mainly on account of higher upstream share
at 47.1% of gross under-recoveries (our estimate: 33.33%). OIL’s share of
the total upstream companies’ subsidy burden was 12.1% in Q3FY12 at
| 1853 crore. Higher upstream share resulted in net crude oil realisations
decreasing by 15.1% YoY and 33.9% QoQ to US$57.02/barrel in Q3FY12.
The EBITDA margin grew 430 bps QoQ to 55.1% mainly on account of
lower staff costs and other expenditure. The depreciation expense
declined by 51.1% QoQ to | 288.7 crore, mainly due to lower write-offs of
dry wells. We have assumed the subsidy sharing ratio of upstream
companies at 38.7% for FY12E and  FY13E. We have maintained Oil
India’s share among upstream companies at 12.2%, going forward. We
recommend a BUY rating on the stock, with a price target of | 1490,
which implies 9.3x average of FY12E and FY13E EPS.
ƒ Highlights of the quarter
The crude oil production increased 2.8% YoY to 6.88 mmboe in
Q3FY12 while the gas production  increased 9.7% YoY to 676
mmscm. Other income increased by 35.4% YoY to | 375.6 crore on
account of higher cash balance with the company. The company
has also announced a bonus issue where it will reward the
shareholder with three shares for every two held in the company.
Additionally, the company has declared a dividend of | 10 per share,
in addition to the interim dividend of | 25 per share paid earlier.
V a l u a t i o n
Oil India continues to perform well operationally, which is reflected in its
crude oil and gas sales growth. We believe Oil India’s strong reserve base
reflects significant growth potential. OIL’s strong balance sheet in terms
of cash position and negligible debt provides support for value accretive
overseas acquisitions. The stock is trading at 8.4x FY12E and 8.0x FY13E
EPS of | 156.3 and | 164.0, respectively. We recommend a BUY rating on
the stock, with a price target of | 1490.

Technicals: Dena Bank, Bank of India, India Cements, Oil India, Nucleus Software, LKP, Zandu Realty ::Business Line,

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Kindly advise on the future prospects of Dena Bank bought at Rs 78 and Bank of India at Rs 475. Please give short- and medium-term targets.

V. Karthik,

J.H. Krishnamurthy

Dena Bank (Rs 94.2): The stock found support at around Rs 48 in early January 2012 and started to move upwards. Since then, Dena Bank stock has been on a medium-term uptrend. The stock has almost doubled from its January low. After retracing 50 per cent of its prior downtrend from November 2010 peak of Rs 151 to January low at around Rs 48, the stock is now facing resistance at Rs 100. This is a long-term significant resistance level for the stock and, therefore, it would be little difficult to breach it in the first attempt. Failure to move above Rs 100 will be cue for short-term investors to take partial profits off the table.

Those with a medium-term perspective can prolong their holdings with stop-loss at Rs 70. Key support at Rs 85, Rs 80 and Rs 72 can cushion the stock on declines. Strong breakthrough of Rs 100 will give a medium-term price target of Rs 110 and Rs 122.

Oil India - “Grows y-o-y in spite of subsidy woes” :LKP

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In spite of a steep hike in subsidy sharing to 47% for Q3 FY12, OIL India posted positive topline & bottomline growth y-o-y and also beat our estimates due to lower than expected other expenses.

Q3 FY12 crude/gas production 0%/2.7% ahead of estimates

Q3FY12 crude production of 0.962 MMT was down 0.029 MMT q-o-q but up by 0.026 MMT y-o-y. Thus, crude sales of 0.95 MMT was down 0.016 MMT q-o-q but up by 0.034 MMT y-o-y. Gas production of 0.676 bcm was flat q-o-q & up 0.06 bcm y-o-y; similarly, gas sales of 0.544 bcm was flat q-o-q but up 0.066 bcm y-o-y. LPG sales at 13,434 KT were down 240 KT q-o-q but up by 1,060 KT y-o-y.

Q3 FY12 subsidy doubles q-o-q to $53.1/bbl ($53.6/bbl expected)

Q3 FY12 subsidy burden of Rs 18.5 bn ($53.1/bbl) translated into 12.1% of Q3 FY12 upstream sector subsidy burden of Rs 152.6 bn. While it was double the subsidy burden of $26.2/bbl in Q2 FY12, it was almost triple the Q3 FY11 figure of $18.5/bbl. Thus, net realization plunged from $86.3/bbl in Q2 FY12 to $57/bbl in Q3 FY12 ($56.5/bbl expected).

Q3 FY12 net sales at Rs 25.9 bn, 3% ahead of estimates

Revenue of Rs 25.9 bn in Q3 FY12 translated into growth of 4.7% y-o-y, but was lower by 22.9% q-o-q. Crude & gas sales for Q3 FY12 stood at Rs 20.8 bn & Rs 3 bn respectively, due to consistent production figures in the face of a steep subsidy burden. LPG sales for the quarter dropped to Rs 0.13 bn due to increase in the subsidy on LPG. Transportation sales of Rs 0.8 bn was down 8% q-o-q, but up 18% y-o-y owing to upward revision in the transportation tariff for the crude oil trunk line.

Upstream subsidy sharing for Q4 FY12 expected to be same as Q3 FY12

The upstream sector’s share of the gross under recoveries, which was fixed at ~33% during FY08-10, had been increased suddenly to ~39% in FY11. Since our FY12 & FY13 estimates of gross under-recovery at Rs 1,297 bn & Rs 1,138 bn are significantly higher than the gross under recovery of Rs 782 bn in FY11, we assume 39% of the gross subsidy burden to be borne by the upstream sector going forward. We expect the upstream sector to again bear 47% of Q4 FY12 under recoveries, thus, taking the FY12 upstream subsidy share to 39% of total under recoveries.

Outlook and Valuation

We believe the stock would react to news flow regarding the subsidy sharing pattern that would emerge over the course of this year. We expect revenue & PAT to post FY11-14 CAGR of 10.7% & 12.5% respectively. We raise our FY12 & FY13 EPS estimates to Rs 151.8 and Rs 157.5 in FY12 & FY13 respectively.

We maintain our BUY rating with a target price of Rs 1,529. Our price target translates into EV/boe of $ 6.1/boe and FY12E & FY13E P/E of 10.1x and 9.7x respectively.

Query Answered: Dabur, Oil India, Ester Ind, Kilburn, Jyoti Structures, Surya Roshni, Meghmani, GVK, :: Business Line

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 I hold Dabur India purchased at Rs 100 and Oil India at Rs 1,150. What is technical view on these stocks?

R.N B Rao

Dabur (Rs 97.5): You seem to have purchased the stock recently since it is still trading close to your cost. The long-term trend in the stock is up since 2003 and it is still going strong. If you are in the stock for the long-haul, the level that you need to watch is at Rs 70. The healthy long-term view will be under threat only if this level is breached.

If the stock manages to hold above Rs 90 in the months ahead, it we can assume that the bulls continue to have the upper hand in this counter.

It can then spend few months moving in a sideways band between Rs 90 and Rs 120 before breaking higher. Break-out targets are Rs 142 and Rs 175. These will, however, be achieved over the long-term, that is in the next two to five years.

Investors who have a shorter perspective can hold with stop-loss at Rs 90. Next supports are at Rs 80 and Rs 70.

Oil India (Rs 1,156.9): Oil India does not have a long trading history, so it is not possible to give a long-term view on this stock. The stock is moving in a wide band between Rs 1,100 and Rs 1,600 over the last two years.

Since it has moved close to the lower end of its long-term trading range, you have bought the stock at the apt juncture. The stock can reverse higher from here to move on to Rs 1,310 or even Rs 1,372 and Rs 1,435.

Long-term trend will turn positive on a rally above Rs 1,435.

Next target is Rs 1,600.

Investors can hold the stock with stop at Rs 1,050. It would be best to divest your holding on a move below this level since it is hard to pin-point where the next halt can be given the stock's short history.

Please let me know the prospects of Ester Industries and Kilburn Engineering.

Amol

Oil India - Risk‐reward favourable:: Prabhudas Lilladher

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We hosted investor meetings with the OIL India (OIL) management – Mr. T.K Ananth
Kumar, Director (Finance). Following are the key takeaways on key issues:
􀂄 Utilisation of cash flows and acquisition: OIL is in advance talks for potential
overseas acquisition of producing property in the African region. The company is
likely to give a non-binding agreement for the same in the next 2-3 months. The
reserve is around 200m barrels and the potential acquisition cost is around
Rs50-60bn, translating into EV/boe of US$4.8-5.8/boe. The same compares
favourably to the opportunity cost (F&D cost of US$5.45/bbl in FY11).
􀂄 Possible options for divestment of government stake: Management believes
the preferred option for the divestment of government stake is likely to be
block-trade, wherein the government offloads its stake to the institutional
investor.
􀂄 Subsidy sharing mechanism: OIL expects government to provide minimum net
realisation of around US$60/bbls for the current fiscal. The company has asked
the government to take average of the last five years for calculating the
proportionate share of upstream companies against the current practice of last
three year’s average.
􀂄 Outlook: OIL has been delivering impressive performance on the core operating
parameters such as production growth, coupled with efficient operations,
resulting in low finding, development and lifting cost. Key catalysts affecting the
stock price continues to be subsidy sharing and outlook with regards to
deployment of significant cash balance. The stock is currently trading at
attractive 7.3x FY2013E EPS. We continue to maintain ‘Accumulate’ on the
stock, with a target price of Rs1,525/share (a multiple of 10x FY2013E EPS).

Oil India (OILI.BO) Alert: 2Q: Some One-Offs, but Strong Operationally   Citi Research

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Oil India (OILI.BO)
Alert: 2Q: Some One-Offs, but Strong Operationally
 Operationally strong 2Q — OIL’s 2QFY12 PAT came in at Rs11.4bn (+24% yoy,
+34% qoq), boosted by a combination of production growth and subsidy burden
remaining at one third. Reported PAT was, however, below estimates owing to one-off
provisions of Rs2.86bn on employee costs and higher-than-expected DD&A costs,
which also included one-offs (provision for minimum work programme) of cRs3.6bn.
 No subsidy surprises; net realizations at US$86 — OIL’s 2Q net realizations came
in at US$86/bbl, and were driven by strong crude prices, lower subsidy burden
following the June price hikes and duty cuts, and upstream share remaining at a third
of gross under-recoveries (without including any notional losses). Realizations at these
levels are, however, clearly unsustainable, given rising under-recoveries of the OMCs,
worsening Gov’t finances, and the lack of political will to raise prices of controlled fuels.
 Production growth continues, but near-term upsides unlikely — OIL’s 2Q crude
production came in at 0.99 MMT (+6.2% yoy, +3.6% qoq), in line with expectations.
Gas production growth was even stronger (+16.1% yoy, +5.6% qoq), on the back of
ramp-up of supplies to the NRL refinery from the Duliajan-Numaligarh pipeline.
However, with most production growth now largely behind us, we expect volumes to be
sustained at current levels in the near-term.
 No clarity on subsidy sharing, 2H could be a dampener — A combination of
sustained strength in crude and sharp rupee depreciation has led to the under-recovery
situation considerably worsening in the last couple of months. Gross under-recoveries
for FY12 are unlikely to come in below Rs1.2 tr (Rs214bn in 2Q) if current trends in
crude, currency, and policy continue, considerably increasing uncertainty for the gov’towned
upstream companies for the rest of the year. A re-rating in the absence of a
reversal in trend of at least one of the above external factors is unlikely. OIL’s cash on
books at Rs136bn (Rs565/sh) could, however, provide downside support.

Oil India: Strong operating results :: Kotak Sec

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Oil India (OINL)
Energy
Strong operating results. OIL reported 2QFY12 adjusted EBITDA at `19.6 bn (+57.5%
qoq and +40% yoy), 3.3% higher than our estimate of `18.9 bn. The sharp qoq
improvement in performance was led by (1) higher net realized crude price at
US$86.3/bbl (+US$26.7/bbl qoq) and (2) higher gas sales at 543 mcm (+6.9% qoq). We
maintain our BUY rating with a revised target price of `1,720 (`1,750 previously) based
on 9X FY2013E EPS plus value of investments. The stock is trading at inexpensive 8.3X
FY2012E EPS and 4.8X FY2012E DACF.

Buy Oil India; Target : Rs 1460 ::ICICI Securities

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H i g h e r   n e t   r e a l i s a t i o n   b o o s t s   p e r f o r m a n c e …
Oil India declared its Q2FY12 results  with revenues of | 3,357.1 crore,
EBITDA of | 1,707.0 crore and PAT of | 1138.5 crore. The revenues as
well as profitability were above our expectations. Oil India’s share of the
total upstream companies’ subsidy burden is 11.9% in Q2FY12 at | 844.4
crore. The net crude oil realisation increased 36.6% YoY to US$86.3 per
barrel in Q2FY12 due to lower subsidy burden (upstream share at 33.3%
for the quarter) of | 844.4 crore in Q2FY12, a 52.5% QoQ decline from |
1780.7 crore in Q1FY12. The EBITDA margin declined 580 bps YoY to
50.8% mainly on account of a one-off provision of | 285.7 crore for the
differential superannuation benefit to employees resulting in a 3.3x YoY
increase in other expenditure. We have assumed the subsidy sharing
ratio of upstream companies at 38.7% for the rest of FY12E and FY13E till
further clarity from the government. Also, we have increased Oil India’s
share among upstream companies to 12.2%, going forward. This reduces
our EPS estimates to | 140 and | 152.1 in FY12E and FY13E, respectively.
We recommend a BUY rating on the stock with a price target of | 1460
(10x average of FY12E and FY13E EPS).
ƒ Highlights of the quarter
The crude oil production increased 4.5% YoY to 7.02 mmboe in
Q2FY12 while gas production increased 16.1% YoY to 677 mmscm.
The company’s topline of | 3357.1 crore in Q2FY12 exhibited a
36.1% YoY growth mainly on account of higher net crude oil
realisation ($86.3 /barrel) and higher transportation revenue (| 230.0
crore in Q2FY12 against | 38.7 crore in Q2FY11). Recognition of a
revenue item of | 139.9 crore due  to tariff revision led to such a
steep increase in transportation revenues.
V a l u a t i o n
We believe Oil India’s large reserve base and new discoveries would
create value for investors, going  ahead. The reforms by the Indian
government will drive the earnings of the company. At the CMP of | 1278,
the stock is trading at 9.1x FY12E and 8.4x FY13E EPS of | 140 and |
152.1, respectively. We recommend a  BUY rating on the stock with a
price target of | 1460