Company Overview:

Oil India Limited (OIL) is a fully integrated Exploration & Production company in the upstream sector, with origin dating back to the glorious year (1889) of oil discovery in India. A Maharatna Company, OIL is a state-owned enterprise of the Government of India, under the administrative control of the Ministry of Petroleum and Natural Gas and is the second largest national oil and gas company in India. Oil India Private Limited was incorporated on 18th February 1959, to expand and develop the newly discovered oil fields of Naharkatiya and Moran in the North-Eastern region of India. In 1961, it became a joint venture company of Government of India and Burmah Oil Company Limited, UK. In 1981, OIL became a wholly owned Government of India enterprise. OIL owns and operates a wide array of facilities & equipment to carry out seismic & geodetic work, 2D & 3D data acquisition, processing & analysis, drilling, oil & gas field development & production, LPG production and Pipeline transportation, with all other ancillary services to make it a fully integrated E&P Company. It has vast experience in reservoir management of ageing/ depleting fields and expertise in Improved Oil Recovery (IOR)/Enhanced Oil Recovery (EOR) operations. It has over 2,000 km of trunk & feeder pipeline with in-house Operation and Maintenance.

The company operates a 1157 Km long crude oil pipeline in the North East for transportation of crude oil produced by both OIL and ONGCL in the region, to feed Numaligarh, Guwahati, Bongaigaon and Barauni refineries and branch line to feed Digboi refinery. Besides its crude oil trunk pipeline, OIL had also commissioned a 660 Kms long product pipeline from Numaligarh Refinery to Siliguri. It has also ventured into the City Gas Distribution (CGD) projects to diversify into non E&P energy value chain. On March 25th, 2021, OIL acquired majority stake in Numaligarh Refinery Limited (NRL) having state-of-the-art 3 MMTPA refinery in Assam, resulting in OIL becoming the promoter and the holding company of NRL. Besides, the Company also has stake in Brahmaputra Cracker and Polymer Limited (BCPL).

As one of its strategic initiatives, OIL has also selectively diversified into the Renewable & Alternate Energy sector, installing and commissioning RE projects in the Wind and Solar domains with total installed capacity of 188.10 MW comprising 174.10 MW of Wind Energy projects and 14 MW of Solar Energy projects.

TECHNICAL VIEW:

OIL has given Cup and handle breakout above levels of 272 on 09th august 2023, Stock has seen strong consolidation in range of 270-290 for past 1 month and later seen price volume break-out above the resistance levels with strong volume on 09th OCT 2023, We suggest to buy OIL in range of 293-297 and add dips with price target of 335 and 368 Levels and we see stock to take support near levels of 293-280 Levels.

CONCALL HIGHLIGHTS

• Ebitda margin increased to 53.49%, increase of 19%. EPS increased marginally to Rs 14.8/sh.
• Crude production – 0.82mmt, increase of 5.26%, NG at 745bcm, decrease of 3%.
• Cost of production: Crude – USD 8.5/bbl, excl charges, Gas - USD 2/mmt.
• NG had offtake issues with various consumers, as Numaligarh refinery was shut down for 75 days due to planned maintenance & later fire incident, BPCL & BVFCL also went into shutdown during the quarter.
• NRL incurred loss during the quarter as the refinery was shut down for 75 days. Restarted in last week of June and now operating at 100% capacity.
• NRL restart had Rs 70mn incurred which is reported as exceptional item.
• NRL expansion from 3m tons to 9m tons to complete by FY26. Peak debt to be Rs 180bn.
• Debt: Standalone – Rs 110bn (USD 1355mn), Consolidated – Rs 180bn. USD 500mn loan taken by Singapore subsidiary for Russia investments.
• Capex for FY24 – Rs 49bn, Q1 – Rs 13bn incurred. NRL – Rs 88bn planned, Rs 16bn incurred.
• Rs 49bn capex breakdown – 20% for development drilling, 40% exploration.
• Northeast gas grid project execution progressing as planned, first phase to complete by Dec’23. Project to complete by FY26. To help reach crude volume of 4mmt & NG of 5bcm.
• Mozambique project to restart the project by Nov’23.

A leading player with adequate oil reserves:

The Company has a significant presence across the entire value chain of the hydrocarbon sector. It operates in three PEL and 25 PML areas, allotted under the nomination regime in Assam, Arunachal Pradesh and Rajasthan states. The company also holds Participating Interest (PI) in six NELP Blocks with operatorship in four Blocks and as Non-operator in the remaining two Blocks as on March 31, 2023. The company has further expanded its acreage base through participation under the Government of India’s Open Acreage Licensing Policy (OALP) bid rounds. Furthermore, the company has been effectively replenishing more reserves by maintaining the Reserve Replacement Ratio (RRR) of 1.01 in FY23, and the ratio has remained consistently above unity over the years. Apart from the domestic reserves, OIL had crude oil and natural gas overseas reserves (2P) of 29.72 million metric tonnes (MMT) and 21.21 BCM (Billion Cubic Meters), respectively, as on March 31, 2023. The company registered the highest-ever natural gas production of 3,180 MMSCM (including the company’s share of output from Dirok JV) during FY23, which is higher than 3,045 MMSCM (including the company’s share of production from Dirok JV) in FY22. With more focus on exploration and increased natural gas output, the company's revenue growth for the forthcoming years is expected to be strong.

Robust infrastructure across diversified geographies:

The oil and gas industry is capital-intensive, requiring significant funds and substantial time to develop a sound infrastructure. With OIL’s long track record of operations, the company has developed a robust infrastructure and in-house expertise, providing an advantage over newer players in the industry. OIL has developed significant onshore and offshore production facilities, subsea and land pipelines, gas processing, drilling and work-over rigs, storage facilities and other infrastructure throughout India's principal oil and gas-producing regions. OIL drilled sixteen exploratory wells and twenty-nine development wells during FY23. The company also made one oil discovery in Assam, which was brought on production and contributed to 5,400 MT of crude oil in FY23. The company is exploring 29 OALP blocks in Assam, Arunachal Pradesh, Tripura, Nagaland, Odisha, Rajasthan and offshore areas in Andaman and Kerala-Konkan.

Our view:

Brent crude prices have strengthened and are currently hovering around $90-$96/bbl due to war situation between Israel and Hamas which can disrupt supply chain for crude oil. A tighter crude oil supply shall improve profitability for E&P and refinery companies like OIL. From an E&P player perspective, OIL has gradually expanded its operations in refining and petrochemicals, thereby making a presence across the hydrocarbon value chain. It continues to be of strategic importance in the Indian energy sector. As the largest player in the northeast region, OIL is crucial in implementing the government’s policies in the oil and gas sector, with added presence across various segments. The outlook for OIL remains bright due to experienced and professional management, the strategic importance of the company in supporting the country’s energy security and development of hydrocarbon reserves in the northeastern region, synergies post-acquisition of a controlling stake in Numaligarh Refinery Limited (NRL) in FY21. With strong operational performance backed by robust E&P infrastructure and proven technical capabilities in both E&P and refinery business, comfortable financial risk profile, healthy debt metrics and strong liquidity position, we believe the company is poised to witness decent growth in the coming years. Thus, we recommend to buy and add dips in OIL India Ltd as production from NRL has restarted and expansion plan to complete soon. We see price target of 368/shares on the basis of forward estimated EPS to be in range of 65-68 for F.Y 2023-24 and 2024-25 with consistent growth recovery and demand in Energy sector.