Oil India's Q1FY19 results (Outperformer) - Low Oil/LPG sales volumes drag earnings
Q1FY19 highlights
- Adjusted PAT of Rs7bn, up 56% yoy, with EBITDA of Rs15.3bn growing 66% yoy (IDFCe Rs16bn EBITDA, Rs10.5bn PAT).
- Miss vs estimates driven by lower than estimates sales volumes for oil & LPG as well as lower other income
- Oil production of 0.84mt, flat yoy, in line. Gas production of 0.7bcm, down 4%, also in line with estimates. LPG production of 7.9tmt fell 17% qoq and was below estimates of 9.4tmt.
- Oil sales of 0.81mt flat yoy but below IDFCe 0.84mt – production to sales ratio of 96% lowest in 9 qtrs. Gas sales of 0.6bcm flat yoy, in line. LPG Sales of 8.04tmt, down 15% qoq, below est 9.4tmt
- Net realisations- crude at $72/bbl up 49/11% yoy/qoq a tad below IDFCe of $72.6/bbl. The increase in line with the 48% yoy increase in Brent crude prices. Blended Gas realisation of Rs7.4/scm was up 25% yoy, ahead of est Rs7.15/scm.
Key positives: yoy growth in net realisations.
Key negatives: Production growth remains muted
Impact on financials: Revise FY19/20E EPS by +8/13% respectively to factor changes in oil price/production. TP raised to Rs335/sh.
Valuations & View
While the yoy growth in earnings is a positive driven by higher oil realisations, lack of growth in production remains a concern. As per management, the sales/production ratio should improve over rest of FY19, with guidance maintained of 1% oil and 3% gas production growth for the year. With the removal of royalty overhang in Assam and higher net realisations profitability should remain healthy over FY19-209E. We see oil and gas production reviving gradually over FY18-19E (we estimate a CAGR of 2% over FY18-20E for oil and gas respectively). Current valuations (adjusted for Rs60/sh of IOCL investment value and Rs44 from Tass/Vankor) of 4x FY20E EPS (consol EPS Including share of NRL/BCPL profits, excluding dividend income) underplay the gradual improvement in operating metric and the higher contribution of NRL to group profitability. A higher than expected contribution to subsidy by FY20E (we model US$3.5/bbl) is a key downside risk to our estimates. Reiterate outperformer.
Oil India is a fully integrated upstream petroleum company based in India. Co. is engaged in the exploration, development and production of crude oil and natural gas, transportation of crude oil and production of Liquid Petroleum Gas (LPG). Co. also provides various Exploration & Production (E&P) related services and holds an interest in the Numaligarh Refinery. Co. conducts the majority of its activities in North East India as well as Rajasthan. Additionally, Co.'s is active in Ganga Valley and Mahanadi and has participating interests in Mahanadi Offshore, Mumbai Deepwater, Krishna Godavari Deepwater, etc. as well as various overseas projects in Libya, Gabon, U.S.A., Nigeria and Sudan.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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