Oil India's Q3FY19 results (Outperformer) - Strong realizations offset muted output
Q3FY19 highlights
- Adjusted PAT of Rs12.3bn, up 75% yoy, with adj EBITDA of Rs15.6bn growing 23% yoy (IDFCe Rs14.7bn EBITDA, Rs7.5bn PAT).
- Earnings beat was largely driven by higher other income of Rs6bn (IDFCe Rs2.3bn), even as oil & gas production was below estimates.
- Oil production of 0.84mt, -3% yoy, was below IDFCe 0.86mt. Gas production of 0.73bcm, down 1%, -1% below estimates. LPG production of 7.82 tmt fell 17% yoy, was well below est of 8.9 tmt. 9MFY19 oil and gas production was at 4.7mt (-1.8% yoy).
- Oil sales of 0.81mt fell 2% yoy, marginally below est of 0.83mt – production to sales ratio of 97.1% vs 96.9% in Q3FY18. Gas sales of 0.65bcm was up 7% yoy, 2% ahead of est. 9MFY19 oil and gas sales at 30.3mmboe (flat yoy)
- Net realisations - crude at $66.7/bbl (12% yoy, -2% qoq) 2% below IDFCe of $67.8/bbl. Net realisation is higher than the 10% yoy increase in Brent crude prices. Blended Gas realisation of Rs8.9/scm was up 31% yoy, ahead of est Rs7.8/scm.
Key positives: yoy growth in net realisations.
Key negatives: Production growth continues to remain muted
Impact on financials: FY19E EPS raised marginally by 1% to factor higher realisations. FY20E reduced by 4% to factor lower output. We introduce FY21E EPS of Rs27.1/sh. TP revised to Rs325.
Valuations & View
While the yoy growth in earnings is a positive driven by higher oil realisations and other income, weak production remains a concern. As per management, the sales/production ratio should improve over FY20, with our estimates at 1.5% for oil and 2.5% gas production growth for FY20E. With higher net realisations and some production growth profitability should remain healthy over FY19-21E. Current valuations (adjusted for Rs48/sh of IOCL investment value and Rs38 from Tass/Vankor) of just 2.7x FY21E 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 NIL) 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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