Oil India's Q4FY18 results (Outperformer) - Higher impairment provisions offset strong realisations
Q4FY18 highlights
- Adjusted PAT of Rs10bn, down 16% yoy, with adjusted EBITDA of Rs10.6bn growing 39% yoy (IDFCe Rs13.3bn EBITDA, Rs7.5bn PAT).
- Reported PAT of Rs8.7bn impacted by Rs1.9bn of additional impairment provisions related to overseas assets in Libya/Nigeria and the USA. FY18 EBITDA/PAT of Rs43/28bn grew 27/9% yoy
- Volume growth missed estimates only a 3% yoy growth in oil prod to 0.83mt (IDFCe 0.85mt), flat gas prod at 0.69bcm (IDFCe 0.75 bcm) and LPG volumes of 9.5kt (flat yoy). FY18 oil output of 3.4mt has grown 3.6%, gas output of 2.9bcm has declined 0.7% and LPG prod of 33.9kt has declined 2% yoy
- Net oil realizations of US$64.9/bbl grew 24% yoy (IDFCe US$64/bbl) reflecting the 22% yoy increase in Brent crude prices in the qtr. Blended gas realizations grew 10% yoy to Rs6.8/scm (IDFCe Rs6.8/scm) while LPG realizations grew 6% yoy to Rs39k/t. FY18 net oil realizations have grown 11% yoy to US$52.6/bbl
Key positives: yoy growth in oil output, net realisations.
Key negatives: Weak gas production in FY18
Impact on financials: Revise FY19/20E EPS by +2/-4% respectively to factor changes in oil price/production. TP raised to Rs305/sh.
Valuations & View
OIL India's (OIL) prospects are set to improve over FY19-20E, helped by steady production growth and the removal of royalty overhang in Assam. The decision by the Central government to pay the dues of both ONGC/OIL to the respective state governments of Gujarat/Assam has removed this material overhang while we see oil and gas production reviving gradually over FY18-19E (we estimate a CAGR of 3% over FY18-20E for oil and gas respectively). Current valuations (adjusted for Rs60/sh of IOCL investment value and Rs44 from Tass/Vankor) of 4.6x 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$1.1/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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