Oil India's Q3FY18 results (Outperformer) - A strong quarter
Q3FY18 highlights
- Adjusted PAT of Rs7bn, up 55% yoy, with EBITDA of Rs12.7bn growing 73% yoy (IDFCe Rs12.6bn EBITDA, Rs7bn PAT). Higher production, higher realisations have driven the yoy improvement.
- Oil production of 0.86mt grew 3% yoy, in line. 9M oil production of 2.6mt has grown 4.8% yoy. Gas production of 0.74bcm was flat yoy for the quarter but 9M production of 2.23bcm has grown marginally by 0.6% yoy.
- Net oil realisations of US$59.4/bbl was up 21% yoy (in line). 9M average realization of US$52.6/bbl is 15% higher yoy. Net gas realisations of Rs6.8/scm increased 11% yoy, in line with the higher domestic gas price w.e.f. Oct 2017.
- EBITDA of US$19.7/bbl has grown 78% yoy, the highest since Q1FY16. 9M EBITDA of Rs32.2bn has grown 24% yoy.
Key positives: Yoy growth in total oil/gas output.
Key negatives: Gas realisations remain subdued, gas production declined qoq.
Impact on financials: Revise FY18/19/20E EPS by +7/15/9% respectively to factor higher oil prices, marginally higher prod growth. TP raised to Rs450/sh due to rollover to FY20E multiples and inclusion of Taas/Vankor stake option value.
Valuations & View
OIL India's (OIL) prospects are set to improve over FY18-20E, 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 3/4% over FY17-20E for oil and gas respectively). Current valuations (adjusted for Rs103/sh of IOCL investment value and Rs67 from Tass/Vankor) of 5.9x FY20E EPS (standalone) and 5.1x (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$1.5/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.
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