MOSL: OIL INDIA (Buy)-EBITDA significantly below estimate led by higher other expense

Oil India: EBITDA significantly below estimate led by higher other expense

(OINL IN, Mkt Cap USD4.4b, CMP INR221, TP INR279, 34% Upside, Buy)

• OINL's revenue of INR30b (+23% YoY, +5% QoQ) was in line with our estimate. Reported EBITDA of INR8b (+35% YoY, -35% QoQ) was significantly below our estimate of INR10.5b, led by higher other expenditure of USD11.8/boe v/s USD8.3 in 4QFY17 and USD5.9 in 3QFY18. Other expenditure was higher, mainly due to higher provision of INR3.7b v/s INR498m in 3QFY18 and INR1.5b in 4QFY17. OINL made impairment provision of INR1.9b for overseas assets. PAT of INR8.7b (+44x YoY, +23% QoQ) exceeded our estimate of INR6.0b, led by higher other income of INR7.9b (est. of INR3.1b; -10% YoY, +270% QoQ).
• Realization at USD64.9/bbl: In 4QFY18, gross realization stood at USD64.9/bbl (+24% YoY, +9% QoQ), led by rising crude oil prices. Production of crude oil stood at 0.83mmt (flat YoY, -3% QoQ) and of gas at 0.69bcm (-5% YoY, -3% QoQ). Total production declined 2% YoY (-3% QoQ) to 1.52mmtoe. Sales of oil stood at 0.83mmt (+3% YoY, -1% QoQ) and of gas at 0.58bcm (-1% YoY, -3% QoQ). Total sales grew 1% YoY (-2% QoQ) to 1.41mmtoe.
• For FY18, EBTIDA grew 32% YoY to INR39b and PAT rose 73% YoY to INR27b, mainly led by higher crude oil price. Brent price was up 17% to USD57.3/bbl.
• Management recommended a final dividend of INR1/share, in addition to an interim dividend of INR14/share.
• Valuation and view: We raise our Brent price assumption to USD70/bbl from USD60/bbl earlier for FY19/20, resulting in ~22% upgrade in earnings. We expect EPS of INR33.2/35.2 in FY19/20. After hitting USD80/bbl, Brent oil prices have started declining. We believe USD60-70/bbl should not be a concern for return of subsidy regime. Rising gas price would be positive for the stock.