AUM Capital recommend a leading Oil & Gas 'Navratna' company for target of Rs. 365

AUM CAPITAL | Feb. 9, 2017, midnight


Company Background


OIL India, is a leading Oil & Gas ‘Navratna’ company engaged in exploration, development, production and transportation of crude oil and natural gas. It is India’s second largest Oil &Gas Company having over 5 decades of experience across Oil & Gas value chain. OIL has 101694 sq.km of licensed area for oil & gas exploration having global presence. The company has strong oil and gas reserve base with 2P (projected) reserves: Oil – 80.74 Mt (million metrictonnes) and gas-119.45 BCM (billion cubic metres).


Investment Rationale

  • Hydrocarbon Vision 2030 released in FY16 focuses on doubling oil & gas production by 2030. OIL has significant presence in the north eastern part of India with demonstrated commercial production and known accumulation of Hydrocarbon.
  • Oil India's 9mFY17 net sales declined by 9.76% to Rs.6998.50 crores on account of lower crude oil price realization at US$ 45.66/bbl as compared to US $ 50.90/bbl last year and fall in sales volume by 1.67% YoY. The operating margin stood at 34.77%, declined by 6.49% YoY on account of lower crude sales realization.
  • The company’s capex guidance for FY17 & FY18 is ~ Rs.8310 crores which is higher by 12% of combined capex incurred in FY15 & FY16.
  • OIL has recently diversified into non-conventional energy like Wind energy with a capacity of 121.6MW, Solar Power-14MW & Shale Oil/Gas by taking 20% stake in Niobrara Liquid Shale asset, USA.
  • OIL has a history of a dividend payout of more than 40% for the last three years. One can expect a DPS of ~Rs 19/share in FY17 translating into a dividend yield of 5.3% (not adjusted for bonus).
  • OIL’s profits remain largely unaffected if crude isin the range of ~US$ 47/bbl to ~US$ 57/bbl. However, lower crude prices, and diesel decontrol have changed the under-recovery dynamics for the sector. If oil price sustains above ~US$50, it would help it to maintain its margins.
  • The central government has waived off royalties & interest due by the company to the tune of Rs.9257 crores during the period April 1, FY08 to January FY14. The company had already paid Rs.1151 crores as differential royalty which could be an extraordinary gain going ahead.
  • We recommend accumulate on the stock with a target price of Rs.365 (8x FY18 standalone EPS + its investment in IOC, Brahmaputra Cracker and Polymer Ltd, Numaligarh Refinery, and adjusting for Mozambique project, on SOTP basis) in next 6-9 months. Apart from which the dividend yield of ~5% is an added attraction.

 

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