HDFC Securities forecasts a muted oil and gas realisation and lack of production growth for both oil and gas for Oil India LImited (OIL).

HDFC Securities expect oil prices to remain at ~USD 50 per barrel in FY22/23E vs. USD 61/bbl in FY20, given the weak global macro. With no subsidy sharing with OMCs, OIL remains a pure play on the crude oil price. 3QFY21 revenue was in line with our estimates, but EBITDA was 116% below our estimate, owing to dry wells write-off of Rs 650 crore. RPAT was above our estimate, owing to higher-than-anticipated other income and credit of INR 12bn of taxes.

Standalone financial performance: Sales in 3Q was Rs 2100 crore -28% YoY, led by a 27% fall in crude realisation in rupee terms to Rs 3,158/bbl. EBITDA came at INR -1bn as opex to sales inched up by 3638bps YoY to 82%.

Exceptional loss: The expense of INR 1,514mn incurred to control the blowout incident of May/June 2020 at Oil India's well in Baghjan has been classified as an exceptional item in 3Q. OIL settled all its pending income tax disputes from AY2003-04 to AY2016-17 and received a settlement of Rs 1200 crore in 3Q for the same, which led to a spike in the RPAT. Adjusting for these one-offs, OIL reported a loss of Rs 140 crore in 3Q.

Standalone operational performance: Crude oil realisation corrected to USD 42.8/bbl, +3/-30% QoQ/YoY; also, gas realisation contracted to USD 1.7/mmbtu, -46/-45% QoQ/YoY. Oil sales volumes remained flat QoQ/YoY at 0.72mmt, while gas sales volumes were 0.59bcm, +48/-2% QoQ/YoY.

Con call takeaways:

• The Board approved an interim dividend at 35% i.e., Rs 3.5/sh.
• Debt on Dec-21 end stands at USD 1.275bn.
• Capex target for FY22 is of Rs 4000 crore.

(Harshad Katkar, Institutional Research Analyst, HDFC Securities & Nilesh Ghuge, Institutional Research Analyst, HDFC Securities)