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Analyst Research Report Snapshot


Oil India Ltd. (OIL) | OFS




IndiaNivesh Securities Pvt Ltd


31 Jan 2013





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Oil India Ltd. (OIL) | OFS Oil India Ltd. (OIL) | OFS | CMP : Rs.539 | Reco : SUBSCRIBE | Target : Rs.620 OIL is the second largest oil and gas producer in India with most of its exploration assets concentrated in North East India. OIL has strong execution capabilities with an established track record coupled with vast opportunities in Indian Oil & Gas sector. We believe that lower finding costs, higher success ratio, possibility of medium term production growth and proven track record of adding incremental reserves would result in higher profitability going forward. Diesel price reforms and expected hike in natural gas price would be a big positive for the stock. Acquisition of producing assets in the overseas market would further boost OIL’s earnings and valuation. However, its performance will be linked to the international crude price, which has been volatile in the last few years. Subsidy sharing, higher write-off on exploratory wells and geopolitical situation in Assam are the key risks for the business. Issue details: The government is coming out with OFS (offer for sale) to divest 10% stake (60.10 million shares). The government's share in OIL, which stands at 78.43%, will come down to 68.43% after the disinvestment. The floor price for the Oil India auction will be Rs. 510 a share. At the floor price, the government could raise Rs 30.60 bn. The issue opens for subscription on 1st February 2013. Valuation: We believe OIL's strong resource base poses considerable triggers for volume growth. The recent reforms undertaken by the Indian government in pricing of petroleum products is also expected to be significantly value-accretive for OIL. At the CMP of Rs 539, the stock is trading at 9.58x FY13E and 8.63x FY14E EPS OIL's cash rich balance sheet (Rs. 232/share) and compelling valuation (below 2Yr average P/E of 11x) makes this a good value buying. We value the stock at Rs. 620 based on DCF valuation (WACC: 13% and Terminal Growth 2%), which offers an upside of 21.5% over the floor price. Thus, we recommend investors to Subscribe to the issue.

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