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MOSL: OIL INDIA (Buy) - Continued diesel price hikes/scheduled gas price hike key catalysts




Motilal Oswal Securities Ltd.


13 Feb 2014





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Oil India (OINL IN, Mkt Cap USD4.5b, CMP INR461, Buy) Harshad Borawake (HarshadBorawake@MotilalOswal.com) Marginally below estimates: Oil India reported marginally below estimate 3QFY14 EBITDA at INR11.7b (est. of INR12.2b; up 4% YoY and -12% QoQ) and PAT at INR9b (v/s est. of INR9.4b; -4% YoY and flat QoQ) led by marginally lower oil production/sales. Net realization at USD52.1/bbl: Gross realization stood at USD108.1/bbl (flat YoY and QoQ) and subsidy at USD56/bbl (flat YoY and QoQ) resulting in net realization of USD52.1/bbl (v/s 52.6 in 3QFY13 and 52.3 in 2QFY14). Oil production down 3% YoY and QoQ: 3QFY14 oil production at 0.9mmt was marginally below estimate of 0.92mmt; partly compensated by higher gas production at 0.55bcm (est 0.53bcm; +2% YoY, +3% QoQ). Raised INR63.3b debt for Mozambique acquisition: OINL has taken one year bridge loan of INR63.3b for Mozambique acquisition (4% stake in Rovuma 1 Offshore block), which will be later converted into a long term loan. Management had earlier guided that the interest cost will be capitalized (we model the same), however we await more clarity. We model upstream sharing at INR686/650b for FY14/15: For FY14/FY15, we are conservatively modeling upstream sharing at INR686/650b, leading to 4QFY14 subsidy of INR29.7b for Oil India. Typically, govt. finalizes the subsidy sharing in the 4Q of any year and if govt. were to continue with USD56/bbl subsidy then Oil Indias FY14 EPS will be higher by 14%. Valuation and view Upside potential to our FY15 gas price assumption: We model gas price of USD6.3/mmbtu from FY15 v/s likely new gas price of USD8.4/mmbtu, to factor in likely subsidy towards power/fertilizer sector. However, if the full gas price benefit is passed on then FY15E EPS will further increase by 16%. The stock trades at 7.2x FY15E EPS of INR64.3 and has an implied dividend yield of 4-5%. We value OINL at INR640/share based on average of three methodologies: (1) P/E of 10x FY15E, (2) 4.5x FY15E EV/EBITDA and (3) DCF (WACC of 12%). Maintain Buy.

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