Emkay Global Financial has given Buy recommendation for Oil India with a target price of Rs. 255 in its research report issued on Sep 10, 2021

Emkay Global Financial’s report on Oil India

Although we believe NRL’s acquisition should have been 100% with the Assam govt allotted OIL’s share instead, the effective 69.6% stake is also material. OIL stands to benefit from NRL’s massive excise duty-driven earnings and its ongoing 3x capacity expansion. It is difficult to assume NRL’s current 50% excise-reimbursement benefit would continue indefinitely (though OIL management believes so). Nonetheless, we value NRL using DDM at Rs76/share, assuming 25% excise-reimbursement on expanded capacity. We bake in USD65 Brent/4.5 APM for the long term and value S/A using DCF now. OIL should receive Rs13-15bn in annual dividends from NRL and IOCL in the next 5 years; these, if upstreamed, could result in a 45%+ payout and a 7% yield at CMP. Upgrade to Buy from Hold.

Outlook

We consolidate Numaligarh Refinery into Oil India with a revised Sep’22E SOTP TP of Rs255 (previously Rs165 for Mar’22E). OIL’s core outlook is positive with crude at USD70+ and gas prices on an uptick. We do not build in any output growth despite management’s optimism.

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