Sharekhan has given Buy recommendation for Oil India with a target price of Rs. 250 in its research report issued on Sep 15, 2021
Sharekhan’s research report on Oil India
Oil India Limited’s (OIL) business fundamentals have turned positive with Brent oil prices at ~$74/bbl and a sharp rise in international gas prices. We expect standalone PAT to clock a CAGR of 34% and RoE to improve to 11.3% over FY21-24E. Increase in Numaligarh Refinery Ltd (NRL) stake is earnings accretive as GRMs would remain strong given excise duty benefit and 3x expansion in refinery capacity to create long-term value for OIL. The management expects combined oil & gas production to grow by 6-7% annually in the long term, but we believe majority of production growth to be back-ended and model an oil/gas production CAGR of 2%/4% over FY21-24E. Robust earnings recovery and dividend yield of ~6% makes risk-reward favourable.
Outlook
Hence, we upgrade OIL to Buy from Hold with a revised SoTP-based PT of Rs. 250. OIL is trading at 3.7x its FY23E EPS (including earnings contribution from NRL).