Oil India hits new high, surges 15% in 2 days on strong production outlook

Oil India's earnings growth over the next 3-5 years is likely to be aided by expansion of Numaligarh Refinery Limited (NRL).

Shares of Oil India hit a new high of Rs 539.40, soaring 8 per cent on the BSE in Thursday’s intra-day trade in an otherwise volatile market on the back of robust production outlook.

In past two days, the stock of state-owned oil exploration & production company has surged 15 per cent after the company reported its December quarter (Q3FY24) earnings on Tuesday post market hours. It surpassed its previous high of Rs 524.60 touched on February 9. In comparison, the S&P BSE Sensex was down 0.07 per cent at 71,769 at 10:06 am.

On the operational front, Oil India achieved a commendable 5.68 per cent increase in crude oil production, reaching 2.511 million metric tonnes (MMT) compared to 2.376 MMT in the same period last year.

Furthermore, in Q3FY24, the crude oil production is higher by 6.07 per cent YoY highlighting company’s operational efficiency and resource optimization, the company said in a press release. Natural Gas production during the quarter was increased by 2 per cent over Q3FY23.

Management highlighted that there was accelerated drilling in some of the fields. It expects to double the number of wells in FY25 and incremental wells to be drilled in FY26 as well, which would take oil production to 4 MMT in FY26. Management guided oil production of 3.35-3.40 MMT in FY24, and 3.8 MMT in FY25 (after taking into account the natural decline of 8-10 per cent from existing fields in all three years).

However, Oil India posted 26 per cent year-on-year (YoY) decline in reported earnings before interest, tax, depreciation, and amortization (EBITDA) of Rs 2,613.75 crore, due to higher other expenses compared to the previous year. Reported profit was down 9 per cent YoY at Rs 1,584 crore.

Motilal Oswal Financial Services (MOFSL) said the production growth guidance remains robust, with drilling activity and development of wells in old areas contributing to this growth. Oil India is also applying new technologies to grow production. Capacity expansion for Numaligarh Refinery Limited (NRL) (from 3 MMT to 9 MMT) which would also be completed by Sep 2025, which would help in further upside, the brokerage firm said.

“Oil India remains a strong conviction with a 1.2x FY25E P/B (standalone) valuation. It is a unique play to benefit from the strong multi-year upcycle in both upstream and refining. The stock currently trades at a P/E multiple of 7.2x FY25E EPS and 5.5x FY25E EV/EBITDA,” MOFSL said in result update. The brokerage firm has ‘Buy’ rating on the stock with a target price of Rs 650.

Analysts at JM Financial Institutional Securities raised FY25 and FY26 consolidated EBITDA by 10-12 per cent due to increase in its Brent crude price assumption to $70/bbl from FY25 onwards (vs. arlier conservative assumption of USD 65/bbl) due to OPEC+ strong pricing power and continued geopolitical concerns and; hike in FY25 and FY26 crude and gas output estimate by 3-5 per cent to partly align with management volume guidance.

Oil India’s earnings growth over the next 3-5 years is likely to be aided by expansion of NRL refinery from 3 mmtpa to 9 mmtpa (given the management guidance of excise duty benefits continuing for the expanded capacity as well), the brokerage firm said in result update.