RESULTS REVIEW 2QFY18 13 NOV 2017

Oil India
NEUTRAL
INDUSTRY OIL & GAS Profitability driven by crude realisations
In 2QFY18, Oil India (OIL) reported 21% YoY increase increasing oil production will drive profitability for
CMP (as on 13 Nov 2017) Rs 357 in EBITDA to Rs 10.1bn, led by higher oil realisations OIL.
Target Price Rs 384 (+7.9% YoY), increase in oil sales volumes (+3.6% Our SOTP target is Rs 384/sh (9x Sep19 standalone
YoY) and gas volumes (+3.4% YoY). However, these core EPS + Rs 126/sh from investments). Maintain
Nifty 10,225
factors were offset by lower gas realisations (-18% NEUTRAL.
Sensex 33,034
YoY) and higher employee cost (+20%). PAT came in
KEY STOCK DATA at Rs 6.46bn (+11% YoY), owing to higher depletion Highlights of the quarter
Bloomberg OINL IN cost (+28%).
OILs sales volumes were 0.84 mnT (+3.6% YoY). Net
No. of Shares (mn) 757 There will be an increase in gas volumes, with a oil realisation came in at USD 50.1/bbl (+13% YoY). In
MCap (Rs bn) / (D mn) 270/4,127 greater demand from BCPL. The company has INR terms, it was Rs 3,221/bbl (+8% YoY, +3.2% QoQ).
6m avg traded value (Rs mn) 203 planned to drill seven Extended Rich Drill wells in the Subsidy sharing from OIL was nil.
STOCK PERFORMANCE (%) Baghjan field, which will increase oil production by
52 Week high / low Rs 383/257 0.2mnT by FY20. OIL remains a play on crude. The Gas sales volumes were 0.64 bcm (-3.4% YoY). They will
supply cut by OPEC and non-OPEC countries pick up, with higher demand from BCPL. Gas realisation
3M 6M 12M
(excluding USA), will provide strength to crude was down 18% to USD 2.5/mmbtu.
Absolute (%) 28.0 12.0 16.8
prices. However, strong shale oil supplies from USA
Relative (%) 22.1 2.6 (6.4) will provide a cap on crude prices. Domestic gas price
Near-term outlook: OILs share price has moved up by
~23% over the last three months, led by strengthening
SHAREHOLDING PATTERN (%) plunged 50% from USD 5.05/mmbtu in 2HFY15 to
USD 2.48/mmbtu in 1HFY18. However, of crude prices, and an increase in IOCs share price
Promoters 66.60
prices have bottomed out, and increased 16.5% to (contributed Rs 84/share in OILs fair value). We expect
FIs & Local MFs 13.34
USD 2.89/mmbtu in 2HFY18. They are expected to oil prices to remain range-bound, hence no sharp
FPIs 4.44
increase till FY20. Higher gas realisations and movements for OIL.
Public & Others 15.62
Source : BSE
Financial Summary (Standalone)
Year Ending March (Rs mn) 2QFY18 2QFY17 YoY % 1QFY18 QoQ % FY17 FY18E FY19E FY20E
Net Sales 24,737 23,314 6.1 23,317 6.1 95,104 1,03,030 1,07,880 1,12,675
EBITDA 10,122 8,365 21.0 8,741 15.8 31,048 32,466 34,766 36,860
APAT 6,460 5,803 11.3 4,502 43.5 27,004 24,139 25,653 27,315
Diluted EPS (Rs) 8.5 7.7 11.3 6.0 43.5 33.7 30.1 32.0 34.1
P/E (x) 10.5 11.8 11.1 10.4
Nilesh Ghuge EV / EBITDA (x) 9.5 8.6 8.1 6.5
nilesh.ghuge@hdfcsec.com RoE (%) 10.5 8.0 7.8 7.7
+91-22-6171-7342 Source: Company, HDFC sec Inst Research
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
 OIL INDIA : RESULT REVIEW 2QFY18

Quarterly Financials: Snapshot

(Rs mn) 2QFY18 2QFY17 YoY % 1QFY18 QoQ %
Net Sales 24,737 23,314 6.1 23,317 6.1
Impact of higher oil Employee Expenses 4,388 3,662 19.8 4,063 8.0
realisations and sales volumes Other Operating Expenses 10,227 11,287 (9.4) 10,514 (2.7)
was negated by lower gas EBITDA 10,122 8,365 21.0 8,741 15.8
Depreciation 3,238 2,521 28.5 2,903 11.6
prices and higher employee
Other Income 3,310 3,895 (15.0) 1,540 115.0
cost EBIT 10,194 9,739 4.7 7,378 38.2
Interest Cost 1,058 989 6.9 999 5.9
PBT 9,136 8,750 4.4 6,379 43.2
Tax 2,676 2,947 (9.2) 1,877 42.6
RPAT 6,460 5,803 11.3 4,502 43.5
EO (Loss) / Profit (Net Of Tax) - - - - -
APAT 6,460 5,803 11.3 4,502 43.5
AEPS (Rs/sh) 8.5 7.7 11.3 6.0 43.5
Source: Company, HDFC sec Inst Research

Margin Analysis
2QFY18 2QFY17 YoY (bps) 1QFY18 QoQ (bps)
Employee Expenses as % of Net Sales 17.7 15.7 203 17.4 32
Other Expenses as % of Net Sales 41.3 48.4 -707.1 45.1 -374.6
EBITDA Margin (%) 40.9 35.9 504 37.5 343
APAT Margin (%) 26.1 24.9 122.4 19.3 680.4
Tax Rate (%) 29.3 33.7 (439) 29.4 (13)
Physical Performance
2QFY18 2QFY17 YoY % 1QFY18 QoQ %
Gas volumes will pickup with
Production Volume
the ramp up of BCPL, which is
Oil (mnT) 0.85 0.81 5.1 0.85 0.5
currently operating at ~75% Gas (BCM) 0.76 0.74 2.8 0.72 5.5
Sales Volume
NG realisations will increase Oil (mnT) 0.84 0.81 3.6 0.82 2.6
in 2HFY18, with a 16.5% Gas (BCM) 0.64 0.61 3.4 0.60 6.7
increase in domestic prices Realisation
Crude Pre-subsidy (USD/bbl) 50.1 44.6 12.5 48.4 3.5
Crude Post-subsidy (USD/bbl) 3,221 2,983 8.0 3,121 3.2
NG realisation (USD/mmbtu) 2.5 3.0 (17.9) 2.5 (0.9)
Source: Company, HDFC sec Inst Research

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 OIL INDIA : RESULT REVIEW 2QFY18

Assumptions
Particulars FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Sales Volumes
The company has planned to Oil (mmt) 3.5 3.4 3.2 3.2 3.4 3.4 3.6
drill seven Extended Rich Drill Gas (bcm) 2.1 2.2 2.3 2.4 2.6 2.7 2.7
wells in the Baghjan field, Macros
which will increase oil Crude Price (USD/bbl) 106.4 84.3 46.4 48.1 51.0 51.0 51.0
production by 0.2mnT by FY20 UR Sharing (USD/bbl) 59.3 37.3 1.0 - - - -
Net Oil Realisation (USD/bbl) 47.1 46.9 45.3 48.1 51.0 51.0 51.0
Gas Price (USD/mmbtu) 4.5 5.2 5.1 2.9 2.9 3.2 3.5
INR-USD 60.5 61.2 65.5 66.0 66.0 66.0 66.0
Source: Company, HDFC sec Inst Research

Valuation (Based On Sep-19E)

Value
Business (Rs/sh) Multiple Value (Rs/sh) Valuation basis
(Rs bn)
Standalone EPS 33.1
EPS From Other Income Valued Separately 4.3
Net EPS (Rs/sh) 28.7 9.0 258 P/E multiple
Investments
Investments In IOC At CMP 67.3 0.7 84 30% discount to CMP
Other Investments At BV 111.6 42 0.3x Book value
Investments Equity Value 126
Value Per Share 384
Source: HDFC sec Inst Research

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 OIL INDIA : RESULT REVIEW 2QFY18

Standalone Income Statement Standalone Balance Sheet

(Rs bn) FY16 FY17 FY18E FY19E FY20E (Rs bn) FY16 FY17 FY18E FY19E FY20E
Net Revenues 97.65 95.10 103.03 107.88 112.68 SOURCES OF FUNDS
Growth % 0.2 (2.6) 8.3 4.7 4.4 Share Capital 6.01 8.02 8.02 8.02 8.02
Material cost 0.26 (0.49) (0.49) (0.49) (0.49) Reserves And Surplus 217.15 282.89 307.03 332.68 360.00
Statutory Levies 26.83 25.29 28.19 29.18 30.24 TOTAL SHAREHOLDERS FUNDS 223.16 290.91 315.04 340.70 368.01
Employee Cost 13.82 16.14 19.37 20.53 21.76 Long-term Debt 91.99 89.48 89.48 89.48 89.48
Other Expenses 20.59 23.12 23.50 23.90 24.31 Short-term Debt - - - - -
EBIDTA 36.15 31.05 32.47 34.77 36.86 Total Debt 91.99 89.48 89.48 89.48 89.48
EBIDTA Margin % 37.02 32.65 31.51 32.23 32.71 Deferred Taxes 20.89 30.80 30.80 30.80 30.80
EBIDTA Growth % 1.37 (11.81) (3.48) 2.27 1.51 Long Term Provisions, Others 8.28 9.17 9.17 9.17 9.17
Depreciation 9.66 10.91 9.49 9.90 9.90 TOTAL SOURCES OF FUNDS 344.31 420.34 444.48 470.14 497.45
EBIT 26.49 20.14 22.98 24.87 26.96 APPLICATION OF FUNDS
Other Income (Incl. EO Items) 11.61 5.29 17.06 17.47 17.89 Net Block 73.76 86.38 97.97 124.77 112.53
Interest 3.46 3.97 4.01 4.05 4.09 CWIP 28.45 33.86 33.86 33.86 33.86
PBT 34.63 21.46 36.03 38.29 40.77 Investments 112.84 208.01 208.01 208.01 208.01
Tax 11.33 5.98 11.89 12.64 13.45 LT Loans & Advances and Other 14.68 7.55 7.55 7.55 7.55
RPAT 23.30 15.49 24.14 25.65 27.32 NON - CURRENT ASSETS 229.74 335.81 347.39 374.20 361.95
EO (Loss) / Profit (Net Of Tax) 2.15 11.52 - - - Inventories 10.06 10.96 10.87 10.78 10.69
APAT 25.45 27.00 24.14 25.65 27.32 Debtors 13.25 10.06 9.97 9.89 9.81
APAT Growth % 1.40 6.10 (10.61) 6.27 6.48 Cash & Equivalents 97.67 76.92 92.41 92.91 134.20
Adjusted EPS (Rs) 31.76 33.70 30.12 32.01 34.09 Other Current Assets 21.79 19.65 19.65 19.65 19.65
EPS Growth (%) 1.40 6.10 (10.61) 6.27 6.48 TOTAL CURRENT ASSETS 142.77 117.59 132.91 133.24 174.35
Source: Company, HDFC sec Inst Research Creditors 5.29 5.86 6.35 6.61 6.89
Other Current Liabilities & Provns 22.90 27.19 29.47 30.68 31.96
TOTAL CURRENT LIABILITIES 28.19 33.05 35.82 37.30 38.85
NET CURRENT ASSETS 114.57 84.54 97.09 95.94 135.50
TOTAL APPLICATION OF FUNDS 344.31 420.34 444.48 470.14 497.45
Source: Company, HDFC sec Inst Research

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 OIL INDIA : RESULT REVIEW 2QFY18

Standalone Cash Flow Standalone Key Ratios

(Rs bn) FY16 FY17 FY18E FY19E FY20E FY16 FY17 FY18E FY19E FY20E
Reported PBT 36.79 32.98 36.03 38.29 40.77 PROFITABILITY %
Non-operating & EO Items (2.15) (11.52) - - - EBITDA margin 37.0 32.6 31.5 32.2 32.7
Interest Expenses (10.30) (12.84) (13.05) (13.42) (13.81) EBIT margin 27.1 21.2 22.3 23.1 23.9
Depreciation 9.31 10.91 9.49 9.90 9.90 APAT margin 25.7 26.8 26.2 22.4 22.8
Working Capital Change (1.51) 17.38 2.94 1.65 1.73 RoE 11.6 10.5 8.0 7.8 7.7
Tax Paid (7.19) 3.93 (11.89) (12.64) (13.45) RoIC (or Core RoCE) 21.9 22.5 19.2 18.1 18.5
OPERATING CASH FLOW ( a ) 24.95 40.84 23.52 23.78 25.13 RoCE 12.1 9.7 9.3 9.3 9.3
Capex (20.25) (28.94) (21.07) (36.70) 2.35 EFFICIENCY
Free Cash Flow (FCF) 4.70 11.91 2.45 (12.92) 27.48 Tax rate % 30.8 18.1 33.0 33.0 33.0
Investments (1.24) (103.20) - - - Fixed Asset Turnover (x) 0.3 0.2 0.2 0.2 0.2
Non-operating Income 13.76 16.81 17.06 17.47 17.89 Inventory (days) 38 42 39 36 35
Others - - - - - Debtor (days) 50 39 35 33 32
INVESTING CASH FLOW ( b ) (7.73) (115.34) (4.01) (19.24) 20.24 Other Current Assets (days) 81 75 70 66 64
Debt Issuance/(Repaid) 8.58 (2.51) - - - Payables (days) 31 33 33 33 33
Interest Expenses (3.46) (3.97) (4.01) (4.05) (4.09) Other Current Liab (days) 86 104 104 104 104
FCFE 9.81 5.43 (1.56) (16.96) 23.39 Cash conversion cycle (days) 52 18 6 (0) (7)
Share Capital Issuance - 2.00 - - - Debt/EBITDA (x) 2.5 2.9 2.8 2.6 2.4
Dividend (11.21) (13.75) (11.62) (12.35) (13.15) Net D/E (0.0) 0.0 (0.0) (0.0) (0.1)
Others (4.07) 64.01 11.62 12.35 13.15 Interest coverage 11.6 9.3 10.0 10.5 11.0
FINANCING CASH FLOW ( c ) (10.16) 45.79 (4.01) (4.05) (4.09) PER SHARE DATA (Rs)
NET CASH FLOW (a+b+c) 7.05 (28.70) 15.50 0.50 41.29 EPS 31.8 33.7 30.1 32.0 34.1
EO Items, Others CEPS 43.4 47.3 42.0 44.4 46.4
Closing Cash & Equivalents 94.13 65.42 80.92 81.42 122.71 Book Value 278.5 363.0 393.1 425.2 459.3
Source: Company, HDFC sec Inst Research DPS 12.0 14.3 12.0 12.8 13.6
VALUATION
P/E (x) 11.1 10.5 11.8 11.1 10.4
P/BV (x) 1.3 1.0 0.9 0.8 0.8
EV/EBITDA (x) 7.7 9.5 8.6 8.1 6.5
EV/Revenues (x) 2.8 3.1 2.7 2.6 2.1
OCF/EV (%) 9.0 13.8 8.4 8.5 10.5
FCF/EV (%) 1.7 4.0 0.9 (4.6) 11.5
FCFE/MCap (%) 3.5 1.9 (0.6) (6.0) 8.2
Dividend yield (%) 3.4 4.0 3.4 3.6 3.9
Source: Company, HDFC sec Inst Research

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 OIL INDIA : RESULT REVIEW 2QFY18

RECOMMENDATION HISTORY

OIL India TP Date CMP Reco Target

500
29-Nov-16 321 BUY 353
450
10-Jan-17 359 NEU 353
400
2-Feb-17 340 NEU 360
350
13-Apr-17 334 BUY 370
300
13-Nov-17 357 NEU 384
250
200 Rating Definitions
150 BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Dec-16

Oct-17
Aug-17
Apr-17
Nov-16

Jan-17

Nov-17
Feb-17

Sep-17
May-17

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
Jun-17

Jul-17
Mar-17

SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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 OIL INDIA : RESULT REVIEW 2QFY18

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 OIL INDIA : RESULT REVIEW 2QFY18

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