We lower our DCF-based six-month target price to R600, reflecting our FY14-15E earnings reductions. It trades currently at PERs of 7.9x for FY14E and 7.5x for FY15E, much lower than its past-4-year average of 9.0x, and which we believe do not reflect its strong FY14-16E earnings potential.
Also, the stock has a high FY14E dividend yield of 4.2%, and our elevated ROIC forecasts of 30-33% for FY14-16 suggest good returns on its operational assets. Further depreciation of the exchange rate would be a key risk to the shares. We maintain buy. We now forecast a higher subsidy burden than before for Oil India for FY14-15 but project strong Ebitda growth over FY14-16, driven mainly by a gas price hike. We are raising our subsidy burden forecasts by 15% to R9,100 crore for FY14, and by 29% to R11,470 crore for FY15, following published increases in our gross under-recoveries for the domestic oil marketing industry.