We are terminating coverage of Oil India Limited due to a reallocation of resources.
We are terminating coverage of Oil India Limited due to a reallocation of resources. Our final target price is Rs 140 (earlier Rs 90), and our final rating is ‘hold’. Please note that you should no longer rely on any previous research, ratings, target prices or estimates for this company.
HSBC has decided to terminate equity coverage of Oil India due to a reallocation of resources. Please note that you should no longer rely on any previous research, ratings, target prices or estimates for this company.
We base our final target price of Rs 140 (earlier Rs 90) on a sum-of-the-parts approach. We value the company’s consolidated core business at a 2022e PE of 8.0x (earlier 6.0x). This target multiple is based on 10Y mean multiple (earlier -1SD from 10Y mean) given reduced COVID-19 related risks and a recovery in oil prices. We value the company’s listed investments at a holding company discount of 25% to their current market prices to factor in market volatility.
We raised the final target price because of increases to our earnings estimates, a higher target valuation multiple, and marking to market the value of other investments. With around 11% implied upside from current levels to our final target price, our final rating on the stock is ‘hold’, as we expect volume growth issues at the company to continue to weigh on the stock.
Downside risks to our final rating and target price include a lower-than-expected subsidy burden on upstream companies; sharp declines in gas prices in the US, Russia or Canada (we note that the domestic gas price in India is based on a formula that uses gas prices in the US, Canada, and Russia); a sharp decline in oil and gas production; potential exclusion of hydrocarbon-related stocks from performance benchmarks; and production slippages in the international assets.
Upside risks to our final view include a sharp recovery in oil and gas prices; relief from the government on royalty or cess payable on oil or gas production; and sharper-than-expected cost deflation leading to lower OPEX and CAPEX.