Oil India rating ‘buy’: Jefferies says EPS met expectations as Ebitda slipped

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Published: June 4, 2018 2:26:38 AM

Oil India’s Q4FY18 net rose 23% q/q to Rs 8.67 billion — 1% ahead of JEFe despite Rs 3.7 billion in provisions.

oil india, EPS, oil india q4fy18, oil india earningsOil India’s Q4FY18 net rose 23% q/q to Rs 8.67 billion —in line with JEFe helped by higher other income and lower taxes offset somewhat by higher provisions.

Oil India’s Q4FY18 net rose 23% q/q to Rs 8.67 billion —in line with JEFe helped by higher other income and lower taxes offset somewhat by higher provisions. EBITDA (-6% q/q) was 5% softer, though, hurt by higher opex. Overall, std. earnings rose 12% y/y in FY18 to Rs 23.3/sh with consol. EPS another 2% ahead. With the outlook for subsidies uncertain, FY19-21E EPS is hard to predict but we keep our Buy, noting its inexpensive 9.3x FY18 P/E when Brent averaged $58.

Q4FY18: Oil India’s Q4FY18 net rose 23% q/q to Rs 8.67 billion — 1% ahead of JEFe despite Rs 3.7 billion in provisions. Higher other income (NRL, IOCL interim dividends) and a 26.5% lower tax rate helped while DD&A was lower than est. too, with dry well write-offs at just Rs 692 m.

Core: On operations, revenues (+5% q/q) were 2% higher than JEFe despite lower transport revenues helped by higher than est. crude sales (+2% q/q despite 1% q/q lower prod.) and realisations ($64.9, 3.1% disc. to Brent). Yet, EBITDA (Rs 13 billion) still fell 6% q/q (-11% y/y) missing JEFe by 5%, hurt by higher opex ($12.6, +43% y/y). Some of this related to staff provisions (Rs 1.8 bn for wage revisions) but costs seemed higher otherwise too.

FY18: For the year, crude prod. rose 3.6% y/y but gas prod. fell 1.9% y/y with pricing flattish too. Yet, with oil realisations up 18% y/y to $55.7 (3.3% disc. to Brent), FY18 earnings rose ~12% y/y (pre-excep.) to Rs 23.3/sh. Consol. earnings were 2% ahead at Rs 23.9/sh but missed JEFe. NRL (26% owned) did better than JEFe but Vankor/Taas appeared soft.

Outlook: Looking ahead, the uncertainty on subsidies makes FY19-21E harder to predict. The govt’s Rs 208 billion FY19 budget provision for LPG/SKO is clearly inadequate, making it likely that it would lean on the SOEs to share the burden. Yet, it is also likely that downstream SOEs share a non-trivial portion leaving a more equitable sharing mechanism — like in FY03-07.

Risk-reward: In this context, the risks on upstream SOE earnings may be less pronounced than what investors currently envisage. Even otherwise, we find Oil India’s valuations inexpensive at 9.3x FY18 P/E when Brent averaged $58 — some 20-25% lower than spot.

BUY: We retain our Buy on Oil India, noting also that the domestic assets trade at 4.2x FY18 EV/EBITDA (and 3.4x FY19E) after adj. for its stakes in IOC and NRL (Rs 77/sh), Mozambique (Rs 11/sh, DCF) and Vankor/Taas acquisitions (Rs 64/sh, at cost).

Valuation/Risks: Subsidies and lower Brent are key downside risks to our unchanged Rs 310 PT (SOTP).

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