Oil India share price gains even after poor December quarter results; check target price

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Updated: February 12, 2020 1:24:40 PM

The consolidated profit of Oil India stood at Rs 709 crore down from Rs 1,423 crore in the year ago period. Falling crude oil prices in the international market reduced the crude oil price realisation by 5.10 per cent from a year ago period.

Although the share price of the company fell on the day it posted its quarterly results, the same has been steadily gaining since then to reclaim its lost value.

Oil India Limited share price gained 1.86 per cent during the day’s trade after falling down in the last two sessions on the back of dismal third quarter results. Oil India’s profit slumped 50.1 per cent in the December quarter as production fell and so did realisations. The consolidated profit of Oil India stood at Rs 709 crore down from Rs 1,423 crore in the year ago period. Falling crude oil prices in the international market reduced the crude oil price realisation by 5.10 per cent from a year ago period.

Although the share price of the company fell on the day it posted its quarterly results, the same has been steadily gaining since then to reclaim its lost value. Brokerages are hopeful of getting mildly positive gains from the company on the back of possible divestment by the Government of India and removal of roadblocks such as Citizenship Amendment Act protests that tinkered with the company’s crude oil production and gas production in Assam.

Emkay Global Financial Services has a ‘hold’ call on the stock with a revised target price of Rs 150 and an upside of 12 per cent. “We maintain Hold rating with a revised TP of Rs150 and remain UW in sector EAP. Key risks are adverse oil-gas prices, policy issues, local tensions, cost overruns, ETF divestment and dry holes, while non-operational drivers are dividend outlook and corporate actions such as the NRL acquisition,” said analysts at Emkay in a research note. It added, “We have cut FY20E EPS by 28% on output reduction, lower other income and a higher tax rate for FY20E.”

Global oil demands, according to analysts, may remain low which will result in subdued oil prices in the near future cutting Oil India’s realisations further. A 26.9 per cent year-on-year decline in EBIT from crude oil segment is attributable to a 7.3 per cent fall in oil price realisation to Rs 4,453 per barrel. The share has lost more than 14 per cent in the last three months.

HDFC Securities, on the other hand, is not ready to let go of Oil India and has put a ‘Buy’ call on the stock while admitting that there are concerns over low production. “We maintain BUY on OIL following an inline performance with our estimates in 3QFY20. Though we admit that there are concerns over low production growth of OIL, we think that the current valuations indicate strong pessimism,” HDFC Securities said. HDFC Securities has reduced its EPS estimates on the stock by 6.6 per cent,

Expecting the oil prices to remain muted owing to strong supply from US Shale and weakening global macros. HDFC says that Oil India will generate OCF yield of 25.7 per cent to 47.1 per cent. “We believe the current valuations are contextually low. Our target price is Rs 209,” said HDFC securities.

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