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Results Review

INDIA
ENERGY 13 August 2013

BUY
TP: INR 720.00 51.5%

Oil India
OINL IN

PAT slips on lower vols./realization; recovery ahead-BUY


OINLs Q1 PAT at Rs 6.1bn was below our/street estimates on lower crude sales (0.87mmt) and realisations (US$ 45.9/bbl) and a drop in VAP sales (10.3tmt vs. 12tmt in Q4FY13). NG prod./sales however inched up QoQ to 7.22/5.7mmscmd. Maintain BUY on: (a) a likely improvement in crude realisations on lower gross U/R of Rs 1398bn/939bn in FY14/FY15, (b) higher crude production/sales in the quarters ahead and (c) cheap valuations of 6xFY15E (ignoring earnings upside from NG price hikes in FY15). Crude sales/realisations lower QoQ: Despite higher production (0.89mmt vs. 0.86mmt in Q4FY13), crude sales declined to 0.87mmt (from 0.88mmt in Q4FY13) due to a major fire at the Numaligarh refinery in May13. Crude realisations dropped as well, as OINL was made to subsidise OMCs at the prevalent discount of US$ 56/bbl despite muted crude prices of US$ 102/bbl (US$ 111/bbl in Q4FY13). We expect a pick-up in the companys crude oil sales over the coming quarters as the Numaligarh refinery resumes operations. Realisations to improve on lower U/R: We expect U/R drop to Rs 1398bn/939bn in FY14/FY15 on: (a) a sustained increase (Rs 0.5/ltr/month) in diesel prices and (b) sluggish fuel demand growth due to higher prices and a poor macro. If crude prices remain muted, upstream subsidy/bbl could come down as well. We model for FY14/FY15 realisations of US$ 55/59/bbl for OINL. Significant investment plans lined up: OINL is actively scouting for exploration/ production assets to support its inorganic growth. It recently acquired Videocons 10% stake in a Mozambique offshore block via a 40:60 consortium with ONGC. With cash reserves of US$ 2bn+, we dont see such acquisitions as an impeding factor. Maintain BUY with a TP of Rs 720 on attractive valuations, factoring in the overhangs of higher U/R but not the earnings upside from gas price hikes in FY15.
Financial Highlights
Y/E 31 Mar Revenue (INR mln) EBITDA (INR mln) Adjusted net profit (INR mln) Adjusted EPS (INR) Adjusted EPS growth (%) DPS (INR) ROIC (%) Adjusted ROAE (%) Adjusted P/E (x) EV/EBITDA (x) P/BV (x)
Source: Company, Bloomberg, RCML Research This report has been prepared by Religare Capital Markets Limited or one of its affiliates. Where the report is distributed by Religare Capital Markets (UK) Limited (RCM UK), the firm is an Appointed Representative of Elevation Trading Limited, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. For analyst certification and other important disclosures, please refer to the Disclosure and Disclaimer section at the end of this report. Analysts employed by non-US affiliates are not registered with FINRA regulation and may not be subject to FINRA/NYSE restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. REPORT AUTHORS

Nitin Tiwari
+91 22 6766 3437 nitin.tiwari@religare.com

PRICE CLOSE (13 Aug 13)

INR 475.10
MARKET CAP

INR 2,85,600 mln USD 4,656 mln


SHARES O/S

601.1 mln
FREE FLOAT

21.6%
3M AVG DAILY VOLUME./VALUE

0.6 mln/ USD 5.8 mln


52 WK HIGH 52 WK LOW

INR 629.90

INR 431.00

FY11A 83,641 36,169 28,755 48.1 10.9 15.0 39.2 19.6 9.9 5.5 1.8

FY12A 98,632 42,023 34,691 57.7 20.1 19.0 40.4 20.8 8.2 4.2 1.6

FY13A 99,476 46,147 35,893 59.7 3.5 30.0 35.7 19.4 8.0 3.8 1.5

FY14E 1,20,094 57,484 42,525 70.7 18.5 30.0 41.7 20.9 6.7 3.0 1.3

FY15E 1,30,024 66,641 47,865 79.6 12.6 32.0 42.7 21.1 6.0 2.5 1.2
(%) 160 140 120 100 80 60 40 Stock Price Index Price

BUY
TP: INR 720.00 51.5%

Oil India
OINL IN

Results Review
INDIA
ENERGY

Result highlights
Fig 1 - Comparison with estimates
(Ns mn) Revenue EBITDA Adj net income FDEPS (Rs)
Source: RCML Research, Company

Actual 20,978 8,140 6,091 10.1

Estimate 23,340 11,454 8,653 14.4

% Variance (10.1) (28.9) (29.6) (29.6)

PAT disappoints on lower crude/VAP sales and realisations

Fig 2 - Quarterly earnings snapshot


(Rs mn) Revenue Expenditure Operating profit Other income Interest Depreciation PBT Tax PAT EBITDA margin (%) FDEPS (Rs)
Source: RCML Research, Company

Q1FY14 20,978 12,838 8,140 3,517 9 2,665 8,982 2,891 6,091 38.8 10.1

Q1FY13 % Chg YoY 24,396 12,372 12,025 3,772 3 2,025 13,769 4,469 9,299 49.3 15.5 (34.5) (14.0) 3.8 (32.3) (6.8) 190.3 31.6 (34.8) (35.3) (34.5)

Q4FY13 % Chg QoQ 24,718 14,958 9,759 3,694 20 2,394 11,040 3,394 7,646 39.5 12.7 (20.3) (15.1) (14.2) (16.6) (4.8) (55.0) 11.3 (18.6) (14.8) (20.3)

Fig 3 - Operational highlights


(Rs mn) Production & Sales Crude Oil production (MMT) Crude Oil sales (MMT) Nat. Gas production (MMSCMD) Nat. Gas sales (BCM) Crude Pricing Pre Discount US$/bbl Post Discount US$/bbl Subsidy Burden (Rsbn) Segmental Revenue (Rs bn) Crude Oil Natural Gas Segmental EBIT (Rs bn) Crude Oil Natural Gas Exchange Rate
Source: RCML Research, Company

Q1FY14 0.89 0.87 7.2 5.74

Q1FY13 % Chg YoY 0.93 0.94 6.9 5.33 (4.5) (7.5) 5.0 7.6

Q4FY13 % Chg QoQ 0.86 0.88 7.2 5.6 3.7 (1.7) 0.3 2.2

101.9 45.9 19.8

109.8 53.9 20.2

(7.2) (14.8) (1.7)

111.4 55.4 18.5

(8.6) (17.2) 7.2

15.5 3.9

19.6 3.5

(20.9) 10.5

19.5 3.8

(20.6) 2.3

4.3 1.7 55.9

9.0 1.9 54.1

(52.8) (12.1) 3.4

7.3 0.7 54.2

(41.9) 124.0 3.3

13 August 2013

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BUY
TP: INR 720.00 51.5%

Oil India
OINL IN

Results Review
INDIA
ENERGY

Valuations
Fig 4 - P/E valuation
Rs bn Core Business Value of the company
Source: RCML Research, Company

Rs/share 716.62 717

Comment 9 x FY15E

431 431

Fig 5 - Key assumptions


Unit Crude Oil Production Crude Oil Sales Crude realization - FOB Price (Brent) - Gross realisations (post sub) - Net realisations (after taxes) Natural Gas Production Natural Gas Sales Gas Prices OIL share in under-recoveries - OIL's share Exchange Rate
Source: RCML Research, Company

FY11 3.6 3.6

FY12 3.9 3.8

FY13 3.7 3.7

FY14E 3.9 3.8

FY15E 3.9 3.8

MMTPA MMTPA

USD/bbl USD/bbl USD/bbl bcm bcm USD/mmbtu

87 59 38 2.4 1.8 2.9

114.7 59.8 39.6 2.6 2.1 3.8

110 56 34 2.6 2.1 3.8

109 55 34 2.6 2.3 3.8

109 59 37 3.0 2.5 5.4

We model for NG prices at just US$ 5.4/mmbtu in FY15 on a likely increase in subsidy payments when APM gas prices increase to ~US$ 8.4/mmbtu

Rs bn USD/INR

32.9 45.5

73.5 47.9

78.9 54.4

81.8 60.0

73.2 58.0

Fig 6 - Crude oil production and sales


(mmt) 1.0 1.0 1.0 0.9 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.8 Crude Production Crude Sales

Fig 7 - NG production and sales


(mmscmd) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Gas Production Gas Sales

Dec-11

Sep-11

Sep-12

Dec-12

Jun-11

Jun-12

Dec-11

Sep-11

Sep-12

Dec-12

Mar-11

Mar-12

Mar-11

Mar-12

Source: RCML Research, Company

Mar-13

Source: RCML Research, Company

Fig 8 - Depletion and dry well expense


(Rsmn) 5,000 4,000 3,000 2,000 1,000 0 Depletion Dry-Well

Fig 9 - Subsidy burden and % share in upstream


(Rsbn) 35 30 25 20 15 10 5 4.0 0.0
Dec-11 Sep-11 Sep-12 Dec-12 Jun-11 Jun-12 Mar-11 Mar-12 Mar-13 Jun-13

Subsidy burden

Subsidy share

Mar-13

Jun-11

Jun-12

Jun-13

20.0 15.9 11.0 12.3 11.9 12.1 13.4 13.8 12.9 12.5 13.0 16.0 12.0 8.0

Dec-11

Sep-11

Sep-12

Dec-12

Jun-11

Jun-12

Mar-11

Mar-12

Source: RCML Research, Company

Mar-13

Jun-13

Source: RCML Research, Company

13 August 2013

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Jun-13

(%)

BUY
TP: INR 720.00 51.5%

Oil India
OINL IN

Results Review
INDIA
ENERGY

Per Share Data


Y/E 31 Mar (INR) Reported EPS Adjusted EPS DPS BVPS FY11A 48.0 48.1 15.0 259.5 FY12A 57.7 57.7 19.0 295.1 FY13A 59.7 59.7 30.0 319.6 FY14E 70.7 70.7 30.0 356.1 FY15E 79.6 79.6 32.0 398.6

Valuation Ratios
Y/E 31 Mar (x) EV/Sales EV/EBITDA Adjusted P/E P/BV FY11A 2.4 5.5 9.9 1.8 FY12A 1.8 4.2 8.2 1.6 FY13A 1.8 3.8 8.0 1.5 FY14E 1.4 3.0 6.7 1.3 FY15E 1.3 2.5 6.0 1.2

Financial Ratios
Y/E 31 Mar Profitability & Return Ratios (%) EBITDA margin EBIT margin Adjusted profit margin Adjusted ROAE ROCE YoY Growth (%) Revenue EBITDA Adjusted EPS Invested capital Working Capital & Liquidity Ratios Receivables (days) Inventory (days) Payables (days) Current ratio (x) Quick ratio (x) Turnover & Leverage Ratios (x) Gross asset turnover Total asset turnover Net interest coverage ratio Adjusted debt/equity 1.2 0.4 225.5 (0.7) 1.3 0.4 393.6 (0.6) 1.2 0.4 1,452.7 (0.6) 1.3 0.5 101.9 (0.6) 1.3 0.5 149.8 (0.5) 20 170 150 3.4 2.7 24 170 142 4.2 2.8 36 196 138 3.5 2.6 25 196 102 3.7 2.8 22 224 106 4.0 2.9 5.6 5.0 10.9 (2.6) 17.9 16.2 20.1 34.0 0.9 9.8 3.5 3.3 20.7 24.6 18.5 13.1 8.3 15.9 12.6 13.2 43.2 37.5 34.4 19.6 13.8 42.6 37.4 35.2 20.8 14.5 46.4 38.0 36.1 19.4 13.5 47.9 40.4 35.4 20.9 15.3 51.3 43.9 36.8 21.1 16.1 FY11A FY12A FY13A FY14E FY15E

DuPont Analysis
Y/E 31 Mar (%) Tax burden (Net income/PBT) Interest burden (PBT/EBIT) EBIT margin (EBIT/Revenue) Asset turnover (Revenue/Avg TA) Leverage (Avg TA/Avg equities) Adjusted ROAE FY11A 66.8 137.2 37.5 42.5 134.0 19.6 FY12A 67.7 138.9 37.4 44.9 131.9 20.8 FY13A 67.9 139.9 38.0 41.6 129.6 19.4 FY14E 67.0 130.8 40.4 45.8 129.2 20.9 FY15E 66.0 127.1 43.9 45.5 126.1 21.1

13 August 2013

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BUY
TP: INR 720.00 51.5%

Oil India
OINL IN

Results Review
INDIA
ENERGY

Income Statement
Y/E 31 Mar (INR mln) Total revenue EBITDA EBIT Net interest income/(expenses) Other income/(expenses) Exceptional items EBT Income taxes Extraordinary items Min. int./Inc. from associates Reported net profit Adjustments Adjusted net profit FY11A 83,641 36,169 31,389 (139) 11,851 (41) 43,100 (14,255) 0 0 28,804 (49) 28,755 FY12A 98,632 42,023 36,881 (94) 14,454 0 51,241 (16,549) 0 0 34,691 0 34,691 FY13A 99,476 46,147 37,771 (26) 15,088 0 52,832 (16,939) 0 0 35,893 0 35,893 FY14E 1,20,094 57,484 48,521 (476) 15,426 0 63,471 (20,945) 0 0 42,525 0 42,525 FY15E 1,30,024 66,641 57,051 (381) 15,853 0 72,523 (24,658) 0 0 47,865 0 47,865

Balance Sheet
Y/E 31 Mar (INR mln) Accounts payables Other current liabilities Provisions Debt funds Other liabilities Equity capital Reserves & surplus Shareholders' fund Total liabilities and equities Cash and cash eq. Accounts receivables Inventories Other current assets Investments Net fixed assets CWIP Intangible assets Deferred tax assets, net Other assets Total assets FY11A 21,000 0 12,220 10,268 13,135 2,405 1,53,573 1,55,978 2,12,601 1,17,714 2,495 5,004 22,819 8,847 51,240 4,484 0 0 0 2,12,601 FY12A 23,153 0 15,543 101 10,805 2,405 1,74,991 1,77,395 2,26,998 1,09,360 10,518 5,333 37,390 8,147 51,144 5,107 0 0 0 2,26,998 FY13A 17,086 0 19,833 10,578 12,197 6,011 1,86,104 1,92,115 2,51,809 1,23,202 9,027 6,443 26,928 18,571 59,661 7,978 0 0 0 2,51,809 FY14E 17,967 0 20,360 8,462 12,198 6,011 2,08,058 2,14,069 2,73,056 1,29,768 7,518 7,377 29,647 22,285 66,077 10,384 0 0 0 2,73,056 FY15E 18,900 0 21,544 6,770 12,199 6,011 2,33,609 2,39,620 2,99,032 1,38,266 8,126 8,447 32,668 26,742 71,708 13,075 0 0 0 2,99,032

Cash Flow Statement


Y/E 31 Mar (INR mln) Net income + Depreciation Interest expenses Non-cash adjustments Changes in working capital Other operating cash flows Cash flow from operations Capital expenditures Change in investments Other investing cash flows Cash flow from investing Equities issued Debt raised/repaid Interest expenses Dividends paid Other financing cash flows Cash flow from financing Changes in cash and cash eq Closing cash and cash eq FY11A 33,585 139 0 7,476 2,900 44,100 (11,044) (252) 0 (11,296) 0 9,892 (139) (10,497) 224 (520) 32,284 1,17,714 FY12A 39,833 94 0 (17,448) (2,330) 20,149 (5,669) 700 0 (4,969) 0 (10,167) (94) (13,275) 1 (23,534) (8,354) 1,09,360 FY13A 44,270 26 0 9,066 1,392 54,754 (19,765) (10,424) 0 (30,189) (253) 10,477 (26) (20,920) (1) (10,723) 13,842 1,23,202 FY14E 51,488 476 0 (737) 1 51,229 (17,786) (3,714) 0 (21,500) 0 (2,116) (476) (20,571) 0 (23,163) 6,566 1,29,768 FY15E 57,455 381 0 (2,583) 1 55,254 (17,912) (4,457) 0 (22,369) 0 (1,692) (381) (22,314) 0 (24,388) 8,498 1,38,266

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