Oil India Share Price Could Reach Rs 580: ICICI Securities
Oil India Limited’s (OIL) Q3FY25 earnings missed expectations, impacted by higher forex losses and lower gas realizations. However, ICICI Securities maintains its buy recommendation on the stock, citing a promising long-term outlook supported by steady production growth and improvements in refining margins. The research house revised the target price to Rs 580 from the previous Rs 680, reflecting a potential 36% upside from the current market price.
Key Financial Highlights and Current Market Standing
Oil India posted a 22% YoY decline in consolidated EBITDA at Rs 26.8 billion and a 44% drop in PAT to Rs 14.6 billion. The company attributed these declines to a combination of inventory losses and weaker refining performance at Numaligarh Refinery Limited (NRL). Nevertheless, Oil and gas output for the quarter grew by 1% YoY, signaling steady production momentum.
Financial Metrics Snapshot (Q3FY25)
Financial Metrics Snapshot (Q3FY25)
| Metric | Q3FY25 | Q3FY24 | Change (%) |
|---|---|---|---|
| Consolidated EBITDA | Rs 26.8 bn | Rs 34.4 bn | -22 |
| PAT | Rs 14.6 bn | Rs 26.1 bn | -44 |
| Oil Production | 0.87 mmt | 0.86 mmt | +1.9 |
| Gas Production | 0.83 bcm | 0.82 bcm | +0.9 |
Production Outlook Remains Optimistic
Oil India’s management reaffirmed its targets for FY27, with expectations to achieve 4 million tonnes (mt) of oil production and 5 billion cubic meters (bcm) of gas output. The company has intensified its drilling operations across seven identified areas, which has contributed to recent production growth.
The short-term target for FY25 stands at 3.5mt of oil and 3.3 bcm of gas. Despite optimism, ICICI Securities slightly lowered production estimates, factoring in possible operational hurdles.
Oil Realizations and Policy Changes Support Future Growth
During the quarter, net oil realizations stood at USD 73.8 per barrel, a slight decline compared to the previous year. The removal of windfall taxes is expected to allow realizations to better align with Brent crude prices going forward.
Additionally, about 5-7% of Oil India’s gas production is projected to shift to the new well pricing regime, similar to ONGC's model. This shift is expected to result in blended realization gains of 3-4% annually over the next few years.
Expansion of Refinery and Gas Infrastructure
The expansion of Oil India's Numaligarh Refinery is progressing steadily, with 78% physical completion achieved as of December 2024. The refinery's capacity is being increased from 3mt to 9mt, with mechanical completion targeted by December 2025.
In tandem, pipeline expansions are underway to facilitate enhanced gas distribution. The Numaligarh-Siliguri product pipeline is slated for completion by April 2025, while the DNPL pipeline capacity is being expanded to match the refinery’s post-expansion gas demand.
Dividend and Shareholder Returns
Oil India declared an interim dividend of Rs 7 per share, bringing the cumulative payout to Rs 10 per share for the first nine months of FY25. The stock offers an attractive dividend yield of approximately 5.3%, based on average projections for FY25 to FY27.
Valuation Metrics Indicate Upside Potential
At current prices, Oil India trades at 6.3x FY27E EPS and 4.8x FY27E EV/EBITDA, which ICICI Securities considers attractive. Even at the revised target price of Rs 580, the implied P/E would be 8.6x, suggesting room for growth.
| Valuation Metric | FY24A | FY25E | FY26E | FY27E |
|---|---|---|---|---|
| EPS (INR) | 50.3 | 43.5 | 53.9 | 67.5 |
| P/E (x) | 8.5 | 9.8 | 7.9 | 6.3 |
| EV/EBITDA (x) | 6.9 | 7.7 | 6.2 | 4.8 |
| Dividend Yield (%) | 2.5 | 4.2 | 5.2 | 6.6 |
Key Risks to the Outlook
While the stock presents a favorable investment opportunity, several downside risks could impact performance:
Volatility in oil and gas prices may hinder revenue growth.
Policy measures to cap gas realizations could affect earnings.
Operational challenges in meeting aggressive production targets.
Weaker-than-expected performance at NRL.
Technical Analysis: Support and Resistance Levels
Recent price trends indicate that Oil India’s stock is stabilizing after a period of volatility. Key support levels are observed near Rs 400, while resistance is projected at Rs 460 and Rs 500. A sustained breakout above resistance could pave the way for further upside toward the target price of Rs 580.
Additionally, Fibonacci retracement levels suggest consolidation near the 38.2% retracement, with potential for a rebound if broader market sentiment remains positive.
