Oil India Ltd (OIL) reported 29% YoY decline in EBITDA to Rs 8.6bn mainly led by lower net oil realisation (-21% in INR terms). Impact of lower other income and higher depreciation was negated by lower tax rate. APAT was Rs 4.9bn (-34%). Crude prices were highly volatile in FY16 and ranged from US$ 62/bbl in 1QFY16 to US$ 33/bbl in 4QFY16. Crude volumes will remain flat in the near term, however, OIL may get YoY higher crude realisations in 2HFY17. OIL’s profits remain largely unaffected if crude is in the range of ~US$ 47/bbl to ~US$ 57/bbl. However, at lower crude prices, negatives from lower net realisation outnumber the benefits from reduction in oil under-recovery. We expect no subsidy sharing by upstream players for crude below US$ 47/bbl. Natural gas price has been reduced 20% to US$ 3.4/mmbtu for 1HFY17.
OIL has moved up by 29% over the past 6-months led by strengthening of crude prices and increase in IOC’s share price. Investment in IOC contributes Rs 91/sh in OIL’s fair value (by assigning 20% discount to IOC’s CMP). Factoring higher value from investments in IOC, They revise SOTP target from Rs 430 to Rs 455/sh (7.5x FY18E standalone core EPS + Rs 206/sh from investments). Maintain BUY.