Oil India stock up 5% on bonus issue plan; cut in windfall tax aids rally

The government has cut the windfall tax on petroleum to Rs 5,700 per metric ton from Rs 8,400 w.e.f from May 16. Company to consider bonus share issue on 20 May.

Shares of Oil India rallied 5 per cent to Rs 663 on the BSE in Thursday’s intra-day trade after the company said its board will consider bonus issue in forthcoming meeting on Monday, May 20. The stock of state-owned oil exploration & production (E&P) company had hit a record high of Rs 669.05 on April 3, 2024.

Earlier, on May 10, Oil India informed that its board meeting was scheduled to be held on Monday, 20th May, 2024 inter-alia, to consider and approve the audited financial results of the company for the quarter & year ended 31st March, 2024 and recommendation of final dividend for FY23-24, if any.

In an exchange filing, on Wednesday after market hours, Oil India informed that the board of directors of the company may also consider a proposal for issue of bonus shares in the aforesaid board meeting.

If recommended, it will be fourth bonus issue of Oil India. Earlier, in March 2018, the company had issued bonus shares in the ratio of 1:2 i.e. one free share for every two equity shares held.

Meanwhile, the government cut the windfall tax on petroleum to Rs 5,700 per metric ton from Rs 8,400 with effect from May 16, according to a notification issued on Wednesday.

Shares of Oil and Natural Gas Corporation (ONGC) were up nearly 2 per cent at Rs 278.45 in intra-day trade. It had hit a 52-week high of Rs 292.95 on May 3. In comparison, the S&P BSE Sensex was up 0.19 per cent at 73,127 at 09:44 am.

Despite the recent rally, analysts at JM Financial Institutional Securities maintain BUY on ONGC and Oil India given strong dividend play (of 5-6 per cent). Brent crude price around $80-85/bbl is a sweet spot for ONGC/Oil India, as it ensures improved visibility for net crude realisation of $75/bbl by eliminating the risk of ad hoc fuel subsidy burden.

Sharkhan has a ‘Buy’ rating on Oil India with a target price of Rs 755 per share. The brokerage firm see a risk-reward scenario turning favourable for Oil India, given a healthy earnings outlook for the core oil and gas E&P business, led by a likely increase in oil and gas production over FY25-26 and potential value creation from Numaligarh Refinery’s (NRL’s) expansion to 9mtpa (from 3mtpa currently).

The stock is available at a reasonable valuation of 6.8x its FY2026E EPS (including earnings from NRL’s exiting 3mtpa capacity). The stock would look further attractive if we include potential incremental earnings from NRL’s expansion, the brokerage firm had said in its recent report.