Stock of this upstream company has zoomed 100% in three months

In the past eight trading days, Oil India has surged 31% after the company achieved a commendable 5.68 per cent increase in crude oil production, reaching 2.511 million metric tonnes in Q3FY24

Shares of Oil India were trading 4 per cent higher at Rs 609.45 on the BSE in Thursday's intraday trade, in an otherwise weak market, on expectation of robust production outlook.

In comparison, the S&P BSE Sensex was down 0.5 per cent at 72,286 at 12:28 PM.

In the past three months, the stock of the state-owned upstream company has zoomed 100 per cent. It had hit a record high of Rs 630 on Tuesday, February 20.

Moreover, in the past eight trading days, the market price of Oil India has surged 31 per cent after the company achieved a commendable 5.68 per cent increase in crude oil production, reaching 2.511 million metric tonnes (MMT) in December 2023 quarter, compared to 2.376 MMT in the same period last year.

Furthermore, in Q3FY24, the crude oil production improved by 6.07 per cent Y-o-Y, highlighting the company's operational efficiency and resource optimisation, the company said in a press release. Natural Gas production during the quarter increased by 2 per cent over Q3FY23.

Management highlighted that there was accelerated drilling in some of the fields. It expects to double the number of wells in FY25 and incremental wells to be drilled in FY26 as well, which would take oil production to 4 MMT in FY26. Management guided oil production of 3.35-3.40 MMT in FY24, and 3.8 MMT in FY25 (after taking into account the natural decline of 8-10 per cent from existing fields in all three years).

According to Motilal Oswal Financial Services (MOFSL), Indian upstream stocks have proven to be strong value plays in recent months, with both ONGC and Oil India trading higher led by robust production growth guidance.

The brokerage firm still sees another 15-20 per cent of 'value upside' left in both these stocks; beyond this, MOFSL believes growth prospects become paramount for a sustained re-rating.

"As a result, investor attention for both stocks could soon shift away from valuation discount (vs previous cycle) to assessing volume growth scenarios, analysing operating costs (onshore versus offshore acreage) and the strength and visibility of the exploration and development pipeline," the brokerage firm said in a sector update report.

As regards to Oil India, MOFSL believes the commissioning of the expanded capacity at the Numaligarh refinery (NRL) in Sep’25E can be a key growth driver.

"We estimate that NRL, at the current utilisation rate, could generate around Rs 2,000 crore per annum at the profit after tax (PAT) level in FY24. Hence, if we assume NRL to achieve a PAT run-rate of even Rs 4,500 crore post-commissioning of the new capacity, this can provide a solid value to OINL shareholders (assuming the Street ascribes a P/E ratio of 6-8x)," the brokerage firm said.
 

NRL’s MD, Bhaskar Jyoti Phukan, recently spoke about the potential IPO for the refinery in the next two years. Additionally, the Indradhanush Gas Grid (IGGL) start-up, slated for Apr’24, is another key catalyst that can drive volume growth, in our opinion, it added.

Oil India remains a strong conviction BUY with a 1.5x FY25E P/B (standalone) valuation. It is a unique play to benefit from the strong multi-year upcycle in both upstream and refining sector, the brokerage firm said with a target price of Rs 650 per share.

Meanwhile, brokerage firm Elara Capital has increased target price to Rs 685 from Rs 329 on expectations of 12 per cent oil & gas production CAGR in the next five-years due to massive 72 per cent undeveloped proved reserves availability. The brokerage firm assumes long-term crude at $75/bbl and APM gas at $7.5/mmbtu (unchanged).