This PSU upstream oil stock has zoomed 209% thus far in calendar year 2024

Oil India shares have zoomed 209 per cent in the calendar year 2024, as compared to 14 per cent rise in the BSE Sensex.

Shares of Oil India continued their northward movement, to hit a new high of Rs 767.30 as they rallied 4 per cent on the BSE in Friday’s intra-day trade, on a healthy outlook. 

Thus far in August, shares of the state-owned upstream oil exploration and production company has surged 33 per cent. Moreover, they have soared 58 per cent after the company issued bonus shares in the ratio of 1:2 on July 2.

Meanwhile, in the calendar year 2024, the share price of Oil India has zoomed 209 per cent, as compared to 14 per cent rise in the BSE Sensex.

Oil India plans to drill 100 wells in FY27, compared to 78 and 81 in FY25 and FY26, respectively. It had drilled betwen 38 and 61 wells between FY22 and FY24.

The company further plans to build a gas pipeline to connect the North Brahmaputra fields where 3 billion cubic metre (bcm) gas capacity, equivalent to FY24 gas production, is stranded. This implies that Oil India is building gas infrastructure to support 100 per cent growth in gas production.

In the past one week, the stock has gained 13 per cent after Oil India said the company expects strong production growth in the next five years, in its financial year 2023-24 annual report.

The company is set to capitalise on several opportunities within the shifting energy landscape, both in India and Internationally. The Indian government plans to more than double exploration areas to 0.5 million sq. km by 2025 and 1 million sq. km by 2030, while reducing ‘No-Go’ offshore areas by 99 per cent.

This will significantly boost exploration and production activities in the country, Oil India stated in its annual report.

As India moves towards renewable energy with initiatives like the Solar Park, National Bioenergy Programme and PM-KUSUM, the company is positioned to diversify into green hydrogen, compressed biogas, solar energy and bioethanol projects.

With global energy consumption projected to increase by 40 per cent by 2040 and India’s oil demand expected to rise by 12 per cent in 2024, the company must scale up its production and infrastructure, it noted.

Oil India has planned to invest Rs 25,000 crore by 2040 for energy transition and net-zero goals through a wholly-owned subsidiary company being incorporated to manage its alternate energy business.

Oil India, through its subsidiary Numaligarh Refinery Ltd (NRL), has made a significant progress in the biofuel sector.

Moreover, the 50 KTPA 2G bamboo-based bio ethanol plant in Numaligarh, Assam, is at an advanced stage of commissioning through NRL’s joint venture company called Assam Bio Ethanol private limited.

Further, the company, through its subsidiary NRL, has embarked on a journey to produce 20 KTPA of Green Hydrogen, which signifies commitment to harnessing the potential of hydrogen as a clean and sustainable energy source.

As part of this initiative, a 2.2 KTPA capacity green hydrogen plant is currently being built and is expected to be commissioned by June, 2025, Oil India stated.

For further expansion of operations, and grow the economic interests and energy independence of India, Oil India said the company has a plan to foray into critical minerals. It will leverage synergies in technical capabilities for this diversification, the company noted.

A strong domestic and international portfolio will be built for the same, the company said in its FY24 annual report.

Analysts at Elara Capital have a ‘Buy’ rating on the stock, with a target price of Rs 780 per share.

“Oil India is one of our top picks within Elara oil & gas universe. We raise the target price to Rs 780 from Rs 549 on higher FY26E EV/EBITDA assumption at 10.0x (from 7.0x), led by expectations of strong production growth in the next five years. Maintain BUY. We assume long-term crude at USD 76/bbl and APM gas at USD 7.5/mmbtu (unchanged),” the brokerage firm stated in its quarterly update on the sector.

“The company has guided for a production target of 4mmt of oil and 5bcm of gas by FY26. On a conservative basis, we build in 8 per cent and 16 per cent volume CAGR over FY24-26 to 3.9mmt of oil and 4.3bcm of gas, respectively, by FY26. Net oil realization at ~US$75/bbl continues to remain at comfortable levels and gas realization would rise by US$0.25/mmBtu to US$6.75/mmBtu from 1st Apr’25,” analysts at Prabhudas Lilladher said in its result update.

The brokerage firm also maintains a ‘Buy’ rating on the stock, with target price of Rs 766 per share.