Shares of Oil India were up 3 per cent at Rs 593.80 a piece on the BSE in Thursday’s intra-day trade after Motilal Oswal Financial Services (MOFSL) reiterated its 'Buy' rating on the stock with a target price of Rs 720. The domestic brokerage cited attractive valuation and strong volume outlook for Oil India.
Amid weak crude oil prices, the share price of Oil India has declined 23 per cent from its record high level of Rs 767.30, touched on August 30.
The brokerage firm estimate that the standalone (SA) business (adjusted for investments and Numaligarh Refinery (NRL) stake) trades at 7x FY27E P/E, which they believe is inexpensive. Oil India’s strong production growth outlook (9 per cent compound annual growth rate (CAGR) over FY24-FY27) hedges against the risk of lower oil/gas prices. The capacity expansion for Indradhanush gas grid and Numaligarh refinery, remains in line with the guided schedule, and will be instrumental in unlocking value in FY26 and beyond, MOFSL said in its recent update.
“Even in the unlikely scenario of crude prices declining to $60/bbl (and gas prices correcting to $6/mmbtu), our target price will be Rs 563/share, while the ROE will correct modestly from 15.6 per cent (FY27E) to 11.5 per cent. As such, we believe there is a limited downside for the stock from current levels,” the brokerage firm said.
Oil India’s production growth guidance remained robust, with drilling activities and development wells in old areas contributing to this growth. Moreover, Oil India is leveraging new technologies to increase production. The capacity expansion for NRL (from 3mmt to 9mmt) is expected to be completed by December 2025, further driving growth for the company.
Oil India has guided for a production target of 4mmt of oil and 5bcm of gas by FY26. On a conservative basis, analysts at Prabhudas Lilladher are baking in 8 per cent and 16 per cent volume CAGR over FY24-26 to 3.9mmt of oil and 4.3bcm of gas, respectively. Net oil realization at $75/bbl continues to remain at comfortable levels and gas realization would rise by $0.25/mmBtu to $6.75/mmBtu from 1st Apr’25, Prabhudas Lilladher said.
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Analysts at JM Financial Institutional Securities also maintained their 'Buy' on Oil and Natural Gas Corporation (ONGC) at a target price Rs 340 and Oil India with a target price Rs 695 given strong 4-6 per cent dividend potential, 30 per cent/15 per cent production growth outlook in the next 1-3 years and expectation of OPEC+ supporting crude $75-80/bbl. Oil India also benefits from lucrative NRL capacity expansion, those at JM Financial said.
ONGC and Oil India’s net crude realisation adjusted for windfall tax will continue to be capped at $73/bbl with lower gross crude realisation QoQ (as Brent crude price averaged $80.3/bbl in 2QFY25 versus $84.9/bbl in 1QFY25) being offset by decline in windfall tax. ONGC and Oil India’s gas realisations are also expected to be largely stable QoQ with domestic APM gas realisation being capped at $6.5/mmbtu, JM Financial said in oil & gas sector update.