Oil India (Q2 FY14)

OIL India (OINL) reported its net sales for the quarter at Rs28.4bn up 12.6% yoy. The sales were ahead of our estimates mainly due to higher than expected crude oil realizations.

While net realizations for crude oil were at US$52.3/bbl, flat on a yoy basis, in rupee terms, net realizations were higher by 13% yoy owing to steep depreciation of rupee against the US$ (13.4% yoy; 10.9% qoq). The subsidy burden borne by OINL in the quarter was Rs22.3bn up 7.5% yoy and 12.7% qoq. OINL’s contribution in the upstream share was at 13.4% as compared to 13.8% in Q2 FY13 and 13% in Q1 FY14.

Crude oil sales volumes declined by 1.6% yoy but improved 7.4% qoq. Gas sales volumes declined 3.3% qoq but improved 1.5% qoq. Total oil + OEG volumes declined by 2.3% on yoy basis but rose 5% qoq.

OPM for the quarter came in at 51.2% as compared to 50.2% in Q2 FY13. With higher revenues, employee costs (as % of sales) declined by 37bps yoy impacting the margins. With royalty being denominated in rupee terms and revenues denominated in US$ terms, statutory levies as a percentage of sales appeared lower on a yoy and sequential basis. Other expenditure was higher 17.6% yoy in absolute terms on back of higher support costs. DD&A charges surged 81.8% yoy on back of higher dry well expenditure which was at Rs2,783mn vis-a-vis Rs1,162mn in Q2 FY13.

We maintain our BUY rating on the stock considering a steep discount to global peers on EV/BoE basis.