The Oil India Ltd (OIL) stock has recovered marginally after its offer for sale earlier this month, which was a big hit. At the current market price, the stock trades at 8.5 times estimated earnings for the next fiscal year. While valuations are inexpensive, what are the triggers going ahead?
It’s well known that the space in which the company operates is sensitive to news flow about reforms. Thankfully, the government has made right noises in the recent past to improve sentiment for the sector and the stocks have reacted favourably.
Needless to say, investors would do well to follow developments on the implementation of the reforms announced, while it’s also important to keep a tab on any changes in the subsidy share.
For the December quarter, OIL’s subsidy was a bit lower than in the first two quarters of this fiscal year, but higher on a year-on-year basis. The company’s total operating revenue increased by just 2% over the same period last year to Rs.2,517 crore. Still, that looks far better than the revenue decline of about 25% seen in the September quarter.
The company’s net price realization at $52.59 (around Rs.2,840 today) per barrel for the December quarter is a bit lower compared with the nine months ended December and also lower compared with the last fiscal year.
What’s also disappointing is that total crude oil production of the December quarter is the lowest in the last seven quarters.
Still, the drop in net profit has slowed in the December quarter from the preceding three months. The December quarter net profit declined by 7% to Rs.940 crore against a 16% decline in the September quarter net profit to Rs.955 crore. The December quarter performance was adversely affected on account of higher other expenses, royalty and cess, and employee benefit expenses.
As mentioned earlier, news flow regarding reforms would be a key driver for the stock’s performance in the future. Other than that, OIL is also sitting on a huge cash pile and outlook on cash utilization would be another key trigger to watch out for.