OIL India’s (OINL’s) stock has
corrected by ~5% over the last 12 months, underperforming ONGC (+4%),
despite similar issues of ad-hoc subsidy burden. The stock has de-rated
significantly, trading at ~23% below its historical average and 40%
below its peak valuations. Valuations are compelling at the current
juncture, offering strong downside protection. Prabhudas Lilladher
believe the recent sharp correction in the stock is technical in nature
(impending FPO by the government). Macro risks in terms of high
under-recoveries/higher upstream subsidy burden seems to be priced into
the stock (stock discounts USD50/bbl of long term net realization in our
DCF), whereas positives from macro (lower crude, appreciating currency)
/micro (value accretive acquisitions, gas price hike) can push the
stock substantially upwards from the current levels. Given the extremely
attractive risk reward at the current market price, Prabhudas Lilladher
upgrade the stock from ‘Accumulate’ to ‘BUY’, offering ~25% upside from
the current levels.
