Oil India Fundamental Analysis and Future Outlook -Billion Dollar Valuation

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Oil India Fundamental Analysis and Future Outlook

Oil India is the second-largest hydrocarbon exploration and production Indian public sector company. The company is a state-owned Navratna under the administrative control of India’s Ministry of Petroleum and Natural Gas with its corporate offices in Noida in the New Delhi-NCR region.

The company’s shares have 52 weeks price band of INR 189-63 and a total market capitalization of INR 96 billion which makes it a Mid-Cap company. The shares have a P/E ratio of 4.51 and a dividend yield of 12.03%

Now, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 categories and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. The categories are as follows.

  1. Economic Moat
  2. Business Model and Management
  3. Growth Ratios
  4. Profitability Ratios
  5. Cash Flow Ratios
  6. Liquidity and Solvency Ratios
  7. Efficiency Ratios
  8. Valuation Ratios
  9. ROE (Du Pont Analysis)
  10. Future Prospects

(All units are INR Millions except ratios and per share data)

You can get the complete excel model used for this analysis from below:

1.Economic Moat (★ ★ ★ ☆ ☆)

The company operates in the Crude Oil exploration and production industry (Energy Sector), where market dominance comes from Scale, Capacity, assets and technical know-how. Oil India has over 1 lakh sq km of PEL/ML areas for its exploration and production activities, most of it in the Indian North East, which accounts for its entire crude oil production and the majority of gas production. Rajasthan is the other producing area of the company, contributing 10% of its total gas production.

The company’s exploration activities are spread over onshore areas of Ganga Valley and Mahanadi. They also have participating interest in NELP exploration blocks in Mahanadi Offshore, Mumbai Deepwater, Krishna Godavari Deepwater, etc. as well as various overseas projects in Libya, Gabon, USA, Nigeria and Sudan. This overall gives a wide exploration coverage to the company, but still, the exploration business does not have a significant economic moat. Therefore this category gets 3 stars in Oil India fundamental analysis.

2. Business Model and Management (★ ★ ★ ☆)

Oil India is a premier Indian National Oil Company engaged in the business of exploration, development and production of crude oil and natural gas, transportation of crude oil and production of LPG. It also provides various E&P related services and holds 26% equity in Numaligarh Refinery Limited. The Government of India is the Promoter of the Company and holds 56.66% of the total Issued and Paid-up Capital.

The company has over 100,000 square kilometres of licensed areas for oil and gas exploration. It has emerged as a consistently profitable International company and present in Libya, Gabon, Nigeria, Sudan, Venezuela, Mozambique, Yemen, Iran, Bangladesh and the United States. Oil India has also recently emerged in the offshore giant gas-field project of Mozambique and also made the discovery of oil & gas in Gabon as an Operator and Libya as non-operator. They also acquired Shale oil asset in the United States during 2012. This overall shows a good but less profitable business model for the company.

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Mr Sushil Chandra Mishra is the Chairman and Managing Director of the company. He has over 35 Years of experience in Oil India Limited (OIL). Dr P. Chandrasekaran is the Director (Exploration & Development) and has played a key role as a member of the core team for evaluation of the blocks that were on offer under NELP I, II & VII to IX. Overall the management has been stable and has shown interest in minority shareholders wealth. Therefore this category gets 4 stars in Oil India fundamental analysis.

Oil India Fundamental Analysis and Future Outlook

3. Growth Ratios (★ ★ ★ ☆ ☆)

The revenue has seen a CAGR growth of 6.3% CAGR over the last 10 years. The operating income and net income has not shown any significant increase with scale. The working capital has been positive and Cap-Ex has been flat but that is the nature of the business. Therefore this category gets 3 stars in Oil India fundamental analysis.

5. Cash Flow Ratios (★ ★ ★ ☆ ☆)

The net income margin has flattened and the Cap-Ex as a percentage of sales has been stable. The free cash flow as a percentage of net income has been fluctuating over the years. The free and operating cash flow growth has also seen improvement in recent years. This overall indicates a mediocre cash flow position for the company. Therefore this category gets 3 stars in Oil India fundamental analysis.

6.Liquidity and Solvency Ratios (★ ★ ★ ☆)

The financial leverage has increased slightly over the years along with the debt to equity ratio due to increased size of operations. The company, however, has stable profitability and the backing of the Indian Government. Hence there is no significant concern to its solvency. The current and quick ratios have declined over the years and but are above their minimum threshold. This indicates good liquidity for assets in the company. Therefore this category gets 4 stars in Oil India fundamental analysis.

Oil India Fundamental Analysis and Future Outlook

7. Efficiency Ratios (★ ★ ☆ ☆)

The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.

Oil India Fundamental Analysis and Future Outlook

Overall the business efficiency has deteriorated with increased scale for the company. The inventory days have increased due to vertical integrations along with the payables period. The receivable days have also increased from 36 to 46 days. The cash conversion cycle overall has become positive from -5.6 days to 173 days. Therefore this category gets 2 stars in Oil India fundamental analysis.

Oil India Fundamental Analysis and Future Outlook

8. Valuation Ratios (★ ★ ★ ☆ ☆)

The company has been trading at lower valuations since 2016, this is because of the fluctuation oil prices. Public sector and private sector companies go down with fall in international crude oil prices, as it reduces their realisations. While private sector companies go up when crude oil prices increase, public sector companies fall due to the fear of government forcing subsidy on them. The valuations multiples are also not expected to increase significantly in the near future. Therefore this category gets 3 stars in Oil India fundamental analysis.

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9. ROE 5 way Du Pont Analysis (★ ★ ☆ ☆)

The leverage ratio has increased over the years as opposed to Asset turnover. The tax efficiency has been stable and the interest burden ratio has slightly decreased. The operating margin has also declined. Overall the Return on Equity has been deteriorating due to increasing leverage and declining asset turnover and profitability. Therefore this category gets 2 stars in Oil India fundamental analysis.

10. Future Prospects (★ ★ ★ ☆ ☆)

Some insights for the coming years from the analysis, management discussions and con calls are as follows.

  • The company has begun acquiring seismic data on the shallow water blocks AN-OSHP-2018/1 and AN-OSHP-2018/2, which the company had won in the third round of open acreage licensing policy. The results of the seismic survey would help the firm decide on drilling of wells on the block that could yield oil and gas. Read more here.
  • The data acquisition in Mahanadi on land blocks in Odisha would begin shortly and the exploration drilling campaign in its OALP blocks would commence during 2021-22.
  • The company has also been awarded 21 blocks spread over Assam and Assam Arakan Basin, Rajasthan, Mahanadi Onland, Andaman and Kerala-Konkan offshore basins. This significantly increases the exploration area for the company

Overall the company remains a good long term investment considering high dividend yields and its vitality to the Indian economy and Atma Nirbhar Bharat Initiative. However, any significant price appreciation is not expected in the near future. Therefore this category gets 3 stars in Oil India fundamental analysis.

The overall rating is arrived by taking the average of the above 10 category ratings and rounded up if it is above or equal to 0.5 and rounded down if it is below 0.5.

Overall Fundamental Rating:

OIL INDIA SHARES (3.1/5)

Therefore it is a 3-star stock

★ ★ ★

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Oil India Shares
Economic Moat ★ ★ ★ ☆ ☆
Business & Management ★ ★ ★ ★ ☆
Growth Ratios ★ ★ ★ ☆ ☆
Profitability Ratios ★ ★ ★ ★ ☆
Cash Flow Ratios ★ ★ ★ ☆ ☆
Liquidity & Solvency ★ ★ ★ ★ ☆
Efficiency Ratios ★ ★ ☆ ☆ ☆
Valuation Ratios ★ ★ ★ ☆ ☆
ROE (Du Pont Analysis) ★ ★ ☆ ☆ ☆
Future Prospects ★ ★ ★ ☆ ☆
Overall Fundamental Rating ★ ★
Oil India Fundamental Analysis

You can read more about the company on its website!
Investor Presentation.
For fundamental analysis of other listed companies click HERE!

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Read Our Research Methodology below: Fundamental Analysis Guide

(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)





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