Oil India Valuation Excel Model and Intrinsic Value of Shares

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Oil India Valuation : About the Company

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 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 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. From here, we go ahead with Oil India Valuation and Intrinsic Value of its shares.

Read more here: Oil India Shares Fundamental Analysis 

Methodology Used:

Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. The following step by step procedure is followed.

  1. Determining the Revenue Growth Rates
  2. Forecasting the Financial Statements
  3. Deriving the FCFF and FCFE
  4. Calculating the Terminal Value
  5. Calculating the Discount Rate
  6. Discounting the Cashflows
  7. Arriving at the Intrinsic Value of the Shares
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You can also get the formula based DCF Excel Model from below:

Step 1: Determining the Revenue Growth Rates

We arrive at the below table by using the past and expected future performance of both the company and the economy. This along with adjustments to changes in the management expectations, extraordinary events and other macro factors give the revenue growth rates for Oil India Valuation.

Financial Year Revenue Growth Rate
Year 1 -12%
Year 2 -30%
Year 3 24%
Year 4 18%
Year 5 13%
Revenue Growth Rates: Oil India Valuation

Step 2: Forecasting the Financial Statements

The financial statements are forecasted for a period of 5 years using the annual report data of the company. The assumptions used for forecasting are tabulated below. The Excel model is completely editable and can be adjusted for specific changes which may happen over a period of time.

Financial Statements Forecast : Oil India Valuation
Financial Statements Forecast : Oil India Valuation

Step 3: Deriving the FCFF and FCFE

Free cash flow to the firm (FCFF) represents the amount of cash flow from operations available for distribution after accounting for depreciation expenses, taxes, working capital, and investments. FCFF is a measurement of a company’s profitability after all expenses and reinvestments. It is given as follows.

Free cash flow to equity (FCFE) is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid. FCFE is a measure of equity capital usage.

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F/S Items (INR Millions) Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Free Cash Flow to Firm 26618 12008 23022 27243 32746
Free Cash Flow to Equity -7885 -143208 81482 78693 70778
FCFF and FCFE values: Oil India Valuation

Step 4: Calculating the Terminal Value

Terminal value (TV) is the value of a business or project beyond the forecast period when future cash flows can be estimated. It assumes that a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large percentage of the total assessed value.

Terminal Value Calculation Units INR Millions
Free Cash Flow to Firm 32745.74
Growth Rate 5.00%
Cost of Capital 12.04%
Terminal Value 488162.43
Terminal Value: Oil India Valuation

Step 5: Calculating the Discount Rate

DCF analysis helps assess the viability of a project or investment by calculating the present value of expected future cash flows using a discount rate. Here we use the Weighted average cost of capital (WACC) to discount the cash flow. The below table from the excel model shows the calculation of WACC for Oil India Valuation.

WACC Calculation for Oil India Valuation.
WACC Calculation for Oil India Valuation.

Step 6: Discounting the Cashflows

The WACC and the Cost of Equity for the company calculated in the above step are then used to discount the FCFF, FCFE and Terminal Value calculated in Step 3 and 4. In our case, we’ll only consider the FCFF based Intrinsic price of the shares as it represents the cash flow to all the suppliers of capital and not only to the equity shareholders. Thus we arrive at Present value of future FCFF for Oil India Valuation. (Units are INR Millions)

PV of FCFF and FCFE  for Oil India Valuation.
PV of FCFF and FCFE for Oil India Valuation.

Step 7: Arriving at the Intrinsic Value of the Shares

Dividing the PV of the FCFE and Terminal Value (the Value of the entire firm) by the number of outstanding shares we get the per share intrinsic value. We can compare this price with the current market price of the stock to get the Discount or Premium to its intrinsic price.

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Oil India Valuation Units
PV in INR Million 278375
No of Shares Outstanding (In Million) 1132
Intrinsic Value 245.91
Current Market Price of Share 111.00
Current Discount/Premium -56%
Intrinsic Value of the Shares: Oil India Valuation

Oil India Valuation and Intrinsic Share Price = INR 245.91

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References: Investopedia
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(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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