The upstream PSU oil company, Oil India, has benefited from an uptick in oil and gas production and lower subsidy burden. The last quarter saw its profitability improve 70% over the corresponding period last year due to the 20% jump in net realisation and 18% growth in production. Compare this with its peers in the upstream space, ONGC and Gail, which reported a profit growth of only 12% as they struggle to improve productivity.
While gas production remained muted throughout 2010-11 due to environmental issues, the company clocked a 16% rise in gas production to 642 million cubic meters in the previous quarter, along with a 20% jump in crude oil production to 0.96 million tonnes. The net realisation improved to $59.6/bbl on account of lower subsidy and higher crude oil prices. Its lower leverage and healthy balance sheet also put Oil India in a good position vis-a-vis most of its peers.
However, clarity is awaited from the government on the subsidy burden that is to be shared by upstream oil companies in the future. Oil India is likely to suffer if the government decides to fix the subsidy sharing burden on the basis of volumes rather than profits.
The scrips is relatively safe bet with limited down risk. The track of the scrip is given below.
Our Recommendation :
Buy on declines to around Rs. 1250 levels on a weak day and hold for long term.
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