Oil India shares rise 3% as Motilal Oswal reiterates 'buy' on attractive valuations- Grow Mudra

Oil India shares rise 3% as Motilal Oswal reiterates 'buy' on attractive valuations

10 Oct , 2024 By : Debdeep Gupta

Share of Oil India rose over 3 percent to Rs 594 in the morning on October 10 after Motilal Oswal Financial Services (MOFSL) reaffirmed its 'Buy' rating with a target price of Rs 720. The domestic brokerage highlighted the stock's attractive valuation and a solid outlook for volume growth.

Oil India shares have corrected almost 25 percent from their record high of Rs 768 on August 30, following weak crude oil prices. However, MOFSL believes the stock remains appealing. It estimates that Oil India's standalone business, excluding investments and its stake in Numaligarh Refinery (NRL), is trading at 7x FY27 estimated earnings, which it views as inexpensive.

MOFSL says that even in the unlikely event that crude oil prices drop to USD 60 per barrel and gas prices fall to USD 6 per MMBtu, its target price would still be Rs 563 per share—implying only a 2 percent downside from the current market price.

The company's production is projected to grow at a compound annual growth rate (CAGR) of 9 percent between FY24 and FY27, offering some protection against falling oil and gas prices. Additionally, the expansion of capacity at both the Indradhanush gas grid and NRL is on track and is expected to unlock value starting FY26, according to MOFSL.

The company remains optimistic about its production growth, driven by increased drilling activities and development wells in mature fields. Additionally, Oil India is employing new technologies to boost production, and the capacity expansion at NRL (from 3 million metric tonnes to 9 million metric tonnes) is scheduled for completion by December 2025, further supporting growth prospects.

"Production growth guidance remains robust, with drilling activities and development wells in old areas contributing to this growth. Moreover, Oil India is leveraging new technologies to increase production," the report stated.

At about 11:25 am, Oil India shares were trading at Rs 587, higher by 2.2 percent. Oil India shares have risen 137 percent since the start of the year.