Discounting $45/bbl of realisation

INDUSTRY OIL & GAS CMP (as on 13 Aug 2018) Rs 211 Target Price Rs 314 Nifty 11,356 Sensex 37,645 KEY STOCK DATA Bloomberg OINL IN No. of Shares (mn) 1,135 MCap (Rs bn) / (D mn) 241/3,450 6m avg traded value (Rs mn) 244 STOCK PERFORMANCE (%) 52 Week high / low Rs 259/180 3M 6M 12M Absolute (%) (9.8) (11.7) 14.2 Relative (%) (15.7) (21.4) (6.4) SHAREHOLDING PATTERN (%) Promoters 66.13 FIs & Local MFs 13.34 FPIs 4.44 Public & Others 16.09 Source : BSE Nilesh Ghuge nilesh.ghuge@hdfcsec.com +91-22-6171-7342 Discounting $45/bbl of realisation OIL s 1QFY19 revenue was at Rs 33.9bn (+45.4% YoY, 13.1% QoQ), led by higher oil realisations at Rs 4,823/bbl (+54.6% YoY, +15.4% QoQ) and increase in natural gas realisation to USD 2.9/mmbtu (+16.6% YoY). Partially offset by 0.6% reduction in crude oil sales volumes to 0.82mmt. EBITDA was up 61.1% YoY and 75.9% QoQ to Rs 14.08bn. APAT was up 56.2% YoY to Rs 7.03bn owing to higher tax rate. Tax rate was higher at 35% compared to 29.4% in 1QFY18 as company was availing MAT credit in FY18. We believe, up to crude oil price of USD 80/bbl, OMCs could comfortably pass on the inflation by raising the prices of Petrol/Diesel and we do not foresee any subsidy sharing either by OMCs or upstream companies owing to under recoveries on auto fuels. However, looking at lower budgetary allocation for cooking fuel subsidy, upstream companies may have to share a part of subsidy along with the government. However, we believe that it will happen only if oil prices remain over USD 80/bbl. RESULTS REVIEW 1QFY19 14 AUG 2018 Oil India BUY Stock price has corrected by ~16.6% after making peak in Jan-18 despite of 5% increase in crude oil prices, mainly because of the concern over possible subsidy burden on the upstream companies. Subsidy is the big imponderable but we believe current share price more than prices in even the worst case scenario. Currently, the stock price is factoring net oil price realisation of USD 44/bbl. We estimate strong 13.2% EPS CAGR over FY18-20E and dividend yield of more than 5.4/5.7% for FY19/20E. Despite strong near-term growth prospects valuations are undemanding at 7x FY20E PER. Our SOTP target is Rs 314/sh (9x Jun 20 standalone core EPS + Rs 86/sh from investments). Maintain BUY. Highlights of the quarter OIL s sales volumes were 0.815 mnt (-0.6% YoY). Net oil realisation came in at USD 72/bbl (+48.7% YoY). Gas sales volumes were 0.597 bcm (+0.3% YoY). Near-term outlook: Concern over subsidy sharing with OMCs due to elevated oil prices will keep stock price under pressure. Financial Summary (Standalone) Year Ending March (Rs bn) 1QFY19 1QFY18 YoY % 4QFY18 QoQ % FY18 FY19E FY20E FY21E Net Sales 33.90 23.32 45.4 29.98 13.1 106.56 128.38 133.65 137.15 EBITDA 14.08 8.74 61.1 8.01 75.9 39.11 50.56 53.67 55.11 APAT 7.03 4.50 56.2 8.67 (18.8) 26.68 32.23 34.17 35.00 Diluted EPS (Rs) 6.2 4.0 56.2 7.6 (18.8) 23.5 28.4 30.1 30.8 P/E (x) 9.0 7.4 7.0 6.8 EV / EBITDA (x) 7.1 5.2 4.7 4.4 RoE (%) 9.4 10.9 10.4 9.6 HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

Net sales up on account of higher oil and gas realisation Employee expenses include provision of ~Rs 0.3bn towards pay revision of unionised employee. Tax rate was higher at 35% compared to 29.4% in 1QFY18 as company was availing MAT credit in FY18. Tax rate will remain at this level for FY19 and FY20. There was no subsidy burden during the quarter. Crude oil realisation was up 54.6% YoY to Rs 4,823/bbl while NG realisation was up 16.6% YoY to USD2.9/mmbtu. Quarterly Financials: Snapshot Rs bn 1QFY19 1QFY18 YoY % 4QFY18 QoQ % Net Sales 33.90 23.32 45.4 29.98 13.1 Material Expenses 0.06 0.17 NA 0.38 NA Employee Expenses 3.43 4.06 (15.6) 4.50 (23.7) Other Operating Expenses 16.33 10.34 57.9 17.11 (4.5) EBITDA 14.08 8.74 61.1 8.01 75.9 Depreciation 3.37 2.90 16.2 3.00 12.5 EBIT 10.71 5.84 83.5 5.01 113.9 Other Income including EO 1.27 1.54 (17.7) 7.86 (83.9) Interest Cost 1.12 1.00 12.5 1.08 4.4 PBT 10.86 6.38 70.2 11.80 (8.0) EO (Loss) / Profit (Net Of Tax) - - NA - - Tax 3.82 1.88 NA 3.13 22.1 RPAT 7.03 4.50 56.2 8.67 (18.8) APAT 7.03 4.50 56.2 8.67 (18.8) Margin Analysis 1QFY19 1QFY18 YoY (bps) 4QFY18 QoQ (bps) Employee Expenses as % of Net Sales 10.1 17.4 (731) 15.0 (488) Other Expenses as % of Net Sales 48.2 44.4 381.1 57.1-888.5 EBITDA Margin (%) 41.5 37.5 NA 26.7 1,484 APAT Margin (%) 20.7 19.3 143.2 28.9-815.7 Tax Rate (%) 35.2 29.4 580 26.5 868 Physical Performance 1QFY19 1QFY18 YoY % 4QFY18 QoQ % Production Volume Oil (mnt) 0.84 0.85 (0.7) 0.83 1.2 Gas (BCM) 0.72 0.72 (0.3) 0.69 4.5 Sales Volume Oil (mnt) 0.82 0.82 (0.6) 0.83 (2.0) Gas (BCM) 0.60 0.60 0.3 0.58 2.4 Realisation Crude - Post subsidy (USD/bbl) 72.0 48.4 48.7 64.9 10.9 Crude - Post subsidy (Rs/bbl) 4,823 3,121 54.6 4,178 15.4 NG realisation (USD/mmbtu) 2.9 2.5 16.6 2.8 3.4 Page 2

Segmental Performance 1QFY19 1QFY18 YoY % 4QFY18 QoQ % Segmental Revenues (Rs bn) Crude Oil 27.67 18.09 53.0 24.47 13.1 Natural Gas 3.65 2.96 23.1 3.20 14.0 LPG 0.28 0.18 58.1 0.37 (23.6) Pipeline 0.90 0.97 (7.1) 0.75 19.3 Others 0.62 0.55 13.6 0.22 184.8 Segmental EBIT (Rs bn) Crude Oil 11.36 5.99 89.8 7.14 59.1 Natural Gas 1.19 0.95 24.9 1.20 (1.1) LPG 0.08 0.07 13.4 0.21 (61.4) Pipeline - 0.26 0.17 (253.9) - 0.78 (66.8) Others 0.11 0.25 (55.0) - 0.08 (234.3) EBIT Margins (%) 1QFY19 1QFY18 YoY bps 4QFY18 QoQ bps Crude Oil 41.0 33.1 795 29.2 1,086 Natural Gas 32.6 32.2 46 37.6 (599) LPG 28.3 39.5 (1,115) 56.0 (2,870) Pipeline (29.0) 17.5 (4,652) (104.1) 7,410 Others 18.3 46.3 (2,795) (38.8) 5,615 Page 3

Key variables for OIL: 1) Net oil realisations 2) Exchange rate FY19E EPS Sensitivity With Crude Prices, INR-USD Oil price (USD/bbl) INR-USD 63 68 73 60 21.5 25.0 28.5 65 24.6 28.4 31.7 70 27.8 31.4 34.5 FY20E EPS Sensitivity With Crude Prices, INR-USD Oil price (USD/bbl) INR-USD 63 68 73 60 22.9 26.6 30.3 65 26.2 30.1 33.7 70 29.4 33.3 36.6 Target Price Sensitivity To Crude Prices, INR-USD Oil price (USD/bbl) INR-USD 63 68 73 60 266 291 316 65 288 314 338 70 309 336 359 Base case assumptions 1) Brent price USD 65/ bbl, (2) INR-USD at 68. At base case, our target price for OIL is Rs 314/sh (9x Mar20E core EPS and Rs 86/sh from investments). Page 4

We have changed our tax rate assumption as company is no longer availing MAT tax credit. We have built in no subsidy sharing by OIL Domestic gas prices have increased by ~17% YoY to USD 3.06/mmbtu in 1QFY19 we expect it to increase further in line with international gas prices. Change In Estimates FY19E FY20E Old New %Chg. Old New %Chg. Net Revenues 128.38 128.38-133.65 133.65 - Material cost 0.49 0.49-0.49 0.49 - Statutory Levies 35.99 35.99-37.23 37.23 - Employee Cost 17.44 17.44-17.96 17.96 - Other Expenses 23.90 23.90-24.31 24.31 - EBIDTA 50.56 50.56-53.67 53.67 - Depreciation 13.08 13.08-13.47 13.47 - EBIT 37.48 37.48-40.19 40.19 - Other Income (Incl. EO Items) 15.07 15.07-15.31 15.31 - Interest 4.20 4.20-4.24 4.24 - PBT 48.35 48.35-51.26 51.26 - Tax 13.58 16.12 18.71 14.40 17.09 18.71 APAT 34.77 32.23-7.31 36.87 34.17-7.31 Adjusted EPS (Rs) 30.64 28.40-7.31 32.48 30.11-7.31 Assumptions Sales Volumes FY16 FY17 FY18 FY19E FY20E FY21E Oil (mmt) 3.2 3.2 3.4 3.5 3.6 3.7 Gas (bcm) 2.3 2.4 2.5 2.5 2.6 2.7 Macros Crude Price (US$/bbl) 46.4 47.4 55.7 61.0 61.0 61.0 UR Sharing (US$/bbl) 1.0 - - - - - Net Oil Realisation (US$/bbl) 45.3 47.4 55.7 61.0 61.0 61.0 Gas Price (US$/mmbtu) 5.1 2.9 2.6 3.2 3.5 3.5 INR-US$ 65.5 66.0 66.0 68.0 68.0 68.0 Page 5

Valuation (Based On Jun-20E) Business (Rs/sh) Value (Rs bn) Multiple Value (Rs/sh) Valuation basis Standalone EPS 30.3 Less: EPS From Other Income Valued Separately 4.9 Net EPS (Rs/sh) 25.4 9.0 228 P/E multiple Investments Investments In IOC 77.69 0.7 48 30% discount to CMP Other Investments At BV 144.1 0.7 38 0.3x Book value Investments Equity Value 86 Value Per Share 314 Source: HDFC sec Inst Research Peer Set Comparison MCap (Rs bn) CMP (Rs) RECO TP (Rs) Upside % EPS (Rs/sh) P/E (x) P/BV (x) ROE (%) FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E Reliance Industries 7,507 1,185 BUY 1,271 7 53.1 67.0 75.5 81.1 22.3 17.7 15.7 14.6 2.4 2.1 1.9 1.7 11.1 12.8 12.9 12.4 ONGC 2,117 165 BUY 275 67 15.5 21.1 22.5 22.8 10.6 7.8 7.3 7.3 1.1 1.0 1.0 0.9 10.5 13.6 13.5 12.9 Indian Oil Corp 1,560 160 BUY 228 39 22.5 23.0 24.5 26.9 7.6 7.4 7.0 6.3 1.5 1.3 1.2 1.1 20.3 18.7 17.9 17.6 BPCL 844 389 BUY 581 49 39.7 42.3 45.9 49.8 9.8 9.2 8.5 7.8 2.3 2.0 1.7 1.5 24.8 22.9 21.5 20.4 HPCL 433 282 BUY 463 63 41.7 32.7 31.7 36.2 6.8 8.7 9.0 7.8 1.8 1.6 1.4 1.3 28.7 19.5 16.8 17.2 Petronet LNG 345 230 BUY 316 37 13.9 13.5 16.8 19.9 16.6 17.1 13.7 11.6 3.5 3.2 2.7 2.3 23.3 19.6 21.4 21.7 GAIL 818 362 NEU 377 4 20.4 23.2 24.6 27.0 17.8 15.7 14.7 13.5 2.0 1.9 1.7 1.6 11.7 12.5 12.2 12.4 Oil India 241 211 BUY 314 48 23.5 28.4 30.1 30.9 9.0 7.4 7.0 6.8 0.9 0.8 0.7 0.6 9.4 10.9 10.4 9.6 Indraprastha Gas 212 299 BUY 441 47 9.6 11.0 13.1 15.2 31.2 27.2 22.8 19.6 6.0 5.2 4.5 4.0 20.9 20.4 21.3 21.5 Mahanagar Gas 90 911 BUY 1,292 42 48.4 47.7 47.4 49.1 18.8 19.1 19.2 18.6 4.3 3.9 3.5 3.2 24.3 21.3 19.1 18.0 Page 6

Standalone Income Statement Rs bn FY17 FY18 FY19E FY20E FY21E Net Revenues 95.10 106.56 128.38 133.65 137.15 Growth % (2.6) 12.1 20.5 4.1 2.6 Material cost (0.49) 0.49 0.49 0.49 0.49 Statutory Levies 25.29 29.29 35.99 37.23 38.32 Employee Cost 16.14 16.93 17.44 17.96 18.50 Other Expenses 23.12 20.74 23.90 24.31 24.73 EBIDTA 31.05 39.11 50.56 53.67 55.11 EBIDTA Margin % 32.65 36.70 39.38 40.15 40.18 EBIDTA Growth % (11.81) 12.43 7.30 1.96 0.07 Depreciation 10.91 12.70 13.08 13.47 13.88 EBIT 20.14 26.41 37.48 40.19 41.23 Other Income (Incl. EO Items) 16.81 14.84 15.07 15.31 15.56 Interest 3.97 4.16 4.20 4.24 4.28 PBT 32.98 37.10 48.35 51.26 52.51 Tax 5.98 10.42 16.12 17.09 17.51 EO (Loss) / Profit (Net Of Tax) 11.52 - - - - RPAT 15.49 26.68 32.23 34.17 35.00 APAT 27.00 26.68 32.23 34.17 35.00 APAT Growth % 6.10 (1.20) 20.81 6.02 2.44 Adjusted EPS (Rs) 23.79 23.51 28.40 30.11 30.84 EPS Growth (%) 6.10 (1.20) 20.81 6.02 2.44 Standalone Balance Sheet Rs bn FY17 FY18P FY19E FY20E FY21E SOURCES OF FUNDS Share Capital 8.02 7.57 7.57 7.57 7.57 Reserves And Surplus 282.89 271.53 303.76 337.93 372.93 TOTAL SHAREHOLDERS FUNDS 290.91 279.09 311.33 345.50 380.50 Long-term Debt 89.48 73.66 73.66 73.66 73.66 Short-term Debt - - - - - Total Debt 89.48 73.66 73.66 73.66 73.66 Deferred Taxes 30.80 34.39 34.39 34.39 34.39 Long Term Provisions, Others 9.17 9.44 9.44 9.44 9.44 TOTAL SOURCES OF FUNDS 420.34 396.58 428.81 462.98 497.99 APPLICATION OF FUNDS Net Block 86.38 102.72 124.77 149.65 172.58 CWIP 33.86 26.76 26.76 26.76 26.76 Investments 208.01 221.80 221.80 221.80 221.80 LT Loans & Advances and Other 7.55 7.90 8.29 8.69 9.12 NON - CURRENT ASSETS 335.81 359.18 381.62 406.90 430.26 Inventories 10.96 10.78 12.93 13.43 13.78 Debtors 10.06 14.08 16.88 17.53 17.99 Cash & Equivalents 76.92 36.98 50.01 59.23 70.95 Other Current Assets 19.65 19.32 19.84 20.39 20.94 TOTAL CURRENT ASSETS 117.59 81.16 99.66 110.57 123.66 Creditors 5.86 5.51 6.61 6.87 7.05 Other Current Liabilities & Provns 27.19 38.25 45.86 47.63 48.89 TOTAL CURRENT LIABILITIES 33.05 43.76 52.47 54.50 55.93 NET CURRENT ASSETS 84.54 37.40 47.19 56.08 67.73 TOTAL APPLICATION OF FUNDS 420.34 396.58 428.81 462.98 497.99 Page 7

Standalone Cash Flow (Rs bn) FY17 FY18E FY19E FY20E FY21E Reported PBT 32.98 37.10 48.35 51.26 52.51 Non-operating & EO Items (11.52) - - - - Interest Expenses (12.84) (10.68) (10.87) (11.07) (11.28) Depreciation 10.91 12.70 13.08 13.47 13.88 Working Capital Change 17.38 7.36 2.86 (0.05) (0.34) Tax Paid 3.93 (6.82) (16.12) (17.09) (17.51) OPERATING CASH FLOW ( a ) 40.84 39.65 37.30 36.52 37.26 Capex (28.94) (21.94) (35.13) (38.35) (36.81) Free Cash Flow (FCF) 11.91 17.72 2.17 (1.83) 0.45 Investments (103.20) (8.58) (0.01) (0.01) (0.01) Non-operating Income 16.81 14.84 15.07 15.31 15.56 Others - - - - - INVESTING CASH FLOW ( b ) (115.34) (15.67) (20.07) (23.06) (21.26) Debt Issuance/(Repaid) (2.51) (15.82) - - - Interest Expenses (3.97) (4.16) (4.20) (4.24) (4.28) FCFE 5.43 (2.26) (2.03) (6.08) (3.83) Share Capital Issuance 2.00 (0.45) - - - Dividend (13.75) (14.07) (15.52) (16.45) (16.85) Others 64.01 (23.99) 15.52 16.45 16.85 FINANCING CASH FLOW ( c ) 45.79 (58.48) (4.20) (4.24) (4.28) NET CASH FLOW (a+b+c) (28.70) (34.50) 13.03 9.22 11.71 EO Items, Others Closing Cash & Equivalents 65.42 30.93 43.96 53.18 64.89 Standalone Key Ratios FY17 FY18E FY19E FY20E FY21E PROFITABILITY % EBITDA margin 32.6 36.7 39.4 40.2 40.2 EBIT margin 21.2 24.8 29.2 30.1 30.1 APAT margin 28.4 25.0 25.1 25.6 25.5 RoE 10.5 9.4 10.9 10.4 9.6 RoIC (or Core RoCE) 22.5 21.7 23.8 21.8 19.6 RoCE 9.7 10.1 12.7 12.4 11.8 EFFICIENCY Tax rate % 18.1 28.1 33.3 33.3 33.3 Fixed Asset Turnover (x) 0.2 0.2 0.3 0.3 0.3 Inventory (days) 42 37 37 37 37 Debtor (days) 39 48 48 48 48 Other Current Assets (days) 75 66 56 56 56 Payables (days) 33 30 31 31 31 Other Current Liab (days) 104 131 130 130 130 Cash conversion cycle (days) 18 (10) (20) (21) (21) Debt/EBITDA (x) 2.9 1.9 1.5 1.4 1.3 Net D/E 0.0 0.1 0.1 0.0 0.0 Interest coverage 9.3 9.9 12.5 13.1 13.3 PER SHARE DATA (Rs) EPS 23.8 23.5 28.4 30.1 30.8 CEPS 33.4 34.7 39.9 42.0 43.1 Book Value 256.3 245.9 274.3 304.4 335.3 DPS 10.1 10.3 11.4 12.0 12.3 VALUATION P/E (x) 8.9 9.0 7.4 7.0 6.8 P/BV (x) 0.8 0.9 0.8 0.7 0.6 EV/EBITDA (x) 8.1 7.1 5.2 4.7 4.4 EV/Revenues (x) 2.6 2.6 2.0 1.9 1.8 OCF/EV (%) 16.2 14.4 14.2 14.4 15.4 FCF/EV (%) 4.7 6.4 0.8 (0.7) 0.2 FCFE/MCap (%) 2.3 (0.9) (0.8) (2.5) (1.6) Dividend yield (%) 4.8 4.9 5.4 5.7 5.8 Page 8

RECOMMENDATION HISTORY OIL India 350 300 250 200 TP Date CMP Reco Target 13-Nov-17 238 NEU 256 11-Jan-18 255 BUY 315 10-Feb-18 238 BUY 314 12-Apr-18 221 BUY 333 29-May-18 226 BUY 338 9-Jul-18 207 BUY 338 14-Aug-18 211 BUY 314 150 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period Page 9

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