Historically, Oil India stock has traded at a lower EV/1P Reserves compared to its global peers on account of lower realizations on crude oil (subsidy sharing with downstream companies results in lower net realizations). However, we believe that the governments initiatives to raise (de-regulate) the price of diesel gradually should lead to lower subsidy sharing by upstream companies from FY2014 and hence, result in higher realizations. Consequently, we expect Oil Indias valuation gap to narrow gradually with global peers. We derive a SOTP-based target price of Rs600 and recommend investors with long-term horizon to Subscribe to the shares of Oil India.

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