Oil India Likely to Gain if Gas Prices Rise Next Fiscal

Oil India’s financial performance in the quarter to September did not throw much of a surprise as a higher subsidy burden and an increase in depreciation and depletion cost eroded any benefits derived out of rupee depreciation. Profit, however, was better than in the preceding quarter, which boosted the company’s share price. Dry wells and depletion costs are key to any exploration and production firm, since other costs do not fluctuate much. For Oil India, this cost nearly doubled over the year-ago quarter to . 465 crore, its highest level so far. Similarly, subsidy burden for the quarter was 7.5% higher YoY to . 2,234 crore. The company’s oil and gas output has for long suffered stagnation because of agitations in the northeastern states, where it has most of its operations. Its oil production fell 4.6% to 0.92 million tonne while natural gas production declined 3.5% to 0.67 billion cubic meters during the quarter. Rupee depreciation, however, helped Oil India maintain its profitability at a decent level. The company’s average realisation at . 62.25 per US dollar in the quarter was nearly 12.7% better than the exchange rate of 55.2 in the year-ago period. This helped it achieve a net realisation price of . 3,257 per barrel of oil, which was 12% higher than the previous year. This aided Oil India in restricting the fall in its profit to just 5.3% year-onyear to . 903.6 crore.
The company is set to gain from the likely hike in gas prices in the next fiscal. However, there is also a possibility of a hike in its subsidy burden. Oil India is being valued at a priceto-earnings ratio of 8.6 with a dividend yield of 6.4%.