Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities and Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities
Our ADD rating on Indian Oil Corporation (IOC) with a price target of INR 114 is premised on (1) recovery in domestic demand for petroleum products in FY22, (2) improvement in refining margins in FY22/23, and (3) sustainability of auto fuel gross margins over INR 3.0/lit.
Reported EBITDA was 13% below our estimate and APAT was 21% below, owing to lower-than-expected gross margins in marketing and petchem segments, forex loss and higher interest cost, offset by higher GRM of USD 6.6/bbl (HSIE: USD 4.7/bbl). Refining calculated inventory gain was INR 40bn. Adjusting for inventory gains and forex gain, core EBITDA comes to INR 77bn.
Refining: Crude throughput in Q1 stood at 16.7mmt (+29.6% YoY and -5.0% QoQ). Core GRM stood at USD 2.2/bbl vs USD 2.5/bbl in Q4FY21 and USD 4.3/bbl in Q1FY21. We estimate core GRM at USD 3.1/3.3/bbl in FY22/23E.
Marketing: Domestic marketing sales volume was 17.2mmt (+21.1 YoY and -11.3% QoQ). Blended gross margin stood at INR 4.8/lit (-22.7% YoY and +2.8% QoQ) in Q1, but these do not seem sustainable in the near term. We expect blended gross margins to correct to INR 4.3/4.5/lit in FY22/23E.
Earnings call takeaways: (1) Capex planned for FY22/23E is INR 285bn and INR300bn. (2) Borrowings as at Jun'21-end stood at INR 857bn. (3) Core GRM for Q1FY22 stood at USD 2.24/bbl. (4) Singapore GRM was reported at USD 2.05/bbl in Q1.
Our SOTP target, at INR 114/sh, is based on (5.0x Mar-23E EV/e for standalone refining, marketing and petchem businesses, 5.5x Mar-23E EV/e for pipeline business, and INR 30/sh for other investments). The stock is currently trading at 7.5x on FY23E EPS.
Shares of Indian Oil Corporation Ltd. was last trading in BSE at Rs. 106.15 as compared to the previous close of Rs. 105.5. The total number of shares traded during the day was 573801 in over 4533 trades.
The stock hit an intraday high of Rs. 106.5 and intraday low of 105.4. The net turnover during the day was Rs. 60890433.