IOC - Q4FY12 Result update - Centrum

Despite government support provisioning impacts FY12 profitability

Provisioning of Rs77.1bn for dispute over entry tax in the state of UP led to dismal performance of IOC despite 100% support from the upstream and the government for the under-recoveries incurred in FY12. Operationally, GRMs were almost stable sequentially at US$4.25/bbl (Q3-US$4.31/bbl) and averaged US$3.63/bbl for FY12. Crude throughput and product sales remained flattish sequentially at 14.1mmt and 19.4mmt respectively. With petrol price hike, we believe the government will resort to hikes in regulated fuel price which will benefit the OMCs and hence remain positive on OMCs including IOC and maintain Buy on the stock.

High crude prices with subsequently higher product prices lead to higher revenues: IOC's revenues jumped 30.1% YoY and 11.1% QoQ primarily on the back of higher product prices induced by higher crude prices with marginal support provided by volumes. Crude throughput was marginally lower by 0.9% YoY and 0.7% QoQ at 14.1mmt while market sales were marginally higher by 0.8% YoY and 0.7% QoQ at 19.4mmt.

GRMs stable sequentially, further provisioning for dispute over entry tax impacts performance: IOC's GRMs remained stable sequentially at US$4.25/bbl against US$4.31/bbl in Q3. The company received upstream support of Rs94.3bn while accounting for Rs208.6bn compensation from the government (yet to be disbursed) during Q4 which made sure the company reports profits for FY12. Additionally, the company also had forex gains of Rs15.5bn during Q4 thus supporting the profitability. However, the company incurred forex loss of Rs22.8bn for FY12 thus impacting the profitability. Moreover, IOC provided Rs15.4bn during Q4 in the dispute over entry tax in the state of UP taking the total provisioning for FY12 to Rs77.1bn. Hence, despite receiving 100% support for the under-recoveries incurred in FY12, IOC reported 46.9% YoY decline in PAT at Rs39.5bn.

After petrol price hike expect hikes in regulated fuels: IOC's dismal performance during FY12 can be attributed to Rs77.1bn provisioning over the entry tax dispute. Also, unfavourable forex movement led to significant forex losses thus impacting the performance further. However, higher capacity utilisation in petchem segment led to the segment turning to profitability at EBIT level of Rs1.7bn during Q4. We believe higher capacity utilisation in petchem segment will add to IOC's profitability going ahead. We believe that the government will resort to price hikes in regulated fuels in the near to medium term after raising the petrol prices recently. We thus remain optimistic on fuel price hikes which will benefit the OMCs by bringing down under-recoveries and elevating their performance. Hence we maintain Buy on the stock with a revised price target of Rs356 (earlier Rs367).

Source : Equity Bulls

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