Indian Oil Corporation - 4QFY12 Results Update - Motilal Oswal

IOCL reported 4QFY12 EBITDA higher than our estimate at INR140b (v/s est INR131b) led by (a) forex gain of INR15.5b netted in other expenditure, and (b) adventitious gain of INR3.5b which was partially offset by Petrol losses of ~INR9.5b.

- 4QFY12 reported PAT stood at INR127b against our estimate of INR86b. Variation in PAT, apart from EBITDA flow through was on account of a) lower depreciation at INR11b (v/s est INR13.1b), b) higher other income at INR25.7b (v/s est INR7.5b) and c) tax gain of INR2b (v/s est tax of INR26b), partially offset by a) higher interest cost at INR15b (v/s est INR13.6b) and b) one-time provision of INR15.4b towards entry tax for its Mathura refinery in UP. Comparative PAT was at INR39b in 4QFY11 and INR24.9b in 3QFY12.

- Nil subsidy sharing in FY12, but petrol losses borne: As petrol is de-controlled product, government did not compensate its losses of ~INR22.2b in FY12 and INR9.5b in 4QFY12. However, in FY12, IOCL received 100% compensation towards the controlled products (Diesel, kerosene and LPG) as Government shared 60.3% and upstream shared 39.7%.

- 4QFY12 reported GRM stood at USD4.3/bbl (v/s est USD5/bbl) as against USD7.9/bbl in 4QFY11 and USD5.3/bbl in 3QFY12. Product inventory adventitious gain in the quarter stood at INR3.5b (v/s loss of INR2.6b in 4QFY11 and gain of INR10.3b in 3QFY12).

- Valuation and view: Over the long term, while reforms in the sector are necessary; in the near-term, price hikes are inevitable. We expect price hikes for controlled products to come any time in near future. Key events to watch (apart from subsidy sharing) are: (a) positive contribution from Panipat Petchem division, and (b) GRM performance. The stock trades at 9.5x FY13E EPS of INR28.1 and 1x FY13E BV. Maintain Buy.

Source : Equity Bulls

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