Indian Oil Corporation Ltd. share price target

Indian Oil Corporation Ltd.'s net profit missed analyst estimates in the JulySeptember quarter on inventory and foreign exchange losses. Indian Oil Corporation net sales fell 16% to Rs 111128.7 crore for the quarter ended September 2019 compared to corresponding previous year period. This included subsidy from the government of Rs 288.49 crore down 75% on a y-o-y basis. Excluding compensation from the government net sales of the company fell 16% to Rs 110840.21 crore. OPM of the company stood at 3.4% compared to 5.5% in the corresponding previous year...

Operationally, it was a mix quarter as refining throughput and margins were impacted owing to unplanned shutdowns but IOCL has showcased a strong marketing performance with increase in marketing margins and expansion in market share. We are structurally positive on IOC, owing to its diversified business model and healthy FCF (Rs 356bn) over FY21-22E. Our SOTP based target price of Rs 185 (5x Jun 21E EV/e for standalone refining, pipeline, petchem and 5.5x Jun 21E EV/e marketing and Rs 28/sh from other investments). Despite an underwhelming performance in Q2, we maintain BUY on IOC with a TP of Rs 185. 2HFY20 looks rather gloomy as well given planned shutdowns wrt BS-VI upgradation. We cut our GRM and throughput est for FY20 to factor this in. However, change in IMO regulations will support GRM in FY21.

IOCL's Q2FY20 EBITDA at Rs 36bn (47% YoY) was well below estimates.

IOCL: GRMs remain a drag, other segments outperform. CCRI: Decent operating performance in tough demand climate

GRMs expected to improve due to IMO regulations Reported GRMs during the quarter were at US$1.3/bbl, below our estimate of US$5.8/bbl during the quarter on account of inventory losses of US$1.7/bbl vs. expected loss of ~US$0.4/bbl. The company's core GRMs remained weak at US$3/bbl, below our estimates. Benchmark Singapore GRMs have declined in the current quarter (Q3FY20-TD) compared to Q2FY20 at US$4.2/bbl. IOC's operational efficiencies will play a key role in deciding its performance in coming quarters. We estimate GRM at...

Core GRM muted at USD3.0/bbl; healthy marketing margins Reported EBITDA was lower than our estimate at INR47.1b (-50% YoY). Total inventory loss stood at INR11.8b (refining loss at INR15.3b and marketing gain at...

We are structurally positive on IOC, owing to its diversified business model and healthy FCF (Rs 285bn) over FY21-22E. Our SOTP based target price of Rs 190 (5x Jun 21E EV/e for standalone refining, pipeline, petchem and 5.5x Jun 21E EV/e marketing and Rs 28/sh from other investments). We maintain BUY on IOC with a TP of Rs 190 as the 1Q performance exceeded our estimates. As International Maritime Organisations (IMO) regulations kick in from Jan-20, we expect middle distillate margins to improve further and in turn GRMs.

IOCL's Q1FY20 results were largely in-line to our forecast on all fronts. Revenue was up 1.6% YoY to Rs1.3 tr whereas EBITDA/PAT declined by 33.6%/47.4% YoY to Rs83.5bn/Rs35.9bn. The decline in net profit was mainly due to higher interest and depreciation expense which grew by 46.4% and 17.7% YoY respectively. Reported GRM...

GRMs to improve from lower levels due to IMO regulations Reported GRMs during the quarter were at US$4.7/bbl above our estimate of US$3.2/bbl during the quarter on account of inventory gains of US$1.1/bbl vs. expected loss of US$ 0.3/bbl. The company's core GRMs remained weak at US$3.6/bbl, in line with our estimates. Benchmark Singapore GRMs have improved in current quarter (Q2FY20-TD) at US$6-7/bbl with improved product spreads. IOC operational efficiencies will play a key role in deciding IOC's performance in coming quarters. We estimate GRM at US$5.7/bbl and...

Reported 1QFY20 EBITDA of INR82.6b (-43% YoY, -18% QoQ) was 5% below our estimate. Adjusting for settlement of old dispute for sales tax/VAT in the state of Maharashtra and other one-offs, EBITDA stood at INR64.0b (-2% YoY, -13% QoQ) v/s our estimate of INR80.7b. The miss was mainly due to higher-than-expected costs and the poorer-than-expected petrochem performance. PAT fell 47% YoY (-41% QoQ) to INR36b due to higher interest cost (+46% YoY to INR15.1b). Forex gain was at INR0.9b (v/s loss of INR18.1b in 1QFY19 and gain of INR8.4b in 4QFY19). Total inventory gain stood at INR12.3b (refining at...