Moneycontrol
Oct 18, 2016 03:29 PM IST | Source: Moneycontrol.com

IOC shares trade ex-bonus; CLSA raises target on free cash flow

Indian Oil Corporation (IOC) shares price halved on Tuesday as the stock adjusted for bonus shares. Meanwhile, CLSA has raised target price on the stock to Rs 810 per share from Rs 675 (this price is before the adjustment of bonus issue), citing consistency in free cash flow (FCF).

 
 
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Moneycontrol Bureau


Indian Oil Corporation (IOC) shares price halved on Tuesday as the stock adjusted for bonus shares.


The company issued bonus shares in the ratio of one share for every one share held and fixed October 19 as record date for ascertaining eligibility of shareholders for issuance of bonus shares.


Meanwhile, CLSA has raised target price on the stock to Rs 810 per share from Rs 675 (this price is before the adjustment of bonus issue), citing consistency in free cash flow (FCF).


While maintaining buy rating, the brokerage house says high share of petchem and more stable pipeline business in FY18 EBITDA and more attractive valuations are supportive factors for IOC when compared with peers.


IOCL's annual report reveals that while return ratios rose to six-year highs in FY16, operating cashflow and FCF fell due to lesser savings in working capital than FY15.


However, ramp-up of Paradip refinery, high petchem profitability and elimination of inventory losses will allow the company's FCF to stay positive even as the company invests in long-gestation refinery upgrade capex, the brokerage says, adding IOC is its preferred pick among oil marketing companies.


A 3-year profit build-up (FY16 over FY13) shows that despite diesel deregulation, the biggest contributor to growth was higher refining margins as well as over 400 percent rise in petchem profits. Inventory losses were a huge drag. IOC's earnings profile has notably changed and core FY17 EBITDA is likely to be almost equally divided among refining, marketing, pipeline and petchem, the brokerage house says.

Among PSUs, IOC has seen the biggest loss in market share in retail diesel (around 2 percentage points in 2 years) and bulk sales (by around 10 percentage points in 2 years) as competition increased.


CLSA says the Paradip ramp-up should reduce the gap in marketing and refining volume by 10 percentage points even after marketing growth. A first in 10 years, FY16 core operating expenses fell YoY driven by sharp fall in energy costs due to lower crude and gas prices. Some of these benefits may continue, it feels.

At 11:03 hours IST, the scrip of Indian Oil Corporation was quoting at Rs 319.55, down Rs 1.80, or 0.56 percent on the BSE.

Posted by Sunil Shankar Matkar

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