Accumulate Indian Oil; target of Rs 320: Emkay

"IOCL reported results which were marginally above our estimates. Revenue for the quarter was at Rs.1284bn, growth of 30% YoY. EBIDTA during the quarter was at Rs.147.8bn, as against Rs.57.8bn YoY. During the quarter company has booked forex gain of Rs.15.4bn. Inventory gain for the quarter stood at Rs.3.5bn. However interest cost declined by 4% QoQ to Rs.15bn. During the quarter the company reported net profit of Rs.126bn, v/s Rs.39bn YoY. GRM for the quarter was at $.4.25/bbl as compared to $4.3/bbl, flat on QoQ. Direct market sales grew by 0.7% YoY to 19.4mmt, while crude throughput declined marginally 0.4% YoY to 14.1mmt. During the quarter gross under recovery for the quarter stood at Rs.221bn. The company received upstream discount of Rs.97bn, in respect of crude Oil/LPG/SKO purchased from them has been accounted during the quarter. The company has received budgetary support of Rs.208bn from the GOI for the under-recovery on cooking fuel and auto fuel during the quarter”

“As expected company has received full compensation on loss of diesel, PLG and SKO for the full year. For FY12, it received upstream discount and Government support of Rs.299.6bn (40%) and Rs.454bn (60%) respectively. There is still uncertainty hovering on subsidy sharing mechanism for FY13 under recovery, which remains a key overhang on the stock. Post the Allahabad high court upholding the constitutional validity of entry tax in Uttar Pradesh the company has provided Rs.15.3bn in Q4FY12 towards entry tax. For the full year company has provided total amount of Rs.81.5bn, out of this Rs.77bncomprising of entry tax and interest thereon upto 3QFY12 has been shown as exceptional item Although IOC has filed a special leave petition in Supreme Court, which granted a stay subject to 50% payment of arrears and Bank guarantee for balance amount and making full payment in future.”

“As expected, OMCs have been fully compensated for losses suffered on HSD, LPG and SKO for FY12. We expect OMCs to change petrol prices fortnightly and benchmark domestic prices to international prices. Although diesel and LPG prices are yet to be taken up by the EGoM, we believe hike in the fuel prices is the only way out for the government in view of the huge under-recoveries expected for FY13E. At current prices we estimate total under-recoveries to touch Rs.1832bn for FY13E. Valuations for IOCL have moved in one year forward P/BV band of between 0.5x to 1.8x in the last five years with average P/BV of 1.1x. Currently the stock trades at 1x one year forward P/BV. We maintain Accumulate on the stock with target price of Rs.320 (at 1.2x P/B FY13),” says Emkay Global Financial Services research report.

Institutional holding more than 40% in Indian cos

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