Accumulate IOC; target of Rs 381: Emkay

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Accumulate IOC; target of Rs 381: Emkay

Emkay Global Financial Services is bullish on Indian Oil Corporation (IOC) and has recommended accumulate rating on the stock with a target of Rs 381 in its August 11, 2011 research report.

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Emkay Global Financial Services is bullish on Indian Oil Corporation (IOC) and has recommended accumulate rating on the stock with a target of Rs 381 in its August 11, 2011 research report.

"IOCL reported results which were above our estimates at EBIDTA and PAT Level, primarily due to cash compensation received from the government during the quarter. Revenue for the quarter was at Rs.1012bn (against our expectation of Rs .923bn), growth of 40.8% YoY, mainly on account of higher volumes plus better realisation. EBIDTA loss during the quarter was at Rs.18.6bn, as against Rs.26.6bn YoY. Interest cost increased by 81.7% to Rs.10.3bn. During the quarter the company reported net loss of Rs.37.1bn, against Rs.33.8bn YoY, mainly attributable to higher under recovery lead by higher crude oil prices , inventory loss and increase in interest outgo. Direct market sales grew by 5% to 19.2mmt, while crude throughput increased by 8.3% to 14.3mmt YoY. The company received upstream discount of Rs.79.3bn, in respect of crude Oil/LPG/SKO purchased from upstream companies, which has been accounted during the quarter. The company has received budgetary support of Rs.82bn from the GOI for the under-recovery of cooking fuel and auto fuel during the quarter."

"At the end of FY11 Government has announced subsidy sharing formula for FY11 and forced upstream companies to bear higher burden of 38.7% (Rs.301bn) from 33.3% earlier. For the full year the government has provided 52.5% as cash compensation and balance was borne by the OMC's. The gross under recovery for the quarter stood at Rs.238bn There is still uncertainty hovering on subsidy sharing mechanism for FY12E under recovery, which remains a key overhang on the stock. During the quarter, interest costs have increased significantly by 81.7% YoY to Rs.10.3bn in tandem with increase in borrowings during the quarter. Currently, borrowing stood at around Rs.674bn."

"Due to lower gross refining margin and higher under recovery IOC reported net loss during the quarter. There is still uncertainty hovering on subsidy sharing mechanism for FY12E under recovery, which remains the key overhang on the stock. However at CMP of Rs.326 valuation looks reasonable at 1.1x FY13E P/BV. We maintain ACCUMULATE rating on the stock with target price of Rs.381," says Emkay Global Financial Services research report.

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