IOC Q1 Preview: Net profit likely drop sharply on weak refining margins

IOCL will report its June quarter earnings on July 30.

Indian Oil Corp Ltd's net profit for the June quarter is projected to drop sharply both quarter-on-quarter and year-on-year due to lower refining and marketing margins. Research reports suggest that March's retail fuel price cuts will impact earnings this quarter.

IOCL will report its June quarter earnings on July 30. Net profit is expected to be Rs 2734.90 crore, down 44% YoY and 80% QoQ, according to seven brokerages polled by Moneycontrol. The firm will report its earnings on 30 July.

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Revenue is projected to remain flat at Rs 200402.5 crore, while EBITDA may decline 20% QoQ and 63% YoY to Rs 8392.50 crore. Domestic sales for the quarter are likely at 22 mln tons, down 6 percent YoY and 7.3 percent QoQ. Analysts suggest IOCL might face higher inventory losses due to its longer crude inventory cycle.

What are the factors impacting the earnings?

Gross Refining Margins: Analysts expect gross refining margins to moderate in the June quarter due to a sequential decline in key product cracks. Brokerages project IOCL's reported GRM for April-June to be in the range of $4-$6 per barrel. This decline is driven by a sharp fall in diesel crack and a crude inventory loss of $0.5-$1 per barrel, linked to a $2.9 per barrel drop in Brent crude prices (average of $82.6 per barrel in June 2024 vs. $85.5 per barrel in March 2024).

Refining margins: Profitability is likely to be further impacted by the Rs 2 per litre retail fuel price cut in March. The weighted average auto-fuel gross marketing margin for OMCs declined to Rs 3.3 per litre in 1QFY25 from Rs 4.5 per litre in 4QFY24.

Other factors: Analysts anticipate stable crude throughput at 18.2 mmt QoQ, auto fuel over-recovery of around Rs600 crore, a drop from Rs2100 crore QoQ, and an incidental loss of Rs1100 crore, lower than the Rs1500 crore loss estimated for 4QFY24, with a $1/bbl GRM impact.

What to look for in the results?

Analysts will pay close attention to the management’s outlook and guidance on refining margins, marketing margins, and any strategic initiatives or cost-control measures being implemented.

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