Ruchi Agrawal Moneycontrol Research
Despite a decent 22 percent year-on-year (YoY) growth in topline, Indian Oil Corporation (IOC) reported a weak Q3 FY19 performance with a sharp and sequential decline in operating and net profit. Gross refining margin (GRM) saw a surprisingly steep fall during the quarter under review. Inventory losses impacted profits.
Result snapshot
- GRM for the 9M FY19 stood at $5.83 per barrel (Q3 FY18: $8.28/bbl). GRM for Q3 stood around $0.95 per barrel, which was much lower than our estimate. While there has been weakness in GRMs globally, with the Singapore benchmark at $4.5 per barrel (Q2: $6.1/bbl), IOC's GRM saw a much greater dip. Given that majority of its revenues accrue from the refining business, profits were negatively impacted.
- After inventory gains in the preceding quarters, sharp fall in global crude prices led to a substantial inventory loss during the quarter under review, which took a toll on Q3 profitability
- Overall earnings before interest, tax, depreciation and amortisation (EBITDA) margin took a strong hit, dipping 853 basis points YoY (100 bps=1 percentage point), with operating margin in the petrochemical business declining 1,442 bps.
- While volumes in the domestic business saw a 2.8 percent decline (8.7 percent sequentially), export volumes dipped 33 percent YoY (down 29.6 percent QoQ)
- Refinery throughput was up 4.1 percent and pipeline throughput was up 3 percent YoY
- Finance costs rose 27 percent YoY
- The company's overall performance appears very weak during the reported quarter and we expect the weakness to continue
- With weak performance, volatile crude prices, upcoming central elections and tweaking of marketing margin around elections, we remain cautious on the company’s performance
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Disclaimer: Moneycontrol Research analysts do not hold positions in the companies discussed here
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