Sharekhan's research report on Indian Oil Corporation
IOCL’s earnings momentum is expected to sustain in Q3FY2021 as it would be the first quarter of normalised volumes since the outbreak of COVID-19 (refinery utilisation and marketing sales volume back to pre-COVID level) and likely inventory gain (expected at Rs. 5,748 crore in case oil price sustains at $50/bbl). Potential monetisation of non-core pipeline assets would help in value unlocking and privatisation of BPCL is expected to re-rate the refining and marketing business. Likely cut in excise duty on auto fuels would be crucial for marketing performance. IOCL is most attractively valued among OMCs with valuation of 0.8x its FY2023E P/BV and 5.3x its FY2023E EPS and has the most balanced earnings profile, which makes its earnings less volatile to fluctuation in marketing and refining margins. We expect IOCL’s steep valuation discount of 57% to that of BPCL on FY2023E EPS to narrow down given strong earnings visibility, RoE of 15.5%, and high dividend yield of ~8-9%.
Outlook
Hence, we maintain our Buy rating with an unchanged PT of Rs. 115.
For all recommendations report, click here
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