HDFC Securities is bullish on Indian Oil Corporation has recommended buy rating on the stock with a target price of Rs 224 in its research report dated May 23, 2018.
HDFC Securities' research report on Indian Oil Corporation
IOC’s 4QFY18 EBITDA came in at Rs 110.21bn, down 16.9% QoQ. This has been attributed to 26% QoQ fall in GRM to USD 9.1/bbl. The blended gross marketing margin was up 29.3% to USD 9.9/bbl (or Rs 4.02/lit). APAT stood at Rs 52.18bn, down 33.8% QoQ owing to lower other income at Rs 2.48bn (-81.7% QoQ) and higher interest cost at Rs 13bn (+98.9% QoQ). We are structurally positive on IOC, owing to its diversified business model, ramp-up of the Paradeep refinery and healthy operating cash flows (Rs 430bn) over FY19-20E. However, in the year full of elections including the general election which is due in May-19, the government is likely to resort to some mechanism to control/reduce the current surge in prices of Petrol and Diesel. One of the solutions could be that government may ask OMCs to ‘manage’ marketing margins. If in case, the OMCs are ask to curb the marketing margin by Rs 1/ltr (on both Petrol and Diesel) then HPCL’s FY19E PAT will be impacted the most (42%), followed by BPCL (26%) and IOCL (17%).
Our SOTP target reduce to Rs 224 (5.0x Mar-20E EV/e for standalone refining, pipeline, marketing and petchem, and Rs 47/sh from investments). Maintain BUY.
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