Buy Indian Oil Corporation; target of Rs 445: Edelweiss

Edelweiss' research report on Indian Oil Corporation

GRM of USD4.3/bbl (down 57% YoY, 52% QoQ), at USD2.1/bbl discount to Singapore benchmark, was primarily attributed to adverse inventory impact (7% QoQ fall in Brent). Core GRM (up 119% YoY, 12% QoQ), however, surpassed estimate on higher utilisation of Paradip. Refinery throughput, at 17.5MMT (up 9% YoY, 3% QoQ), came 1% below estimate. MS/HSD sales rose 10%/3% YoY and marketing EBITDA (ex-inventory) was, therefore, up 25% YoY.

Outlook

GRM is likely to structurally enhance as the Paradip refinery (core GRM of USD12/bbl) has been fully commissioned (IOCL earlier guided for 92-95% utilisation in FY18). INR 1.8tn capex balanced across verticals will be funded via internal accruals (INR 300bn p.a. operating cash flow). We have revised down FY18/FY19E EPS 23%/17% mainly factoring lower inventory gains on revised oil price estimates and stronger INR. On our revised EV/EBITDA multiples (to reflect global peers), we maintain ‘BUY/SO’. IOCL is trading at attractive 9x FY19E PER.