Sharekhan's research report on Indian Oil Corporation
Q3FY23 PAT of Rs. 448 crore was significantly below our estimate due to continues high loss (posted Rs. 616 crore EBIT loss) in the petchem segment, a forex loss of Rs. 1,700 crore and probably inventory loss (IOCL did not provide details) as crude oil prices declined sharply q-o-q. Refining performance remains strong with reported GRM of $12.9/bbl (in-line), and a 13% q-o-q rise in refining throughput to 18.2 mmt. Marketing sales volume also rose by 8% q-o-q 24.3 mmt; however, petchem sales volume declined sharply by 48%/30% y-o-y/q-o-q to 0.37 mmt in Q3FY23. We believe that earnings downgrade cycle is largely over for OMCs and expect earnings to normalize over FY24-25 led by strength in GRM with likely normalised auto fuel marketing margins. Any spike in crude oil prices is a key risk to earnings recovery especially given OMCs inability to hike petrol/diesel price in inflationary environment.
We maintain a Buy on IOCL with a revised PT of Rs. 92 on inexpensive valuation of 4.6x/0.8x FY24E EPS/BV and FY24E dividend yield of 11%.
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