Hold Indian Oil Corporation; target of Rs 81: Prabhudas Lilladher

Prabhudas Lilladher's research report on Indian Oil Corporation

We cut our FY23E IOCL’s earnings estimate by 28% to factor in higher marketing losses in diesel while we increase margins for petrol marketing (diesel and petrol margins of –Rs6.0/+1.5/litre vs -Rs3.0/0.0/litre earlier), and we maintain our GRM estimates at USD14/bbl. However, we increase our FY24E estimates by 4%. IOCL reported lower than expected Q1 results with standalone EBITDA of Rs13.6bn (-88%QoQ; PLe Rs 30.2bn) and PAT of – Rs19.9bn (PLe –Rs5.8bn), due to lower than expected marketing earnings as calculated marketing EBIDTA loss increased to Rs311bn in Q1 vis-à-vis loss of Rs54.7bn in Q4. Inventory loss of Rs26.9bn and forex loss from currency depreciation of Rs29bn added to weak performance. We believe OMCs earnings will be hit by sharp jump in diesel marketing losses (low inventory, gas to oil switch given high spot LNG prices and drop in Russian and Chinese exports), despite improvement in refining profitability.

Outlook

We downgrade to ‘’HOLD from ‘BUY’ given high crude price volatility with PT of Rs81 (Rs87 earlier). Any sharp correction in crude prices is an upside risk to our estimates.