ICICI Direct recommended hold rating on Indian Oil Corporation with a target price of Rs 90 in its research report dated June 26, 2020.
ICICI Direct's research report on Indian Oil Corporation
Indian Oil Corporation (IOC) reported Q4FY20 results, which were above our estimates on an operational basis while profitability was lower. Revenues fell 3.6% QoQ to Rs 139618.9 crore, above our estimate of Rs 115355 crore. Both marketing and refining segment reported inventory losses. The quarter witnessed inventory loss of US$17.8/bbl, which led reported GRMs to -US$9.6/bbl while core GRMs were at US$8.2/bbl. EBITDA was at Rs 212.2 crore (down 96.8% QoQ) against estimated loss of Rs 514.5 crore. The company reported an exceptional loss of Rs 11304.6 crore, owing to write down in valuation of inventories due to fall in oil prices. IOC adopted lower tax rate in the quarter and reported a net loss of Rs 5185.3 crore vs. estimated loss of Rs 2376.3 crore.
Marketing sales were down ~45% in April due to lockdown but recovered sharply in May, June. Petrol, diesel demand is currently at 85-89% of normal level. The management indicated a full recovery will take some more time. Post excise duty hike, IOC has hiked retail prices by ~Rs 9-10/litre in June, which will lead to steady marketing margins, going forward. However, we are neutral on IOC at the current juncture given the volatility in refining margins. We maintain HOLD rating on the stock with a target price of Rs 90 (based on average of P/BV multiple: Rs 94/share, P/E multiple: Rs 86/share).
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