Hold Indian Oil; target of Rs 200: JM Financial

JM Financial's research report on Indian Oil

IOCL reported EBITDA of INR 110.2bn (-17% QoQ/+150% YoY) including inventory gain of INR 34.42bn. Adjusting for inventory gain, EBIDTA at INR 75.78bn would have been below JMFe of INR 83.93 bn. Segmentally, in the refining segment, inventory gain of INR 24.5 bn (translating to c.$2.5 / barrel) resulted into reported GRM of $9.12 / barrel against JMFe of $7.5 / barrel. Distillate yield improved to 82.3% and fuel loss reduced to 8.4% in 4Q18 helped improve GRM. Further, IOC processed 16 new crude grades which helped improve margins and de-risk future supply. In pipeline segment, IOC increased throughput to 22.6 MMT in 4Q18. In marketing segment, IOC reported an EBIDTA of INR 30 bn and adjusting for inventory gain of INR 10bn EBIDTA would have been c.INR 20 bn. Petrochemicals and Pipeines segments reported EBIDTA of INR 16.89bn and INR 17.47 bn respectively. IOC guided for CapEx of c. INR 200 bn across business verticals in FY19. Over the last 3 months, IOC’s stock price has corrected by c. 25% on back of concerns related to impact of high crude price.

Outlook

We maintain HOLD rating with a revised TP of INR 200 (INR 212 previously) and await Government policy on pricing of sensitive petro-products in high crude price environment.