Sharekhan's research report on Indian Oil Corporation
Q2FY23 reported net loss of Rs. 272 crore was much lower than our estimate on account of one-off LPG subsidy of Rs. 10,801 crore and surprisingly high GRM of $18.5/bbl despite expectation of inventory loss on sharp q-o-q decline in Brent crude oil price. Adjusting for LPG subsidies, the net loss was high at Rs. 11,073 crore (versus our estimate of net loss of Rs. 9,520 crore). Weak performance reflects large losses in the marketing business due to negative diesel margin and weak petchem performance (EBIT loss of Rs. 129 crore versus positive EBIT of Rs. 1,609 crore in Q2FY22). Refining throughput/marketing volume/petchem volume at 16.1 mmt/20.8 mmt/0.54 mmt, down 15%/9.6%/16.5% q-o-q. We believe that H2FY23 factors in the worst for OMCs and gradual petrol/diesel prices hikes hike coupled with likely normalisation of refining margins would drive an earnings recovery in H2FY23-FY24.
Outlook
We maintain a Buy on IOCL with an unchanged PT of Rs. 82 on inexpensive valuation of 4/0.7x FY24E EPS/BV and FY24E dividend yield of 12%.
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