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* IOCL reported an EBITDA of INR143.5b (up 14% YoY), below our estimate of INR184b, led by weaker-than-expected marketing GM at INR3.3/lit. (v/s our estimate of INR4.5/lit). In the refining segment, throughput came in line with our estimate at 19.1mmt (up 5% YoY).

* In the marketing segment, domestic sales volumes stood at 21.1mmt (our estimate of 20.5mmt v/s 21.1mmt in 3QFY22). Marketing GM stood at INR3.3/lit in 4QFY23. OMCs are estimated to be generating gross margins of INR9.1/INR11.6 on petrol/diesel in 1QFY24’td.

* Singapore GRM of USD8.2/bbl in 4QFY23 has now dropped to ~USD3.4/bbl in 1QFY24’td, which could hit refining margins in the coming quarter. Besides, IOCL has the highest leverage to refining segment and is expected to be impacted the most due to decline in GRMs.

* Petchem volumes declined 13% YoY to 0.68mmt (0.37mmt in 3QFY23); while Petchem margin expanded 5% YoY to USD117/mt (USD319/mt in 3QFY23). Petchem margins have increased 7%/10%/6% for PE/PP/PVC in 1QFY24’td.

* The stock trades at 7.1x consolidated FY24E EPS and 0.8x FY24E PBV. We reiterate our BUY rating on the stock, valuing it at 0.9x FY25E P/BV to arrive at our target price of INR105.

GRM higher than estimates; marketing margins lower

Reported GRM came in higher than estimates at USD15.3/bbl (our est. of USD13.1/bbl and USD12.9/bbl in 3QFY23)

* with refining throughput in line with estimates at 19.1mmt (up 5% YoY, up 5% QoQ).

* Marketing margins (incl. inv.) were at INR3.3/lit (est. INR4.5/lit v/s INR0.7/lit in 3QFY23).

* EBITDA came in at INR143.5b (our est. of INR184b, up 14% YoY, up 171% QoQ)

* PAT stood at INR101b (our est. of INR108b, 67% YoY), due to forex gain of INR9.9b (our est. loss of INR709m) and lower interest expense

* The company has declared a final dividend of INR3

* In FY23, EBITDA was down 35% YoY to INR290b, with PAT at INR82b (PAT of INR242b in FY22)

* Refining throughput was up 7% YoY at 72.3mmt, with reported GRM at USD19.8/bbl (USD10.9/bbl in FY22)

* Marketing margin stood at INR1.1/lit (v/s INR4.7/lit in FY22)

Valuation and View

IOCL is set to commission various projects over the next two years, driving further growth. Refinery projects, currently underway, are expected to be completed as follows: Panipat refinery (25mmtpa) by Sep’24, Gujarat refinery (18mmtpa) by Aug’23, and Baruni refinery (9mmtpa) by Apr’23, according to the earlier guidance.

* IOCL is likely to impacted the most among its peers from a decline in refining margin. It trades at 7.1x consolidated FY24E EPS and 0.8x FY24E PBV. We value the stock at 0.9x FY25E P/BV to arrive at our target price of INR105. We reiterate our BUY rating on the stock.

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