IGI Logo

Marketing segment lifts profitability…

About the stock: Indian Oil Corporation (IOC) is India’s largest refining & marketing company with an installed refining capacity of ~70 MMT.

* IOC’s marketing sales share among public sector OMCs is ~49%

* Petrol and diesel together constitute ~52% of total marketing sales for IOC.

Q1FY22 Results: IOC’s results were better than estimates on profitability front

* Revenue fell 5.2% QoQ to | 155056.3 crore as marketing sales declined 11.6% QoQ to 18.7 MMT

* Marketing segment’s performance improved QoQ as higher costs were passed on to customers. Reported GRMs were US$6.6/bbl vs.US$10.6/bbl QoQ as higher inventory gains were reported in Q4FY21. EBITDA was at | 11126.1 crore, down 17.6% QoQ

* Subsequently, PAT was at | 5941.4 crore, down 32.3% QoQ

What should investors do?

IOC’s refining margins are expected to improve gradually with an improvement in product cracks. Steady marketing margins and better sales with relaxations in lockdown are expected to lead to better profitability.

* We upgrade our rating from HOLD to BUY on the stock.

Target Price and Valuation: We value IOC at | 120 i.e. average of P/E multiple: | 115 /share and P/BV multiple: | 125/share

Key triggers for future price performance:

* Recovery in global refining product cracks (mainly diesel)

* Pick-up in transport fuels demand with relaxations in lockdown and steady marketing margins

* Petrochemical prices at higher level; to support overall profitability

* Consistent dividend payout

Alternate Stock Idea: Apart from IOC, in our oil & gas coverage we also like MGL.

* MGL is a beneficiary of India’s increasing gas demand and will continue to grow on account of steady volume growth, better pricing power and favourable regulatory scenario.

* BUY with target price of | 1,340

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer