Buy Indian Oil Corporation Ltd For Target Rs.120 - Yes Securities Ltd
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Our View
IOCL’s 4QFY23 reported Ebitda at Rs 153.4bn (+30% YoY; +327% QoQ), stood above our and street estimates, primarily on stronger than estimated GRM at USD 15.3/bbl. However, adjusted (for inventory loss) core GRM as per our estimates stood at ~USD 19/bbl. The FY23 Ebitda as a result stood at Rs 226.5bn (-47.3% YoY), where strong refining margins of USD 19.5/bbl were offset by retailing loses in Petrol & Diesel, stemming from retail price freeze. During the quarter retail marketing margins for Diesel, improved QoQ to ~Rs1.4/ltr (3Q: Rs (6)/liter) . As we write, while Petrol & Diesel margins have expanded to Rs 11-12/ltr, the Singapore Benchmark GRMs have weakened to USD 2.96/bbl (4QFY23 average: USD 8.2/bbl), on moderation in MS and HSD crack spreads. Despite a challenging operating environment in FY23, IOCL nonetheless managed to end the year in black with a PAT of Rs 85.5bn backed by its deep refining strength and relatively diversified revenue stream. Maintain BUY.
Result Highlights
? Profitability: 4Q EBITDA stood at Rs 153.4bn (+30% YoY; +327% QoQ) and PAT stood at Rs 100.6bn (+67% YoY; +2145% QoQ). The same for FY23 stood at Rs 226.5bn (-47% YoY) and Rs 82.4bn (-64% YoY).
? Refinery Utilization: The refining throughput at 19.2mmt (3Q: 18.2), stood QoQ higher implying 111% utilization. The FY23 throughput stood at 72.4mmt (+7% YoY.
? Gross Refinery Margin: 4Q GRMs at USD 15.3/bbl , stood ahead of expectations, and higher as compared to USD 12.9/bbl in previous quarter but lower than USD 18.54/bbl in same quarter last year. The GRM for FY23 stood at USD 19.5/bbl vs USD 11.25/bbl reported last year.
? Marketing sales: Total Domestic products sales stood at 21.14mmt (+5% YoY; - 2% QoQ), vs industry at (+5.6% YoY; +0.8% QoQ), during the quarter. MS sales stood at 3.49mmt (+10% YoY and -2% QoQ) vs industry sales at 8.7mmt( +9.8% YoY & -1.5% QoQ) and HSD sales at 9.546mmt (+8% YoY & -5% QoQ) vs industry sales at 22mmt (+6.7 % YoY & -2.5% QoQ), respectively.
? Marketing margins: As per our assessment, the retail marketing margin during the quarter stood at Rs 2812/t (3Q: Rs 1614/t) as retailing margins for HSD turned positive during the quarter, from mostly a loss until 9MFY23
Valuation
We maintain our BUY rating on IOCL with a TP of 120/sh, as we find the stock deeply discounted trading at P/BV of just ~0.8x FY25. We value IOCL on SOTP basis, with standalone (SA) business valued at Rs 92/sh and investment in listed (valued at 30% hold-co discount to market price) and unlisted entities at ~ Rs 27/sh
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