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Strong core GRM offsets peak SAED impact

We upgrade the stock to “Accumulate” from “Reduce” led by core GRM of USD19.1/bbl in Q1FY27 despite peak SAED impact and narrowing LPG under-recovery coupled with expected government support. Reported net SAED GRM stood at USD15.6/bbl vs USD2.2/bbl in Q1FY26 (crude inventory loss of USD3-4/bbl), implying core GRM of ~USD19.1/bbl. IOCL expects LPG under-recovery of INR250/cyl in Q2FY27. Reported standalone EBITDA (incl. fx loss of INR1.0bn) was INR20.2bn vs expected losses (PLe: -INR200.8bn; BBGe: -INR144.7bn), aided largely by a finished goods inventory gain of INR150bn, partly offset by inventory loss of USD3-4/bbl on crude. PAT loss stood at INR26.6bn (PLe: -INR185.7bn; BBGe: -INR198.4bn). IOCL maintained FY27 capex guidance at INR327bn. Throughput is guided at 77mmt in FY27 (vs 75.5mmt in FY26), rising to ~85mmt in FY28 and ~90mmt in FY29 as major refining projects get commissioned in FY27. We estimate FY27E/FY28E GRM at USD10.0/6.5/bbl, implying GMM of INR1.5/4.7/ltr. We value the stock at 0.8x FY28E P/BV (prev: 0.7x) and revise our TP to INR147 (earlier: INR125).

GRM (Net of SAED) increases YoY:

Refining throughput increased 2.6% YoY to 19.2mmt in Q1FY27 but declined QoQ by 2.9%. IOCL reported GRM (net SAED) of USD15.6/bbl, up from USD2.2/bbl in Q1FY26. Pre-SAED GRM stood at USD36.0bbl.

EBITDA/PAT beat cons:

IOCL reported a standalone EBITDA (inc. fx loss of INR1.0bn) of INR20.2bn vs (PLe: -Rs200.8bn; BBGe: -Rs144.7bn) aided by a finished-product inventory gain of INR150bn partly offset by a crude inventory loss of USD3-4/bbl. Although it declined 91.1% QoQ and 84.0% YoY amid high under-recovery in marketing business. PAT came in at a loss of INR26.6bn (PLe: -INR185.7bn; BBGe: -INR198.4bn).

Petrochem EBIT declined QoQ:

Petrochemical volumes declined 7.7%/14.8% YoY/QoQ to 0.8mmt amid focus on priority segment due to West Asia war. IOCL reported an EBIT of INR2.2bn in Q1FY27 vs INR12.1bn in Q4FY26.

Concall Highlights:

1) Crude sourcing & demand: Diversified crude sourcing by increasing imports from Russia, Venezuela, Brazil and select African countries. Russian crude mix increased to ~50-55% this qtr. Spot procurement rose to 84% (vs 51% YoY; pre-conflict spot/term mix of ~50:50) to ensure supply continuity. As per PPAC, QoQ demand trends were MS +7%, HSD +5%, ATF -5% and LPG -20%.

2) Capex & projects: Q1FY27 capex stood at Rs64.6bn; FY27 capex guidance maintained at Rs327bn. Capex is expected at INR300-400bn over the next 2-3 years, with investments focused on petrochemicals, renewables, pipelines, CBG, SAF and green hydrogen. Refinery expansion projects remain on track (Panipat: Dec'26; Gujarat: Nov'26; Barauni: Dec'26), which should improve product yields and increase the share of value-added products.

3) Long-term growth: Plans to invest ~Rs1000bn over the next 5-6 years. Targets 18GW of renewable capacity over the next 3-4 years, with 4- 5GW currently under development and also focus on increasing petrochemical intensity from 6.5% to 15%.

4) Throughput guidance: Refinery throughput is guided at ~77MMT (FY27), ~85MMT (FY28) and ~90MMT (FY29), driven by upcoming capacity expansions.

5) Balance sheet: Borrowings increased to INR1,415bn (vs INR1,107bn) due to higher working capital requirements. Gross and net debt-to-equity remained comfortable at 0.71x and 0.51x, respectively.

6) Refining & marketing: Pre-SAED GRM stood at USD36/bbl and net of SAED GRM stood at ~USD15.2/bbl. Crude inventory resulted in an estimated USD3-4/bbl inventory loss, partly offset by gains on finished product inventory of ~INR150bn. Bulk diesel (10-15% of HSD volumes) continues to be priced in line with international markets.

7) LPG & crude premiums: LPG under-recovery declined from INR665/cylinder in June to INR475/cylinder in July, with Q2FY27 average expected at ~Rs250/cylinder. Crude procurement premiums moved from Brent -USD1-2/bbl pre-conflict to Brent +USD10/bbl (including freight and insurance) at the peak, before easing to USD2-3/bbl in July; premiums have recently started firming up again.

8) ATF: No airline availed the Government's ATF support scheme as international prices softened before implementation. International airlines continue to be supplied at market-linked prices, while domestic airline pricing remains negotiated and periodically revised.

9) Ethanol: Reiterated commitment to the Government's 20% ethanol blending target, with procurement prices varying across feedstock categories.

10) Project Sprint: SPRINT 2.0 is expected to deliver an additional INR20-25bn of savings in FY27, over and above the ~INR20bn savings achieved in FY26, through operational efficiency, logistics optimization and opex reduction.

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