Accumulate Indian Oil Corporation Ltd for the Target Rs. 166 By Prabhudas Liladhar Capital Ltd
GRM Improves, EBITDA and PAT beat cons
Indian Oil Corporation (IOCL) reported refining throughput of 17.6mmt with reported/core GRM of USD10.7/8.9/bbl, led by improvement in product cracks, especially HSD spreads. Inventory gain stood at USD1.8/bbl vs a loss of USD4.8/bbl QoQ. Domestic marketing sales volume stood at 20.19mmt, up 3.4% YoY. Implied gross marketing margin (GMM) stood at Rs7.1/lit vs Rs8.7/5.5 in Q1FY26/Q2FY25. Reported standalone EBITDA was above cons at Rs145.8bn (Ple Rs117.9bn, BBGe Rs133.9bn, Q1FY26/Q2FY25 – Rs126.1/37.7bn), while in H1FY26 it stood at Rs271.9bn vs Rs124.1bn in H1FY25. Standalone PAT came in at Rs76.1bn (Ple Rs52.6bn, BBGe Rs59.4bn) vs. Rs56.9bn/1.8bn in Q1FY26/Q2FY25, leading to a PAT of Rs133.0bn in H1FY26 vs Rs28.2bn in H1FY25. Petrochem EBIT stood at Rs1.6bn, vs a loss of Rs. -10mn in Q1FY26. Co. will receive LPG under-recoveries compensation for LPG sales of Rs144.9bn in 12 monthly instalments from Nov’25 onwards. We build in a GRM of USD7.2/6.0/bbl and a blended GMM of Rs4.9/4.4/lit for FY27/28E. Due to continued momentum in products cracks and expected compensation of LPG under-recoveries, we reiterate our ‘Accumulate’ rating on the stock with a TP of Rs166 based on 1.0x FY27/FY28E P/BV.
* Reported/Core GRM improved: Refining throughput stood at 17.6mmt in Q2FY26 vs 18.7/16.7mmt in Q1FY26/Q2FY25, declining QoQ due to partial refinery shutdown. Company expects throughput to be higher in 2HFY26. Core GRM stood at USD 8.9/bbl vs USD6.9/3.1/bbl in Q1FY26/Q2FY25. Company reported an inventory gain of USD1.8/bbl vs. a loss of USD4.8/bbl in Q1FY26.
* Petrochem EBIT turned positive: Sale of petrochemicals stood at 0.77mmt during the quarter vs 0.83mmt in Q1FY26. Petrochem EBIT improved sequentially from a loss of Rs10mn to a profit of Rs1.6bn. Although spreads remain at subdued levels due to weak demand and new capacity additions.
* Concall Highlights: 1) Avg Indian basket crude oil price were up 4.2% QoQ driven by increased geopolitical risk and stockpiling by China. 2) HSD/MS spreads – improved/remained lower QoQ. 3) Petchem – spreads remained at subdued levels due to volatile feedstock prices, weak demand and new capacity addition. 4) IOCL added 597 retail outlets in Q2FY26 (total addition YTD – 1,052), current total outlets stand at 41,260, with a target to add 4,000 in FY25-26 and reach 48,000 outlets by FY26-27. 5) Co. signed an MOU with Trafigura for LNG supply of 0.4mmtpa, linked to HH prices from July’2025 to Dec’2029. 6) IOCL & Air India signed an MOU – where IOCL will be the certified SAF supplier. 7) Borrowings increased by Rs66.92bn QoQ due to working capital requirements and Fx translations. Debt-Equity ratio stands at 0.7x. 8) Russian crude exposure stands at 18-19% down from 22% QoQ. IOCL has different Russian suppliers to source crude from and does not solely rely on sanctioned companies. 9) Panipat/Koyali/Barauni- commissioning expected in August/June/August 2026 with 90%/84%/88% progress made. 10) Refinery throughput to be higher by 4-5 mmtpa on account of project completion in FY26-27.
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