Add Indian Oil Ltd for the Target Rs 150 by Emkay Global Financial Services Ltd
IOCL’s 2QFY27 SA adjusted EBITDA/APAT of Rs276.9/Rs189.7bn came in at a significant beat to our and street estimates, driven by better margins and inventory gains. Reported GRM was at $36.7/bbl vs our $26.0/bbl estimate, while blended marketing margin of -Rs2/kg was better than our -Rs6.0/kg estimate. Amid supply volatility, IOCL diversified crude sourcing, with Russian share at ~55% (overall spot at 87% in 1H vs ~50% in FY26). IOCL booked Rs36.2bn of LPG subsidy, while LPG under-recoveries declined 38% qoq to Rs64.0bn, though 3QFY27 under-recoveries are expected to be higher at ~Rs300/cylinder. Refinery expansion projects slated for commissioning in FY27 are expected to improve distillate yields, with throughput gains expected from FY28. We build in FY27E adjusted net loss of Rs88bn vs net profit of Rs94bn earlier, reflecting a prevailing volatile environment and high earnings uncertainty. We cut FY28-29E EPS by 8-9%, on some margin tweaks. Rolling forward to Sep-27E, we cut TP by ~6% to Rs150 (from Rs160); retain ADD.
Results highlights
IOCL’s refinery volumes rose 3% yoy to 18.1mmt (2% miss), with utilization slightly lower at 102%. Fuel and loss rose to 8.5% from 8.0% qoq, while distillate yield was slightly lower at 79%. Petchem EBIT more than doubled qoq to Rs5.3bn (up ~3.1x yoy; 61% beat), largely on better deltas. Opex was up 12% yoy/6% qoq to Rs161.9bn (7% below estimate), with other expenses up 14% yoy/5% qoq. Domestic marketing sales grew 4.9% yoy to 24.0mmt vs industry de-growth of 0.1% yoy, thereby gaining market share. Overall volumes were up 4% yoy to 25.2mmt (4% beat), with exports down 11% yoy. Petrol/diesel sales grew 9.4%/8.4% yoy vs industry growth of 8.5%/7.5%. Pipeline volume declined 11% qoq to 25.3mmt. Gas EBIT rose ~5.1x yoy/2.4x qoq to Rs12.4bn, on better margins amid elevated spot prices. D/A rose 1% qoq to Rs40.2bn, while other income was up 77% yoy/601% qoq to Rs27.0bn (74% beat). Interest cost rose 9% yoy/47% qoq to Rs23.6bn, while net debt was down 9% yoy/18% qoq to Rs1.1trn. Forex losses stood at Rs6.7bn. 2Q/1H capex stood at Rs57.0/121.6bn.
Earnings call highlights
FY27 capex target is Rs327bn, with Rs300-400bnpa over the next 4–5 years, including Rs50-100bn toward RE. Crude/LPG freight surged to $8–10 per bbl/$160–180 per mt vs ~$2–2.5 per bbl/$40 per mt on time charters/normal levels; 3 crude and 9 LPG timechartered vessels cushioned costs. Crude inventory rose to 39 days vs 33–35 normally. Bulk diesel (13% of H1 sales) largely allows higher cost pass-through, subject to contracts. ATF remained profitable in 2Q. Paradip PX-PTA commissioning is underway. 1H refining costs fell to $3.93/bbl from $4.45/bbl yoy on cost optimization.
Valuation and outlook
We value IOCL via SOTP-EV/EBITDA-based method, with investments valued at 30% holdco discount. We slightly lower blended target EV/EBITDA to 5.7x. Key risks: Adverse pricing and margins; currency fluctuations; GoI policies; and project issues.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH00000035
