Add Indian Oil Ltd for the Target Rs.160 by Emkay Global Financial Services Ltd
IOCL’s Q4FY26 SA adjusted EBITDA/APAT of Rs233.1/100.9bn came at a significant beat to our estimates, largely driven by better margins (due to the lag effect in crude pricing), lower opex, and inventory gains. While the company did not disclose GRMs, integrated margins at USD12.6/bbl came at an 18% beat, likely driven by the marketing beat. Benchmark GRMs have strengthened sharply in Q1FY27; however, elevated crude prices and weaker marketing margins are likely to cause losses in Q1FY27. IOCL booked Rs36.2bn of LPG subsidy, while LPG under-recoveries rose to Rs24.0bn from Rs9.6bn QoQ. Project SPRINT delivered savings of Rs22bn in FY26, with IOCL targeting Rs25bn savings in FY27. Refinery expansion projects are expected to be commissioned by Aug-Dec ’26, with utilization expected at 60%/80%/100% in Year-1/2/3. FY26 capex stood at Rs314bn, while FY27 target is Rs327bn. We largely retain FY27-28E EBITDA. We maintain ADD and our TP of Rs160.
Results highlights
IOCL’s refinery volumes rose 6% YoY to 19.7mmt (in-line), with robust utilization at 114%. Fuel & loss declined to 8.1% from 8.6% QoQ, while distillate yield was lower at 79%. Petchem EBIT turned positive to Rs12.1bn vs losses of Rs3.6bn QoQ and Rs2.1bn YoY, potentially owing to the lag effect. Opex was up 7% YoY/11% QoQ to Rs164.8bn (7% below estimate), with other expenses up 12% YoY/18% QoQ. Domestic marketing sales grew 6.0% YoY to 26.1mmt vs industry growth of 2.7% YoY, thereby outperforming peers and gaining market share. Overall volumes were up 5% YoY to 27.3mmt (2% beat), with exports down 5% YoY. Petrol/diesel sales grew 6.0%/6.6% YoY vs industry growth of 6.7%/5.3%. Pipeline volume was largely flat QoQ at 27.7mmt. Gas EBIT turned negative to Rs11.5bn, owing to elevated gas cost amid supply disruption. D/A rose 27% QoQ to Rs51.7bn, while other income was up 39% YoY/33% QoQ to Rs16.3bn (32% beat). Interest cost declined 10% YoY/6% QoQ to Rs18.5bn, while net debt was down 18% YoY/5% QoQ to Rs1.1trn. Forex losses stood at Rs43.3bn. Q4FY26 capex stood at Rs80.7bn. The Board recommended a final dividend of Rs1.25/sh (~32% annual payout).
Management KTAs
Despite a volatile macro environment, IOCL maintained uninterrupted energy supplies through diversified crude sourcing. While impact of the higher energy prices was limited in Q4 due to lagged sourcing, Q1FY27 is likely to see losses. Petchem EBIT was supported by improved realizations, while gas volumes and margins were impacted by elevated RM costs. GRMs are expected to remain structurally elevated over the next 1–2 years amid geopolitical turmoil, while RO expansion has supported market-share expansion. Given the brownfield expansion, refinery capacity is expected to ramp up faster than expected.
Valuation and outlook
We value IOCL on SOTP-EV/EBITDA-based method, with investments valued at 30% holdco discount. We retain our blended target EV/EBITDA of 6.0x. Key risks: Adverse pricing and margins; currency fluctuations; GoI policies; and project issues.
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