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Weak petchem offsets marketing and refining gains

* IOCL reported EBITDA of INR213b (up 4.3x YoY), in line with our estimate of INR210b, led by better-than-expected GRM at USD17.9/bbl (vs. our est. of USD14.9/bbl) and higher marketing GM at INR5.8/lit. (vs. our estimate of INR5/lit).

* Refining throughput came in line with our estimate at 17.8mmt (up 10% YoY). In the marketing segment, domestic sales volumes were also in line with our estimate at 21.9mmt (up 2% YoY).

* Singapore GRM has declined to USD3.3/bbl in 3QFY24 to date from USD9.8/bbl in 2QFY24, which may lead to a decline in the refining performance in the coming quarter. A decline in Russia crude discounts may also weigh on IOCL’s performance in the ensuing quarter.

* OMCs are estimated to be generating marketing margin of INR8.2 on petrol and a marketing loss of INR3.8 on diesel in 3QFY24 to date. Margins may also be affected by retail fuel price cuts in the wake of upcoming elections and/or a rise in crude oil prices due to quota management by OPEC+.

* Petchem sales volumes increased by 53% YoY to 0.82mmt (vs. 0.54mmt in 2QFY23). Petchem EBIT came in at INR1.6b (below our est. of INR3.2b). Petchem margins have declined 13%/4% for PE/PP in 3QFY24 to date.

* Owing to a robust performance in 1HFY24, we increase our EBITDA/PAT estimates by 11%/13% for FY24 while keeping FY25 estimates broadly unchanged. The stock trades at 6.9x consolidated FY25E EPS and 0.7x FY25E P/BV. We retain our BUY rating on the stock, valuing it at 0.9x FY25E P/BV.

EBITDA, throughput and domestic sales in line with estimates

* Reported GRM at USD17.9/bbl beat our est. of USD14.9/bbl (USD8.3/bbl in 1QFY24). Refining throughput was in line with est. at 17.8mmt (up 10% YoY).

* Marketing margin (incl. inv.) at INR5.8/lit was above our est. of INR5/lit (INR8.7/lit in 1QFY24). Marketing volumes, excluding exports, were in line with our estimate at 21.9mmt (+2% YoY).

* Petchem EBIT came in at INR1.6b (below our est. of INR3.2b).

* EBITDA came in line with our est. at INR213.1b (up 4.3x YoY).

* PAT came in line at INR129.7b (net loss of INR2.7b in 2QFY23).

* In 1HFY24, EBITDA grew 4.7x YoY to INR435b, with PAT at INR267b (vs. net loss of INR23b in 1HFY23). 1HFY24 EBITDA stands at 71% of our FY24 estimates, while PAT stands at 79% of our FY24 estimates.

* Refining throughput was up 4% YoY at 36.5mmt, with reported GRM at USD13.1/bbl (vs. USD25.5/bbl in 1HFY23). Marketing margin stood at INR7.3/lit (vs. -INR3.9/lit in 1HFY23).

* IOCL had a cumulative negative net buffer of INR2.2b as of 31st Mar’23 due to under recovery on LPG cylinders. The same has been recognized as part of revenue upon recovery in 1HFY24.

* The company has declared an interim dividend of INR5/share in 2Q.

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