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Higher-than-estimated GRM and marketing margin drive beat

-      IOCL reported beat on our EBITDA at INR155b (up 2.9x YoY), led by better-than-expected GRM at USD13.5/bbl (vs. our est. of USD10.2/bbl) and higher marketing GM at INR4.5/lit. (vs. our estimate of INR3.1/lit).

-      Refining throughput came in line with our estimate at 18.5mmt (up 4% YoY). In the marketing segment, domestic sales volumes were also in line with our estimate at 23.3mmt (up 1% YoY).

-      Singapore GRM has rebounded to USD7.2/bbl in 4QFY24 till date from USD5.5/bbl in 3QFY24, which may lead to an improvement in the refining performance in the coming quarter.

-      OMCs are estimated to be generating a marketing margin of INR11/8.6 per lit on petrol/diesel in 4QFY24 till date. However, margins may 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 80% YoY to 0.67mmt (0.37mmt in 3QFY23). The Petchem segment reported an EBIT loss of INR2b. Petchem margins have increased 69%/89% for PE/PP in 4QFY24’td, which may lead to an improvement in the petchem segment in the upcoming quarter.

-      Owing to robust performance in 119MFY24FY24, we increase our EBITDA/PAT estimates by 12%/16% for FY24, while keeping FY25-26 estimates broadly unchanged. The stock trades at 8.6x consolidated FY25E EPS and 1.1x FY25E P/BV. We reiterate our BUY rating on the stock, valuing it at 1.2x Dec’25E P/BV.

Throughput and marketing sales volume in line

-      Reported GRM came in above our est. at USD13.5/bbl (our est. of USD10.2/bbl and USD17.9/bbl in 2QFY24).

·         Core GRM stood at USD10/bbl (vs. USD17.4/bbl in 3QFY23 and USD16.2/bbl in 2QFY24).

·         Refining throughput was in line with est. at 18.5mmt (up 2% YoY).

-      Marketing margin (incl. inv.) was above our est. at ~INR4.5/lit (est. INR3.1/lit and INR5.6/lit in 2QFY24).

·         Marketing volumes, excluding exports, were in line with our estimate at 23.3mmt (up 1% YoY).

-      EBITDA was above our est. at INR154.9b (our est. of INR72.6b, up 2.9x YoY).

-      PAT came in at INR80.6b (our est. of INR23.8b, up 18x YoY).

·         IOCL revised the estimated useful life and residual value of certain assets and accounted for additional depreciation of INR6.4b in 3QFY24

ü  Therefore, PAT adjusted for this additional depreciation stands at INR87b.

-      In 9MFY24, EBITDA was up 4x YoY to INR590b, with PAT at INR348b (net loss of INR18b in 9MFY23).

·         Refining throughput was up 3% YoY at 55mmt, with reported GRM at USD13.3/bbl (USD21.3/bbl in 9MFY23).

·         Marketing margin stood at INR6.3/lit (vs. –INR2.4/lit in 9MFY23).

Valuation and View

IOCL is set to commission various projects over the next two years, driving further growth. Refinery projects, currently underway, are expected to be completed as follows: Panipat refinery (25mmtpa) by Sep’24, Gujarat refinery (18mmtpa) by Aug’24, and Baruni refinery (9mmtpa) by Dec’24.

SG GRM has rebounded to ~USD7.2/bbl in 4QFY24 till date (from USD5.5/bbl in 3QFY24) and IOCL is likely to benefit the most among its peers due to its highest leverage in the refining segment.

 The stock trades at 8.6x consolidated FY25E EPS of INR16.7 and 1.1x FY25E P/BV. We reiterate our BUY rating on the stock, valuing it at 1.2x Dec’25E P/BV to arrive at our target price of INR165.

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