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Our View

Indian Oil Corp Q1 FY25 performance showcases a poor core performance, surprises on inventory and adventitious gains. The integrated core margins in USD/bbl were lower than our estimatesat 1.6 vs 3. With EBITDA at Rs86.3bn and PAT of Rs26.4 bn, the core GRMs has been quite weaker with higher gains, while the marketing performance marginally weaker than our expectations. Reported EBITDA and PAT is higher than ours but lower than the consensus expectations. The reported GRM of USD6.4/bbl and Rs4.4/ltr of blended gross marketing margins, while the core integrated margins fell to USD1.6/bbl. We maintain BUY rating with a revised target price of Rs215 (earlier 210) valuing it on a sum-of-parts basis (core business at 8x EV/EBITDA and investments at Rs32). Prefer in OMCs, HPCL > BPCL > IOCL.

Result Highlights

* EBITDA/PAT were Rs86.3bn/Rs26.4bn; on weaker core GRMs and a surprise inventory and adventitious gains, while the marketing performance was impacted by a LPG subsidy burden of Rs 51.6bn Reported EBITDA and PAT are higher than our and consensus expectations only due to higher than expected gains. The reported GRM was ~USD6.39/bbl (USD8.42 the previous quarter, USD8.34 a year ago). The core GRM at USD2.84/bbl, (USD10.58 the prior quarter, USD9.05 a year ago), was at a discount of USD0.56/bbl over the benchmark which was at USD3.4/bbl. The impact on GRM was due to shutdowns at Paradip refinery – DHHT for ~60days and maintenance shutdown at Bongaigaon refinery for 30days. The refining inventory gain at USD3.55/bbl (a loss of USD2.16 the previous quarter, and a loss of USD0.71 a year back). Refinery throughput was 18.17mmt at 103.7% utilisation (105% the previous quarter, 107% a year ago).

* The integrated core EBITDA margins was USD1.6/bbl (USD4.7 the prior quarter, USD9.2 a year ago) lower our estimated USD3/bbl.

* The core marketing EBITDA was Rs0.9/ltr (Rs0.8 the prior quarter, Rs5.3 a year back). The domestic marketing throughput was 25.25mmt, up by 3.5% YoY and flat QoQ (vs. the industry’s growth of 2.5% YoY and -0.8% QoQ). MS sales were 3.96mmt, up 5.2% YoY and 7.5% QoQ, while diesel at 9.75mmt, down 3.7% YoY and up 7.3% QoQ. Industry motor spirit and diesel sales were up 6.7%/1.4% YoY and 6% QoQ for both. The company has a negative buffer amounting to Rs 51.6bn as of Q1FY25 pertaining to LPG subsidy. Product market share: The sales market shares of high-speed diesel and motor spirits both were stable at 40.2% and 39.6%.

* Petchem EBIT reported Rs 119mn vs Rs3.99bn loss the prior quarter, Rs 884mn a year back. The sequential improvement was due to better spreads but lower volumes.

* Debt of Rs1,158.5bn was up Rs148.4bn YoY, but down just Rs Rs6.5bn QoQ as there is a higher capex and possible increased working capital requirements on lowering of Russian crude discounts.

* Capex as per PPAC was Rs84.6bn and FY25 target of Rs 310bn.

Valuation

IOCL has a Rs34.2bn/Rs44.2bn sensitivity to a change of Rs0.5/ltr/$1/bbl, respectively. At CMP, stock trades at 8.8x/8.0x FY25e/26e EV/EBITDA and 1.4x/1.3x P/BV (excl. investments, it trades at 7.7x/7.0x FY25e/26e EV/EBITDA and 1.1x/1.1x P/BV). We maintain BUY rating with a revised target price of Rs215 (earlier 210) valuing it on a sum-of-parts basis (core business at 8x EV/EBITDA and investments at Rs32).

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