Company Update : Indian Oil Corporation Ltd By Motilal Oswal Financial Services Ltd
High inventory losses drag 3Q performance
* IOCL’s reported 3QFY25 financial performance was below our expectations, mainly led by a weak reported refining margin. Inventory losses stood at USD3.7/bbl in 3Q. However, the marketing segment reported an in-line performance during the quarter. The sharp QoQ rise in opex in 3QFY25 was likely attributable to variable pay related expenses, which typically occur for OMCs in 3Q every year. We believe that, like other OMCs, EBITDA could be partially dragged by forex losses in 3Q. The LPG under-recovery amounted to INR54.6b (up 47% QoQ in 3Q).
* Overall, refining GRM remains soft in Jan’25, and the oil demand too remains below the historical average. Though MS/HSD marketing margins were down 16%/23% QoQ in 4QFY25’td, OMCs continue to generate healthy MS/HSD marketing margins of INR9.6/INR4.7 per lit (Jan’25’td average margins). With propane prices averaging USD635/ton in Jan’25 (similar to 3QFY25 prices), a similar QoQ trend could be observed in LPG under-recovery in 4Q. According to a recent media article, the government might provide compensation to OMCs against LPG underrecovery.
* IOCL currently trades at 1x FY26E P/B, at par with the 1Y fwd. LTA of 1x P/B.
* Reported GRM came in sharply below our est., even as core GRM was largely in line (USD6.6/bbl), implying an inventory loss of USD3.7/bbl during the quarter.
* Both marketing and refining throughput and marketing margin came in line with our estimate.
* However, the petchem segment’s EBIT loss stood at INR1.5b (vs. EBIT loss of INR916m in 2QFY25).
* EBITDA was 31% below our est. at INR71.2b (down 54% YoY).
* Additionally, INR54.6b LPG under-recovery was booked in 3Q (INR37.1b in 2Q).
* We believe that, like other OMCs, EBITDA could be partially dragged by forex losses in 3Q.
* Reported PAT came in at INR28.7b (our est. of INR42.7b, down 64% YoY). The higher-than-estimated finance cost was partially offset by higher-thanestimated other income.
* Following the favorable ruling from the Hon'ble Supreme Court on 2nd Aug’24, regarding VAT input tax credit under the Gujarat VAT Act of 2005, a previously established provision of INR6.8b has been reversed and reported as an exceptional item in the current quarter.
* Hence, after adjusting the above provision reversal, IOCL reported an APAT of INR21.9b in 3Q.
* In 9MFY25, net sales were similar YoY at INR5.6t, while EBITDA/APAT declined 67%/89% YoY to INR195b/INR39b.
* As of Dec’24, IOCL had a cumulative negative net buffer of INR143.3b due to under-recovery on LPG cylinders (INR88.7b as of Sep’24).
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