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IOCL reported a 7% beat on SA adj EBITDA at Rs220.6bn in Q2FY24, on better than expected marketing earnings, akin to peer BPCL. Core GRM is ~USD16/bbl (bettering our USD13/bbl estimate; reported GRM of USD18.1 came in-line). Implied blended marketing margin is estimated at ~Rs4.9/kg, in-line, based on BPCL’s reported marketing inventory. Domestic sales grew 2% YoY with diesel down 8%, worse than the industry/BPCL. Petchem EBIT rose from Rs884mn to Rs1.6bn QoQ, driven by volume. Net debt fell 2% QoQ to under Rs900bn. The Board declared an interim dividend of Rs5/sh. OMCs are in a sweet spot, given the strong H1FY24 reported so far, though some macro risks wrt oil prices and the political scenario prevail in the run-up to the elections. We raise FY24E EPS by 9%, but retain FY25 estimate; maintain HOLD with unchanged TP of Rs100.IOCL reported a 7% beat on SA adj EBITDA at Rs220.6bn in Q2FY24, on better than expected marketing earnings, akin to peer BPCL. Core GRM is ~USD16/bbl (bettering our USD13/bbl estimate; reported GRM of USD18.1 came in-line). Implied blended marketing margin is estimated at ~Rs4.9/kg, in-line, based on BPCL’s reported marketing inventory. Domestic sales grew 2% YoY with diesel down 8%, worse than the industry/BPCL. Petchem EBIT rose from Rs884mn to Rs1.6bn QoQ, driven by volume. Net debt fell 2% QoQ to under Rs900bn. The Board declared an interim dividend of Rs5/sh. OMCs are in a sweet spot, given the strong H1FY24 reported so far, though some macro risks wrt oil prices and the political scenario prevail in the run-up to the elections. We raise FY24E EPS by 9%, but retain FY25 estimate; maintain HOLD with unchanged TP of Rs100.

Indian Oil: Financial Snapshot (Standalone)

Result Highlights

IOCL’s Q2FY24 SA PAT of Rs129.7bn, down 6% QoQ, is at a 15% beat to our estimate, primarily driven by marketing, albeit also by better petchem coupled with lower than expected opex, forex losses and tax rate. Refining volume at 17.8mmt missed estimates by 4% (down 5% QoQ), with ~101% utilization. Petchem was supported by operating leverage as well as a marginal increase in blended deltas. Assuming marketing-inventory gain (not disclosed by IOCL) of ~Rs30bn in Q2 (based on the BPCL run-rate and as against the Rs1bn built-in by us originally), blended marketing margin was in-line. Marketing volume rose 2% YoY domestically vs 5%/7% for the industry/BPCL, while total volume missed our estimate by 2%. Petrol/diesel sales grew/declined 2%/8%, respectively, as against a 5%/1% YoY growth for BPCL and 6%/4% growth for the industry. Reported gross profit was at a 3% beat to our estimate, while opex was 1% lower than expected. Interest cost rose 14% QoQ, while D/A was up 4%. Other Income of Rs9.8bn was in-line, though down 55% YoY, while forex loss was lower at Rs8.4bn. Tax rate was 24.5%. Company saw working capital release in H1FY24, while capex was ~Rs160bn, basic OCF being strong at Rs438bn. HoH net debt fell 27%.

Other Highlights

Capex target for FY24 is on schedule. Russian discounts have narrowed down, currently. LPG buffer adjustment (likely in Q1) was Rs22.2bn.

Valuation and Outlook

We value IOCL on SOTP-EV/EBITDA methodology, with investments at a 30% holdco discount. We raise FY24 estimates based on the H1 run-rate, though FY25E EPS stays unchanged. We rollover to Sep-25 estimates, but realign our blended target EV/EBITDA to 5.5x and also assume slightly higher capex. We maintain HOLD on the stock, with TP of Rs100/share. Outlook on OMCs seems relatively constructive. Key risks: Adverse crude oil prices and downstream margins; currency movement; government policies; and project issues.

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