Neutral Indian Oil Corporation Ltd for the Target Rs.150 by Motilal Oswal Financial Services Ltd
Marketing inventory gains boost 1QFY27 performance
* IOCL’s EBITDA came in at INR19.5b (est. EBITDA loss: INR161b), and loss after tax came in 83% below our estimate at INR26.6b. LPG under-recovery of INR102b was booked in 1Q (INR2.4b in 4QFY26). The GRM (net of SAED) stood at USD15.6/bbl (est.: USD17/bbl). Gross marketing margin stood at INR(1.5)/lit (vs est. of INR(8)/lit). The strong beat was driven by marketing inventory gains, which were upwards of INR150b during the quarter.
* Things we liked about the result:
1) MS + HSD volumes grew 7.5% QoQ, reflecting resilient mobility and industrial demand despite calibrated fuel price adjustments.
2) IOCL posted a strong refining performance, fueled by elevated diesel and ATF cracks. Moreover, the company reported the lowest-ever quarterly fuel loss of 8%, reflecting improved operational efficiency.
3) Mega-capex cycle is coming to an end as key projects such as the Panipat, Gujarat, and Barauni refinery expansions (total: 17.3mmtpa) are scheduled for commissioning by Dec’26, Nov’26, and Dec’26, respectively. Additionally, the PX-PTA plant and polybutadiene rubber plant are expected to come online by Aug’26 and Dec’26.
* Key monitorables:
1) Domestic LPG losses surged to INR655/INR475 per cylinder in Jun’26/Jul’26 (vs. ~INR80/cylinder in 4QFY26). A key monitorable will be whether cylinder under-recoveries remain near the guided INR250/cylinder in 2QFY27.
2) Borrowings increased to INR1.4t as of 30th Jun’26 from INR1.1t as of 31st Mar’26.
3) With renewed US-Iran tensions and escalating Russia-Ukraine conflict, crude prices have rebounded to USD90- 100/bbl. Combined with multi-year high gasoline, diesel, and ATF cracks, this is likely to keep marketing margins under pressure in the near term. Additionally, we see an increased risk of a higher Special Additional Excise Duty (SAED) on MS, HSD, and ATF.
4) With OMCs making huge marketing losses, we believe that some form of government compensation/support remains a possibility.
* Valuation and view: IOCL currently trades at 0.8x 1-year fwd. P/B, below its 10-year average. We reiterate our Neutral rating on the stock with an SoTP-based valuation of INR150.
Better-than-estimated marketing performance drives beat
* EBITDA came in at INR19.5b (our estimate EBITDA loss of INR161b).
* The GRM net of SAED stood at USD15.6/bbl (est.: USD17/bbl).
* The marketing margin stood at INR(1.5)/lit (vs est. of INR(8)/lit).
* LPG under-recovery of INR102b was booked in 1Q.
* Segment update:
* The petroleum product segment posted an EBIT loss of INR28.7b (vs. EBIT of INR192b in 4QFY26).
* The petchem segment reported EBIT of INR2.2b (vs. EBIT of INR12.1b in 4QFY26).
* IOCL’s reported loss came in at INR26.6b (our estimate was a loss of INR161b).
Valuation and view
* IOCL is set to commission multiple projects over the next two years, driving growth acceleration. Refinery projects that are currently underway, including the Panipat refinery (15mmtpa to 25mmtpa), Gujarat refinery (13.7mmtpa to 18mmtpa), and Barauni refinery (6mmtpa to 9mmtpa), are expected to be completed in 2HFY27.
* The stock trades at 6.7x consolidated FY28E EPS of INR20.8 and 0.8x FY28E P/B. We reiterate our Neutral rating on the stock with a TP of INR150, valuing it at 4.5x Dec’27E EBITDA.
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