Neutral Indian oil Corporation Ltd for the Target Rs. 152 by Motilal Oswal Financial Services Ltd
Strong marketing and refining margins drive beat
* IOCL’s EBITDA came in 51% above our estimate in 2QFY26 due to higher-thananticipated GRM (USD10.7/bbl). Blended marketing margin also came in 19% above our estimate at INR6.2/liter. However, refining throughput and marketing volumes came in line.
* The MoP&NG, through letters dated 3rd/24th Oct’25, approved a compensation of INR144.9b to the company for under-recoveries on the sale of domestic LPG up to 31st Mar’25 and those expected up to 31st Mar’26. The amount will be released in 12 equal monthly instalments, with accruals recognized monthly starting Nov’25.
* Key takeaways from the conference call: 1) LPG under-recovery stood at around INR100/cyl in 2QFY26, easing to about INR40/cyl currently; 2) IOCL’s FY26 capex plan totals roughly INR335b, with INR140b earmarked for refining, INR100b for marketing and pipelines, INR25b for petrochemicals, INR20b as equity investments in renewables JVs, and the remainder for others; 3) Key projects such as the Panipat, Gujarat, and Barauni refinery expansions are scheduled for commissioning by Jun’26, Jun’26, and Aug’26, respectively. Additionally, the PXPTA plant and polybutadiene rubber plant are expected to come online by 3QFY27 and Jun’26; 4) the company has also secured a mid-term LNG sourcing contract of ~0.4mmtpa linked to the Henry Hub index, effective from Jul’25 to Dec’29; and 5) Russian crude contributed about 18-19% of total crude intake during 2Q and remains at a similar level currently.
* We continue to prefer HPCL over IOCL due to the following factors: 1) HPCL’s leverage toward the marketing segment, 2) higher dividend yield, as HPCL’s capex cycle is tapering off, while IOCL’s capex intensity remains high, and 3) start-up of HPCL’s multiple mega-projects in the next 12 months, providing a push to earnings.
* IOCL currently trades at 1x 1-year fwd. P/B, at par with its 10-year average. We value the stock at 1x FY27E consol. P/B to arrive at our TP of INR152.
Higher-than-expected GRM boosts 2Q performance
* IOCL’s EBITDA came in 51% above our estimate at INR145.8b (up 248% YoY).
* Its reported GRM came in 66% above our estimate at USD10.7/bbl; refining inventory gains stood at USD1.8/bbl during the quarter.
* The marketing margin stood at INR6.2/lit, 19% above estimates.
* LPG under-recovery of INR21.3b was booked in 2Q (INR37.1b in 1Q).
* Marketing and refining throughput came in line with our estimate.
* The petchem segment posted an EBIT of INR1.7b (vs. INR10m loss in 1Q).
* IOCL’s reported PAT came in 146% above our estimate at INR76.1b.
* Other income came in above our estimate, while interest stood below.
* In 1HFY26, the company generated a CFO of INR312.7b (INR25.2b in 1HFY25). IOCL incurred standalone capex of INR147.2b. As of 30th Sep’25, IOCL’s standalone CWIP stood at INR768.6b (INR734.5b as of 31st Mar’25). Net debt stood at INR1.28t (vs INR1.34t as of 31st Mar’25).
* As of 30th Sep’25, IOCL had a cumulative negative net buffer of INR257.7b due to the under-recovery on LPG cylinders (INR236.4b in Jun’25).
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 1HFY27.
* The stock trades at 10.6x consolidated FY27E EPS of INR14.6 and 1x FY27E P/B. We reiterate our neutral rating on the stock with a TP of INR152, valuing it at 1x FY27E P/B.
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