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Stronger GRM drives earnings

Quick Pointers:

* The company had an under-recovery of Rs56bn on the sale of LPG in Q4FY25

* Core GRM came in at US$5.39/bbl with an inventory gain of ~US$2.5/bbl

Indian Oil Corporation (IOCL) reported an EBITDA of Rs135.7bn, up 90.7% QoQ (PLe: Rs68.2bn, BBGe:Rs78.7bn). Adj PAT came in at Rs72.6bn (up 231% QoQ, PLe: Rs17.5bn, BBGe:Rs14.7bn). There was an exceptional gain of Rs10.5mn for VAT input tax credit. Reported GRM came in at US$7.85/bbl, up 166% QoQ (PLe: US$6/bbl). GMM stood at Rs6.8/ltr (PLe:Rs3.5/ltr). In Q1-TD, gross margin on petrol/diesel has risen to Rs12.3/9.7/ltr. However, average Singapore GRM continues to remain weak at US$3/bbl and the company is likely to report inventory losses amid sharp decline in Brent prices. Petchem weakness is also likely to persist and the company has indicated an under-recovery of Rs170/cyl in Q1FY26 on the LPG front. We accordingly build in a GRM of US$6/6/bbl forFY25/26/27E. On the marketing front, we build in a GMM of Rs4.3/4.3/ltr for FY25/26/27E. We maintain ‘REDUCE’ rating on the stock with a TP of Rs122 based on 0.8x avg FY27E P/BV.

* Sharp rise in earnings sequentially: IOCL’s operating profit rose 90.7% QoQ primarily due to higher refining margins. Adj PAT came in at Rs72.6bn, up 231% QoQ. There was an exceptional gain of Rs10.5mn for VAT Input Tax Credit under Gujarat VAT Act 2005.

* GRM above estimates: Refining throughput at 18.5mmt grew 2.4% QoQ. Capacity utilization stood at 107.1%, while distillate yield came in at 79.7%. IOCL reported a GRM of US$7.85/bbl, above PLe of US$6/bbl. Core GRM stood at US$5.4/bbl. Reported GRM increased by 166% QoQ. Petchem EBIT loss came in at Rs2.1bn (against EBIT loss of Rs1.55bn in Q3). Average Singapore GRM in Q1-TD continues to remain weak at USD3/bbl amid weakness in product cracks. We expect it to revert to the long-term average of US$5-7/bbl in the medium term. Factoring in this, we build in a GRM of US$6/6/bbl for FY26/27E. Marketing sales stood at 21.9mmt, flat QoQ. GMM came in at Rs6.8/ltr (PLe: Rs3.5/ltr). The company had an under-recovery of Rs56bn on the sale of LPG and cumulative negative buffer stood at Rs199.3bn as on 31st Mar’25. In Q1-TD, average gross margin on petrol/diesel stands at Rs12.3/9.7/ltr. Going ahead, we build in a GMM of Rs4.8/4.3/ltr for FY26/27E.

* Concall Highlights: 1) Russian crude accounted for 22% of imports in FY25, Q4 proportion had fallen to 14% but has now increased in Q1. Likely to account for 24-25% of imports in FY26. 2) Panipat refinery expansion from 15 to 25mmtpa, to be completed by Q4FY26, Gujarat refinery expansion from 13.7 to 18mmtpa to be completed by Q4FY26, Barauni refinery expansion from 6 to 9 mmtpa by Q1/Q2FY27. Achieved over 80% physical progress across all the three refineries 3) Petchem EBITDA at Rs10bn with petchem intensity currently at 6%, target of reaching 15% by 2030. 4) Capex incurred in FY25 stood at Rs375bn. Capex target of Rs340bn for FY26. 5) Total RO count stands at 40,221 as of FY25, plan to add another 3,000-4,000 ROs in FY26

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