Why Indian Oil Corp stock rose today even as its Q1 net profit nearly halved
The Indian Oil Corporation (IOC) stock rose higher in early trade on Friday even as the oil marketing firm reported net profit that fell 45 percent for the quarter ending June 2017.
The nation's biggest oil company, reported a 45 per cent fall in its June quarter net profit after inventory losses ate into refining margins.
Also read: Indian Oil net profit falls 45% on inventory losses
Net profit in the April-June period, at Rs 4,548.51 crore or Rs 9.60 per share, was 45 per cent lower than the Rs 8,268.98 crore (Rs 17.45 a share) net profit in the same quarter of the last fiscal.
"Variation in the net profit is primarily due to inventory losses," IOC Chairman Sanjiv Singh said.
At 11:15 am, the stock was trading almost 5 percent or 20 points higher at 406 level on the BSE.Also read: Indian Oil Corporation net profit rises 85% in Q4
We look at why the IOC stock rose today even after its net profit nearly halved in Q1.
Net profit
The net profit came above street estimates. Analysts on an average had expected a net profit of Rs 3,063 crore for the first quarter, Thomson Reuters data showed.
Revenue soared almost 20 percent to Rs 129,418.11 crore in the quarter under review, from Rs 107,670.95 crore a year ago.
On a quarter on quarter basis, revenue rose 5.8 percent form Rs 122,285.30 crore in Q4 of last fiscal.
The firm reduced its debt by nearly 36 percent to Rs 34,922 crore as on June 30 from Rs 54,820 crore as on March 31 after it repaid some of the loans.
Morgan Stanley overweight on the stock
Morgan Stanley is overweight on the stock. The brokerage says IOC being a downstream company, will benefit from lower crude prices, overall cost reduction and growing diesel demand which will ultimately aid its bottomline.
It has given a target price of Rs 533 on the stock. In a note, the brokerage house said IOC's improving product mix and counter-cyclical investment's in refining capacity will aid the company. It also believes IOC's earnings to be better than its Indian peers.
Even before the Q1 earnings were announced, the IOC stock rose 4.93 per cent to hit a high of Rs 388.15 on BSE. It eventually ended the session at Rs 386.90, up 4.60 per cent on Thursday.
Gross refining margins
The state-owned firm lost Rs 4,042 crore in the quarter owing of inventory losses arising from drop in international oil prices. Inventory loss occurs when the oil prices fall after procurement and before marketing.
Clearly, the inventory loss was due to uncontrollable and unforseen circumstances. Without inventory loss, gross refining margins (GRMs) would have been $6.44 per barrel in Q1. This would have compared to $3.56 a barrel of GRM without accounting for inventory gain in the same period of previous year.
