Motilal Oswal is bullish on Indian Oil Corporation has recommended buy rating on the stock with a target price of Rs 554 in its research report dated October 30, 2017.
Motilal Oswal's research report on Indian Oil Corporation
IOCL’s adj. EBITDA rose 11% YoY (-25% QoQ) to INR 73.7b, significantly below our estimate of INR 116b, primarily due to lower-than-expected reported GRM of USD 7.98/bbl inclusive of inventory gains (est. of USD 9.5/bbl and SG GRM of USD8.3/bbl) and lower refinery throughput of 16mmt (est. of 18mmt). Reported GRM of USD 7.98/bbl includes a crude inventory gain of INR 7.8b (USD 1/bbl). Marketing inventory gain stood at INR 2.7b.
Outlook
IOCL is expected to benefit from free cash flow generation over the next 2-3 years. Paradip refinery should help IOCL in a contracting benchmark refining margin scenario. We have revised our FY18 earnings estimates downward by 23%, and there is no material change to our FY19/20 earnings estimates. The stock trades at 9.5x FY19E EPS of INR 43.6 and 1.5x FY19E BV. We value IOCL at 6x for refining and 7.5x for marketing to arrive at a fair value of INR 554 (Sep-18 TP), implying 34% upside. Maintain Buy.
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