HDFC Securities is bullish on Indian Oil Corporation has recommended buy rating on the stock with a target price of Rs 190 in its research report dated May 21, 2019.
HDFC Securities' research report on Indian Oil Corporation
IOC reported Q4FY19 EBITDA of Rs 108.78, down 1.3% YoY. Adjusting for inventory losses and forex gains, core EBITDA was Rs 73.99bn. Refining: It was a muted quarter wrt this business. Throughput was 17.4mmt (+0.9/-8.6% YoY/QoQ). The sequential fall is primarily owing to planned shutdowns of their Koyali and Panipat refineries in Mar and Guwahati refinery in Jan. Core GRM (excluding inventory gains of USD 2.6/bbl) was USD 1.5/bbl vs USD 9.0/bbl in 3Q. GRMs were impacted owing to lower light distillate cracks. In Q1FY20, refining margins have recovered from the Q4 lows (Singapore GRM at USD 3.2/bbl to 5.5) owing to increase in gasoline cracks (from USD 3.4/bbl to 12.3) and stable middle distillate cracks. The implementation of International Maritime Organisation’s (IMO) regulations from Jan-20 will lead to better GRMS for IOC (from USD 4.6/bbl to 5.4 in FY20E). Marketing: Volume was 22.6mmt (+5.8/-0.7% Yoy/QoQ). India’s petroleum product consumption was up 4.19% YoY, which shows that IOC has gained market share in Q4. Blended gross margin stood at Rs 5.74/lit (+50.4/40.9% YoY/QoQ). Though these margins seem unsustainable, we believe that they will remain in the range of ~Rs 3/lit in FY20-21E. Capex: Plans to incur Rs 250bn in FY20 (largely in the refining and marketing businesses), of which Rs 40bn is specifically for BS-VI up gradation. Additionally, Rs 56bn will be spent to set-up a 357KTPA MEG
plant at Paradeep (expected commissioning FY22). Ennore LNG Terminal: Made their maiden LNG supply to anchor customers, including CPCL’s Manali refinery.
Outlook
With an improvement in GRMs in sight coupled with restoration in marketing margins as elections have concluded, we remain positive on IOC and maintain BUY.
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