Maintain ADD on Indian Oil Corporation - Muted performance - HDFC Securities

Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities and Mr Nilesh Ghuge, Institutional Research Analyst, HDFC Securities

We maintain ADD on IOC with a target price of INR 113, owing to an expected recovery in demand for petroleum products and, subsequently, refining margins in FY22/23. Reported EBITDA/APAT were 14/18% above our estimates, owing to higher GRM of USD 2.51/bbl (HSIE: USD 0.8/bbl), higher- than-expected marketing and pipeline throughput, lower-than-expected raw material cost, offset by higher-than-expected operating expenses. Refining back calculated inventory gain was INR 78bn. Adjusting for inventory gains and forex gain, core EBITDA comes to INR 57bn.

Refining: Crude throughput in 4Q stood at 17.6mmt (+3/-2% YoY and QoQ). Core GRM stood at USD 2.5/bbl vs USD 7.8/1.3 in 4QFY20/3QFY21. We expect core GRM to come at USD 3.1/3.3/bbl in FY22/23E.

Marketing: Domestic marketing sales volume was 22.6mmt (+2/-2% YoY/QoQ). Blended gross margin stood at INR 4.7/lit (+9% YoY) in 4Q, but these do not seem sustainable in the near term. We expect blended gross margins to correct to INR 4.3/4.5/lit in FY22/23E.

Call takeaways: (1) Capex spent in FY21 was at INR 270bn. Capex planned for FY22 is INR 285bn. (2) Borrowings as at Mar'21 end stood at INR 1,023bn, including total government receivables of INR 6.8bn. (3) Core GRMs for 4QFY21/FY21 stood at USD 2.51/2.31/bbl. Singapore GRM was reported at USD 1.79/bbl in 4Q. (4) The Board has declared a final dividend of INR 1.5/sh for FY21. (5) The company added 3,000 new retail outlets in FY21, taking up the total count of retail outlets to 32,060. (6) Staff costs had gone up in FY21 owing to a bonus provision of INR 18bn, which wasn't provided for in FY20.

Change in estimates: We reduce our FY22/23 EPS estimates by 14.2/2.5% to INR 10.8/14.0 per share to account for overall performance in FY21 and a change in throughput and GRM assumptions.

Our SOTP target comes to INR 113/sh (5.0x Mar-23E EV/e for standalone refining, marketing and petchem businesses, 5.5x Mar-23E EV/e for pipeline business, and INR 29/sh for other investments). The stock is currently trading at 7.5x on FY23E EPS.

Shares of INDIAN OIL CORPORATION LTD. was last trading in BSE at Rs.104.3 as compared to the previous close of Rs. 104.7. The total number of shares traded during the day was 1789245 in over 8386 trades.

The stock hit an intraday high of Rs. 106.95 and intraday low of 103.6. The net turnover during the day was Rs. 187508408.

Source : Equity Bulls

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