Buy Indian Oil Corporation: target of Rs 125: Sharekhan

Sharekhan is bullish on Indian Oil Corporation has recommended buy rating on the stock with a target price of Rs 125 in its research report dated July 30, 2021.

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Sharekhan’s research report on Indian Oil Corporation

Q1FY2022 PAT at Rs. 5,941 crore (down 32% q-o-q) was higher than our and street estimates, led by robust margins – reported GRM of $ 6.6/bbl (vs. our estimate of $ 5.3/bbl), higher marketing EBITDA margin of Rs2,883/mt (up 74% q-o-q) and sustained strong petchem EBITDA margin at $ 412/mt (up 1.3% q-o-q). Lower-than-anticipated impact of lockdown with marketing sales volume of 18.8mmt (down 9.6% q-o-q) and strong refinery utilisation of 96%. Petrol/diesel volume fell 14.9%/12.8% q-o-q but was above estimate; core GRM of $ 2.2/bbl was in-line. Strong earnings performance to sustain led by volume recovery (petrol/diesel at >100%/~85-90% of pre-COVID level), likely structural improvement in auto fuel margin, cyclical recovery in GRM, sustained high petchem margin, and inventory gain. Maintenance shutdown at Paradip refinery to have a slight impact on Q2 refinery throughput.

Outlook

Retain Buy on IOCL with an unchanged PT of Rs. 125 given attractive valuation (FY23E PE of 4.8x), earnings visibility, RoE of 17-18%, and dividend yield of ~10%. Pipeline asset monetisatin and BPCL privatisation are key re-rating catalyst.

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