Indian Oil Q4 Results Review - Inventory Loss, Weak Petchem Lead To Earnings Miss: Motilal Oswal

Motilal Oswal Report

Indian Oil Corporation Ltd.’s Q4 FY24 Ebitda of Rs 104 billion (down 27% YoY) was 26% below our estimate of Rs 141 billion due to weaker-than-estimated reported gross refining margin ($8.4/ barrel of oil in Q4 FY24 versus our estimate of $15.0/bbl). The subdued result was also due to the continuing weak performance of the petrochemical division (Ebit loss of Rs 4 billion).

Core GRM in Q4 FY24 came in at $10.6/bbl; for FY25-26, we are building in GRMs of $9/bbl. As such, we believe the refining segment’s performance will remain healthy given the robust oil demand.

However, the petchem segment reported an operating loss for the second consecutive quarter amid weak petchem spreads (PE, PP) for key products.

While we remain constructive on the petchem cycle turning around in H2 FY25, we believe the near-term earnings pressure may continue.

Oil marketing companies are estimated to generate marketing margins of Rs 2.0/Rs 0.5 per lit on petrol/diesel in April 2024 versus our assumptions of Rs 3.3/lit for both products in FY25-26.

Owing to the weak petchem performance recently, we cut our consolidated Ebitda/EPS estimates by 7%/21% for FY25 and by 3%/12% for FY26.

We maintain our earnings assumptions for the refining and marketing segments. The stock trades at 12.4 times consolidated FY26E EPS and 1.1 times FY26E price/book. We reiterate our Buy rating on the stock, valuing it at 1.3 times FY26E price/book.

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