Hold Indian Oil Corporation; target of Rs 85: ICICI Direct

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ICICI Direct's research report on Indian Oil Corporation

Indian Oil Corporation (IOC) reported Q2FY21 profits better our estimates on the profitability front due to inventory gains. Revenues increased 30.1% QoQ to Rs 115749.4 crore, (our estimate: Rs 100044.5 crore) as retail demand increased post lockdown. The quarter witnessed inventory gains of US$9.6/bbl leading to reported GRMs at US$8.6/bbl (our estimate: US$4/bbl) while core GRMs were at -US$1/bbl. Higher than anticipated refining inventory gains led to EBITDA at Rs 9427.2 crore (up 71% QoQ) vs. our estimate of Rs 7123.3 crore. The company benefited from forex gain as interest cost was lower than expected. Subsequently, reported PAT was at Rs 6227.3 crore, up 225.9% QoQ (our estimate: Rs 2404.2 crore).

Outlook

IOC’s crude throughput has also increased QoQ and was at 95% in October. However, we are neutral on IOC at the current juncture given the volatility in refining margins. We maintain HOLD on the stock with a target price of Rs 85 (based on average of P/BV multiple: Rs 99/share, P/E multiple: Rs 71/share).

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