Buy Indian Oil Corporation; target of Rs 185: KR Choksey

KR Choksey's research report on Indian Oil Corporation

IOC reported revenues of INR 1,399.6 bn (+26.5% YoY, +6.0% QoQ) from increase in crude prices during the quarter, increased throughput and higher market sales. Gross margin declined significantly to 9.0% (-1,210 bps YoY, -769 bps QoQ) on account of heavy inventory losses leading to higher COGS (+45.9% YoY, +15.8% QoQ). GRM for the quarter came in at $1.15/bbl as against $6.79/bbl in Q2FY19 and $12.32/bbl in Q3FY18. Inventory losses for the quarter stood at INR 49.5 bn as against gains of INR 45.8 bn in Q2FY19 and INR 17.4 bn in Q3FY18. EBITDA turned negative to -1.1% (-1,255 bps YoY, -499 bps QoQ) which was further aggravated by higher other expenses (+51.2% YoY, -0.5% QoQ). This was negated to some extent by lower employee expenses (-8.7% YoY, -11.3% QoQ) leading to an EBITDA of –INR 15.2 bn (-89.9% YoY, -81.0% QoQ). Finance cost increased by 26.0% YoY while other income declined by 67.3% YoY. Forex gains of INR 20.8 bn for the quarter aided PAT which came to INR 7.17 bn (-90.9% YoY, -84.1% QoQ). PAT margin reduced significantly to 0.5% (-661 bps YoY, -291 bps QoQ). Crude throughput came in at 18.9 MMT (+4.1% YoY, +6.5 % QoQ) while market sales remained flat on a YoY (-0.07%) as well as QoQ basis (0.1%).

Outlook

We valued the company by assigning a multiple of 5.0x on the FY20E EBITDA/share and arrived at a target price of INR 185 (potential upside – 35.9%) from our earlier estimate of INR 203. We maintain BUY rating on the stock.

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Read More First Published on Mar 4, 2019 03:50 pm