Leading oil marketing company (OMC) Indian Oil on Wednesday traded higher after reporting double-digit year-on-year growth in its fourth quarter net profit and revenue. Total earnings came in well ahead of analysts’ estimates. Most brokerage firms have a buy rating on the stock. However, the decline in refining margins is likely to impact the company going forward. Broadly speaking, OMC is set for a healthy FY24 fiscal.
Indian Oil stock trading till the writing of this news 87.60 with a gain of 0.7% on the BSE. The stock reached a new high of 52 weeks 88.61 per share earlier in the trade.
In Q4FY23, Indian Oil posted a consolidated net profit 10,841.23 crore up 52% YoY. While revenue increased by 10% 2,30,711.56 crores.
The board members of the government-owned company have recommended a final dividend of 30% for the year 2022-23, which is 3 per equity share of face value 10 each.
Read here: IOC Q4 Results: Profit up 52% 10,841 crore, dividend declared
On Indian Oil results, analysts at ICICI Securities said in their note, “Earnings were well ahead of our estimates of EBITDA of Rs 80.5 billion and PAT of Rs 35.6 billion.” Reported GRM of $15.3/bbl beat our estimate of $11.4/bbl, up $2.4/bbl QoQ but down $3.4/bbl YoY (Q4FY22 saw a record GRM of $18.7/bbl), while 19.2mt (5% YoY /QoQ) was marginally ahead of estimates. Blended retail margin of Rs.2.4/L has improved to Rs.4/L QOQ, with Blended Marketing Margin ~Rs.3,467/T at 8.0X YoY and 7.5X QOQ. Other opex at Rs 100.2 billion declined sharply by 17% YoY (I-Sec: Rs130 billion) and was an additional factor driving the outperformance.
Should you buy Indian Oil shares?
Most analysts have a buy recommendation on Indian Oil stock.
Avishek Dutta – Research Analyst, Prabhudas Lilladher said, “We believe OMCs are well positioned to benefit from improving marketing margins and healthy refining profitability. We base on an EV/EBITDA of 5.5x FY24E (7x) Retain ‘Buy’ with PT of Rs125. First) stabilizes earnings environment. Retain Buy.” The target price has been set by the brokerage at Rs 125.
Further, as per the ICICI Securities note, the retail margin of Rs. With a further expansion of 6.5/litre, which should more than offset the relatively muted SG GRM (below US$5/bbl QoQ till the second week of May 23), we expect a 21% YoY improvement in gross margin in FY24E. Attractive valuations, bonus issue (1:2 declared with Q4 FY22 results), and strong dividend yield (~7% expected for FY24E) are all positives. Maintain Buy with a target price of ₹115/share.
Further, Motilal Oswal in its note said, “IOCL is set to commission various projects over the next two years, fueling further growth. The refinery projects currently underway are expected to be completed as follows : Panipat Refinery (25mmtpa) by Sep’24, Gujarat Refinery (18mmtpa) by Aug’23, and Baruni Refinery (9mmtpa) by Apr’23, as per earlier guidance.
However, Motilal’s note further said, “IOCL is likely to be the worst hit among its peers by the decline in refining margins. It trades at 7.1x consolidated FY24E EPS and 0.8x FY24E PBV. We rate the stock at 0.9 x FY25E valued at P/.To arrive at our target price of BV 105. We reiterate our Buy rating on the stock.”
In contrast, Kotak Institutional Equities said, “Given our concerns on OMCs’ ability to revise retail fuel prices in line with international prices, we remain cautious on OMCs. Among OMCs, IOC is our preferred name (vs. HPCL, BPCL) operates.” Owing to its relatively strong refining margins and flexible earnings. We maintain our REDUCE rating on the IOC.”
Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint. We advise investors to do due diligence with certified experts before making any investment decision.
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