IOC's Q3FY19 results (Neutral) - Weak metrics
Q3FY19 highlights
- IOCL adjusted EBITDA/PAT of Rs36.1bn/Rs7.2bn down 55%/82% qoq and well below IDFCe Rs81.6bn/38.1bn, driven by lower refining margins of $1.15/bbl (IDFCe $3.2/bbl) and lower marketing volumes of 22.8mt (IDFCe 23.4mt). Foreign exchange gain of Rs20.8bn (IDFCe loss of Rs15bn) provided some cushion to overall earnings.
- Refining thruput was higher at 18.98mt (vs IDFCe 18.6mt) growing by 7% qoq and reported GRMs of US$1.15/bbl (Core $9.2/bbl, inventory loss $8.1/bbl) vs IDFCe of US$3.2/bbl (Core $4.7/bbl, inventory loss of $1.5/bbl) declined on weak product spreads and demand trajectory. Marketing volumes of 22.8mt (flat yoy, IDFCe 23.5mt), with blended margins of Rs4676/t (IDFCe Rs5699/t) was impacted by lower other product margins. Marketing inventory loss of Rs26.6bn (IDFCe loss Rs5.5bn).
- Gross debt grew +2x yoy to Rs646bn; Capex of Rs190bn in 9M, FY19 guidance of Rs230bn.
Key positives: Highest ever refinery thruput on better utilisation.
Key negatives: Weak refining metrics, debt ramp up
Impact on financials: We reduce our EPS by 23%/7.5% in FY19/20E revising TP to Rs150/sh. FY21E EPS of Rs19.4 introduced
Valuations & View
Volatile crude prices, softening GRMs and an uncertain political environment have driven a 15% underperformance of IOCL stock (last 6M) to the Sensex, but we see pain persisting for some time. Despite strong marketing margins (for retail fuels) we see the weakness in GRMs, slowing fuel consumption growth and rising debt (due to higher capex, higher payouts and the buyback) more than offsetting this strength. We do see FY21E earnings recovering from the low levels of FY19-20E, driven by an expected surge in diesel spreads (due to IMO regulations) and a gradual normalization in product demand and marketing margins, but submit that the near term concerns will weigh on the stock over the next 6-9mths. Return ratios for IOCL will also take a hit, with the weakness in earnings and hence cash flows coinciding with a period of very high capex and also high dividend payouts/buyback of shares (we see RoE/RoCE at 12.5/4.9% in FY21E vs 19.3/5.1% in FY18). Valuations of 6.9x FY21E EPS and 4.7 EV/E are well below 5 year averages but we believe given the uncertain visibility on earnings risk rewards still remains fairly balanced. Reiterate Neutral
Indian Oil is engaged in the sale of imported crude oil; and exploration of petrochemicals, and oil and gas. Co.'s products include liquefied petroleum gas, natural gas, petrol/gasoline, diesel/gas oil, aviation turbine fuel/jet fuel, lubricants and greases, marine fuels and lubricants, kerosene, bulk/industrial fuels, bitumen, petrochemicals, and crude oil. Co. also provides other products, which comprise benzene, carbon black feed stock, food grade hexane, jute batching oil, micro crystalline wax, mineral turpentine oil, paraffin wax, propylene, raw petroleum coke, sulphur, and toluene.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.