IOCL's Q3FY18 results (Outperformer) - A stellar quarter, helped by material inventory gains
Q3FY18 highlights
- IOCL Q3FY18 recurring PAT of Rs78.8bn (+97% yoy, IDFCe Rs44bn). The yoy growth/beat vs estimates driven by higher reported GRMs, thruput and higher marketing earnings (both normalised and including inventory). 9MFY18 EBITDA/PAT at Rs258.3bn/142.5bn.
- EBITDA of Rs132.7bn (+67% yoy, IDFCe Rs82.6bn) helped by inventory gains of Rs53.4bn in refining (US$6.2/bbl) and Rs9.6bn in marketing.
- Refining thruput of 18.2mt, up 11% yoy, helped by Paradip volumes at 3.5mt (94% utilisation). GRMs of US$12.3/bbl, with core margins (net of crude inventory and daily pricing lags) at US$7.4/bbl.
- Marketing volumes of 22.8mt grew 7% yoy, with domestic volumes growing 4% and export volumes growing 56%. Normalised marketing earnings of Rs74.5bn down 1% yoy. Blended margins of Rs3363/t, just 8% lower yoy despite petrol/diesel margins declining ~41% yoy, highlighting resilience of other product margins.
Key positives: 9FY18 core GRMs 1.6x of 9MFY17, growth in marketing, volumes, much lower than expected decline in marketing margins.
Key negatives: Paradip utilisation still shy of 100%, PPU unit yet to be commissioned petrol, diesel volume growth lower than industry.
Impact on financials: FY18/19/20E EPS estimates revised up 3/5.3/5% to factor better marketing margins, marginally higher GRMs. TP raised to Rs490/sh
Valuations & View
Despite the 8% underperformance to broader index in last 3mths, we remain positive. This quarter results highlight the growth in refining prowess, with distillate yield of 81% the highest ever reported by IOCL. Also, marketing segment earnings even excluding inventory were a surprise, with the 6% qoq decline in margins materially better than estimates. Going forward, with Paradip ramping up, refining performance will continue to improve over FY18-20E, while marketing volumes/margins are already showing signs of recovering from the Q1-Q2 slump. Valuations of 9.7x FY20E EPS/ 6.3x EV/E and 1.4x PBV underplay the 8% EPS CAGR over FY18-20E and the RoE/ROCE of the business at 15/14% by FY20E. Reiterate outperformer, with our TP implying ~18% upside from here.
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.
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