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MOSL: IOCL (Buy)-Marketing margins continue to supplement GRMs

IOCL: Marketing margins continue to supplement GRMs

(IOCL IN, Mkt Cap USD15b, CMP INR113, TP INR176, 55% Upside, Buy)

 

• IOC reported higher-than-expected core GRMs, led by lower FO yield in its product slate. However, we have cut our FY20 EPS by 8% to factor in the soft GRMs, expected shutdowns for BS-VI up-gradation, the lack of improvement in diesel cracks ahead of IMO and continued weakness in petchem margins.
• Marketing segment of the company continues to do well with reported marketing margins at INR4.8/liter in 3QFY20.
• IOC also provides a more diversified earnings mix, with its EBITDA share of refining shrinking from ~40-50% in FY17-18 to ~24% in FY19. Simultaneously, share of marketing EBITDA increased from ~20% in FY17-18 to ~43% in FY19.
• We prefer IOCL among the OMCs based on higher cumulative FCFF over FY20-22 and discounted current valuations. 

Better-than-expected GRMs lead to beat on core earnings

• Reported EBITDA was higher than our estimate at INR68.3b (v/s INR15.3b in 3QFY19). Total inventory gain stood at INR18b (refining clocked gain of INR19.1b, while marketing clocked loss of INR1.1b).
• Adjusted for inventory and one-offs, EBITDA was 15% higher than est. at INR50.3b (v/s INR122.7b in 3QFY19).
• Forex loss for the quarter was at INR1.8b, which resulted in PBT of INR37.2b.
• PAT came in at INR23.4b (v/s INR7.2b in 3QFY19) with 37.2% tax rate.
• For 9MFY20, reported EBITDA was lower by 22% YoY at INR198b, while PAT was down 40% YoY to INR65b. Total inventory gain was at INR12.3b v/s INR16.4b in 9MFY19. Adj. EBITDA was down 27% YoY to INR173.1b.