MOSL: IOC (Buy)-Adjusted EBITDA largely in-line; CP GRM at USD7.63/bbl

IOC: Adjusted EBITDA largely in-line; CP GRM at USD7.63/bbl

(IOCL IN, Mkt Cap USD29.2b, CMP INR416, TP INR533, 28% Upside, Buy)

IOCL’s adj. EBITDA declined 3% YoY (+1% QoQ) to INR69.6b, largely in line with our estimate of INR67.6b, primarily as the strong refining performance largely offset the impact of lower marketing margins. Reported PAT rose 97% YoY (+113% QoQ) to INR79b (est. of INR56b), led by higher other income of INR13.5b (est. of INR5.6b; +174% YoY, +130% QoQ). Other income was boosted by a forex gain of INR6.3b in 3QFY18 (v/s a loss of INR2.6b in 2QFY18 and a loss of INR3.1b in 3QFY17).

• Strong refining performance: IOCL reported CP (Current Price) GRM of USD7.63/bbl v/s SG GRM of USD7.3/bbl. However, the time difference in the calculation of RTP (Refinery Transfer Price) and inventory gain resulted in the difference in core GRM. Refining performance was boosted by (a) higher reported GRM of USD12.3/bbl (inventory gain of USD4.4/bbl; core GRM stood at USD7.9/bbl v/s est. of USD6.2/bbl) and (b) higher refinery throughput of 18.2mmt (v/s est. of 17.7mmt; +11% YoY; +13% QoQ). Refinery throughput was higher due to normalization of operations at the Panipat, Mathura, Gujarat and Barauni refineries. Paradip refinery operated at 94% utilization in 3QFY18.
• Poor marketing margins dampen marketing performance: While domestic sales of refined products rose 4% YoY (+10% QoQ) to 19.7mmt, subdued marketing margins dampened the marketing segment performance. Marketing inventory gains stood at INR25b v/s INR2.7b in 2QFY18 and INR9.7b in 3QFY17. Implied gross marketing margin/liter adjusted for inventory gain declined 26% YoY/QoQ.