India Oil Corporation Ltd (IOC) reported a less-than-expected Ebitda and profit figures for the March quarter on inventory losses, with gross refining margin (GRM) missing analyst estimates.
Prabhudas Lilladher said GRM as per its calculations came in at $8.4 per barrel, which was below its estimate of $12.3 per barrel. IOC's marketing gross margin (GM) as per PL's calculations came in at Rs 4.4 per litre against expectations of Rs 3.4 per litre. IOC's Ebitda fell 32 per cent YoY and missed consensus estimates by 33 per cent. This was led by weak refining and petchem partially offset by strong retail margins, said Nuvama Institution Equities.
This brokerage is building in near-term weak GRMs on likely weak demand but maintained its long-term "Golden refining era" thesis. IOC reported a negative chemical EBIT of Rs 400 crore on weak margins offset by 21 per cent YoY volume rise, Nuvama said.
Following recent surge in the IOC stock price, it believes high valuations now bake in strong earnings growth of past few quarters. Risk-reward is less favourable at current valuation, the brokerage said while retaining its 'REDUCE’ on the stock with an unchanged target price of Rs 151.
IOC shares, which are up 105 per cent in the past one year, closed at Rs 168.95 on Tuesday, down 4.44 per cent. Nuvama’s target price suggests a 11 per cent downside from this level.
Emkay Global values IOC on SOTP-EV/Ebitda -based methodology, with investments at a 30 per cent holdco discount. It attributed higher earnings to the marketing segment, while cutting refining profitability, besides factoring-in lower net debt in FY25. Emkay has rolled over its estimates to March 2026E and retained is blended target EV/Ebitda of 6.2 times to suggest a target price of Rs 180.
"Domestic sales grew 3 per cent YoY, while diesel was down 5 per cent. Petchem EBIT losses expanded due to weak deltas. Net debt grew 10 per cent QoQ, but bettering our estimate. Post-election cycle, we expect OMCs’ marketing business to improve as price action resumes, supporting healthy margins," Emkay said.
Nuvama said operating cash flow pre-WC grew 2 times in FY24. It said IOC shares are s currently trading at 7 times 2-year forward EV/Ebitda (above +1 SD), even above highly complex US refineries.
“We believe a couple of past strong quarterly performances has likely peaked (reflecting in current high valuation). Risk-reward thus appears less favourable (Irrationality prompts downgrade). We keep estimates unchanged," it said.
Nirmal Bang said it has maintained 'Sell 'on IOC based on the risk to earnings, which peaked in FY24, considering the 100 per cent rally in the stock YoY.
"We have cut our SOTP-based target price by 9 per cent to Rs 109 after raising Refining & Marketing EV/E from 4.0x to 4.5x and roll-over to FY26e – as we expect earnings to crash more than 50% in FY25E to near trough earnings before a retail lead rebound in FY26E. We expect IOC’s GRMs to revert lower to long term averages seen in the last seven years $6 per barrel," it said.