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Leader of the pack…
Indian Oil Corporation (IOC), a leading PSU company in the oil & gas
sector in India, has business interests across the entire hydrocarbon
value chain including refining, pipelines, marketing, petrochemicals, E&P
activities, etc. It operates eight refineries with a total capacity of 51.2
mmtpa in FY10 and has ~46% share in marketing of petroleum
products in India. IOC’s recent capacity addition in petrochemicals
would provide stability to its earnings, going forward. We expect IOC to
report CAGR of 3.6% and 10.9% in revenues and net profits,
respectively, over FY11E-13E to | 3,45,064 crore and | 7,171.6 crore. We
recommend BUY rating on the stock with a price target of | 334.
Largest refiner in country
The IOC group is India’s largest integrated downstream player with the
largest refining capacity and product pipeline network. With the recent
expansion of the Panipat refinery from 12 mmtpa to 15 mmtpa, the
refining capacity of the IOC group has increased to 64.7 mmtpa while
IOC’s standalone capacity has increased to 54.2 mmtpa. We believe IOC
would be one of the major beneficiaries of the recent increase in refining
margins. We believe the increase in standalone crude oil throughput to
54.6 mmtpa in FY13E coupled with increase in refining margins from
US$5.6 per bbl in FY11E to US$6.4 per bbl in FY13E would increase the
profitability of the company. IOC is further augmenting its refining
capacity by setting up a 15 mmtpa refinery at Paradip at a project cost of
| 29777 crore, which would be complete by Q4FY13E.
Retail sales volume to increase at 4.4% CAGR over FY11-13E
We expect IOC’s retail sales volumes to increase from 67 mmtpa in FY11E
to 73 mmtpa in FY13E at 4.4% CAGR over FY11-13E. IOC’s earnings are
least sensitive to crude oil prices compared to its peers. This would
relatively protect the downside risk to the stock in the scenario of higher
crude oil prices. IOC’s recent capacity addition in the petrochemicals
segment would provide stability to its earnings, going forward.
Valuation
IOC is trading at 10.5x FY12E and 10.2x FY13E EPS of | 28.8 and | 29.5,
respectively. We are initiating coverage on the stock with BUY rating and
a price target of | 334 (valuation based on average of P/BV multiple: | 332
per share and P/E multiple: | 336 per share).
Investment Rationale
IOC, the leading PSU company in the oil & gas sector, has business
interests across the entire hydrocarbon value chain including refining,
pipelines, marketing, petrochemicals, E&P activities, etc. It operates
eight refineries with total capacity of 51.2 mmtpa in FY10 and has
~46% share in marketing of petroleum products in India. We believe
IOC would be one of the major beneficiaries of the recent increase in
refining margins. We expect refining margins to increase from US$5.6
per bbl in FY11E to US$6.4 per bbl in FY13E. IOC’s earnings are least
sensitive to crude oil prices compared to its peers. This would relatively
protect the downside risk to the stock in a scenario of higher crude oil
prices. IOC’s recent capacity addition in the petrochemical segment
would provide stability to its earnings, going forward. We expect IOC to
report CAGR of 3.6% and 10.9% in revenues and net profits,
respectively, over FY11E-13E to | 3,45,064 crore and | 7,171.6 crore. We
recommend BUY rating on the stock with price target of | 334.
Largest refiner in country
The IOC group is India’s largest integrated downstream player with the
largest refining capacity and product pipeline network. With the recent
expansion of the Panipat refinery from 12 mmtpa to 15 mmtpa, the
refining capacity of the IOC group has increased to 64.7 mmtpa while
IOC’s standalone capacity has increased to 54.2 mmtpa. We believe IOC
would be one of the major beneficiaries of the recent increase in refining
margins. We believe the increase in standalone crude oil throughput from
52 mmtpa in FY11E to 54.6 mmtpa in FY13E coupled with an increase in
refining margins from US$5.6 per bbl in FY11E to US$6.4 per bbl in FY13E
would increase the profitability of the company. IOC is further
augmenting its refining capacity by setting up a 15 mmtpa refinery at
Paradip at a project cost of | 29777 crore. It would be complete by
Q4FY13E. We expect the new refinery to be commercially operational
from Q1FY14E.
Valuation
IOC is trading at 10.5x FY12E and 10.2x FY13E EPS of | 28.8 and | 29.5,
respectively. We are initiating coverage on the stock with BUY rating and
a price target of | 334 (valuation based on average of P/BV multiple: | 332
per share and P/E multiple: | 336 per share).
IOC’s EPS would decrease from | 29.5 (Brent oil price: US$85 per bbl,
government share: 50%) to | 25.2 (government share: 54.5%) in FY13E if
crude oil prices sustain at US$100 per bbl. However, its EPS would
increase to | 42 per share in FY13E if crude oil prices decline to US$70
per bbl.
Exhibit 131: Valuation table
Valuation based on Price / BV Multiple
Adjusted Book Value for FY13E (|Crore) 55163.7
Adjusted number of shares (Crore) 239.9
Adjusted Book Value per share (|) 230.0
Add: Listed investments (25% discount to CMP) 71.9
Book Value of core business (| per share) 301.9
Multiple 1.10
Fair Value per share (|) 332
Valuation based on P / E multiple
Profit after tax for FY13E (| Crore) 7171.6
Less: Other Income adjusted for tax (| Crore) 1403.5
Adjusted profit after tax for FY13E (| Crore) 5768.1
Number of shares (Crore) 242.8
Adjusted EPS for FY13E (|) 23.8
Multiple 11.0
Fair value per share without investments (|) 261.3
Add: Value of Investments (| per share)
Listed investments (25% discount to CMP) 71.0
Other Investments 3.5
Fair value per share (|) 336
Weighted Target Price (| per share) 334
Source: ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Leader of the pack…
Indian Oil Corporation (IOC), a leading PSU company in the oil & gas
sector in India, has business interests across the entire hydrocarbon
value chain including refining, pipelines, marketing, petrochemicals, E&P
activities, etc. It operates eight refineries with a total capacity of 51.2
mmtpa in FY10 and has ~46% share in marketing of petroleum
products in India. IOC’s recent capacity addition in petrochemicals
would provide stability to its earnings, going forward. We expect IOC to
report CAGR of 3.6% and 10.9% in revenues and net profits,
respectively, over FY11E-13E to | 3,45,064 crore and | 7,171.6 crore. We
recommend BUY rating on the stock with a price target of | 334.
Largest refiner in country
The IOC group is India’s largest integrated downstream player with the
largest refining capacity and product pipeline network. With the recent
expansion of the Panipat refinery from 12 mmtpa to 15 mmtpa, the
refining capacity of the IOC group has increased to 64.7 mmtpa while
IOC’s standalone capacity has increased to 54.2 mmtpa. We believe IOC
would be one of the major beneficiaries of the recent increase in refining
margins. We believe the increase in standalone crude oil throughput to
54.6 mmtpa in FY13E coupled with increase in refining margins from
US$5.6 per bbl in FY11E to US$6.4 per bbl in FY13E would increase the
profitability of the company. IOC is further augmenting its refining
capacity by setting up a 15 mmtpa refinery at Paradip at a project cost of
| 29777 crore, which would be complete by Q4FY13E.
Retail sales volume to increase at 4.4% CAGR over FY11-13E
We expect IOC’s retail sales volumes to increase from 67 mmtpa in FY11E
to 73 mmtpa in FY13E at 4.4% CAGR over FY11-13E. IOC’s earnings are
least sensitive to crude oil prices compared to its peers. This would
relatively protect the downside risk to the stock in the scenario of higher
crude oil prices. IOC’s recent capacity addition in the petrochemicals
segment would provide stability to its earnings, going forward.
Valuation
IOC is trading at 10.5x FY12E and 10.2x FY13E EPS of | 28.8 and | 29.5,
respectively. We are initiating coverage on the stock with BUY rating and
a price target of | 334 (valuation based on average of P/BV multiple: | 332
per share and P/E multiple: | 336 per share).
Investment Rationale
IOC, the leading PSU company in the oil & gas sector, has business
interests across the entire hydrocarbon value chain including refining,
pipelines, marketing, petrochemicals, E&P activities, etc. It operates
eight refineries with total capacity of 51.2 mmtpa in FY10 and has
~46% share in marketing of petroleum products in India. We believe
IOC would be one of the major beneficiaries of the recent increase in
refining margins. We expect refining margins to increase from US$5.6
per bbl in FY11E to US$6.4 per bbl in FY13E. IOC’s earnings are least
sensitive to crude oil prices compared to its peers. This would relatively
protect the downside risk to the stock in a scenario of higher crude oil
prices. IOC’s recent capacity addition in the petrochemical segment
would provide stability to its earnings, going forward. We expect IOC to
report CAGR of 3.6% and 10.9% in revenues and net profits,
respectively, over FY11E-13E to | 3,45,064 crore and | 7,171.6 crore. We
recommend BUY rating on the stock with price target of | 334.
Largest refiner in country
The IOC group is India’s largest integrated downstream player with the
largest refining capacity and product pipeline network. With the recent
expansion of the Panipat refinery from 12 mmtpa to 15 mmtpa, the
refining capacity of the IOC group has increased to 64.7 mmtpa while
IOC’s standalone capacity has increased to 54.2 mmtpa. We believe IOC
would be one of the major beneficiaries of the recent increase in refining
margins. We believe the increase in standalone crude oil throughput from
52 mmtpa in FY11E to 54.6 mmtpa in FY13E coupled with an increase in
refining margins from US$5.6 per bbl in FY11E to US$6.4 per bbl in FY13E
would increase the profitability of the company. IOC is further
augmenting its refining capacity by setting up a 15 mmtpa refinery at
Paradip at a project cost of | 29777 crore. It would be complete by
Q4FY13E. We expect the new refinery to be commercially operational
from Q1FY14E.
Valuation
IOC is trading at 10.5x FY12E and 10.2x FY13E EPS of | 28.8 and | 29.5,
respectively. We are initiating coverage on the stock with BUY rating and
a price target of | 334 (valuation based on average of P/BV multiple: | 332
per share and P/E multiple: | 336 per share).
IOC’s EPS would decrease from | 29.5 (Brent oil price: US$85 per bbl,
government share: 50%) to | 25.2 (government share: 54.5%) in FY13E if
crude oil prices sustain at US$100 per bbl. However, its EPS would
increase to | 42 per share in FY13E if crude oil prices decline to US$70
per bbl.
Exhibit 131: Valuation table
Valuation based on Price / BV Multiple
Adjusted Book Value for FY13E (|Crore) 55163.7
Adjusted number of shares (Crore) 239.9
Adjusted Book Value per share (|) 230.0
Add: Listed investments (25% discount to CMP) 71.9
Book Value of core business (| per share) 301.9
Multiple 1.10
Fair Value per share (|) 332
Valuation based on P / E multiple
Profit after tax for FY13E (| Crore) 7171.6
Less: Other Income adjusted for tax (| Crore) 1403.5
Adjusted profit after tax for FY13E (| Crore) 5768.1
Number of shares (Crore) 242.8
Adjusted EPS for FY13E (|) 23.8
Multiple 11.0
Fair value per share without investments (|) 261.3
Add: Value of Investments (| per share)
Listed investments (25% discount to CMP) 71.0
Other Investments 3.5
Fair value per share (|) 336
Weighted Target Price (| per share) 334
Source: ICICIdirect.com Research
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