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Indian Oil Corporation (IOCL)
Energy
Weak results and weaker macro environment. IOCL reported 2QFY12 net loss
(standalone) of `74.9 bn versus net loss of `37.2 bn in 1QFY12; our estimated loss was
`79.6 bn. We note that the quarterly results are not comparable given the fluctuation in
net under-recoveries due to timing and quantum of government compensation. We
have suspended ratings for the downstream oil companies given our inability to build
an investment thesis in the current uncertain macro environment led by government
inaction to tackle the burgeoning subsidy burden.
Results marred by net under-recovery and foreign exchange losses
IOCL reported 2QFY12 EBITDA (standalone) at –`53.2 bn versus –`18.6 bn in 1QFY12 and `68.9
bn in 2QFY11. The sharp qoq swing in EBITDA despite stable net under-recovery at `78.4 bn
(+2.1% qoq) reflects (1) refining margins at –US$0.03/bbl versus US$4.7/bbl in 1QFY12, (2) lower
crude throughput at 13 mn tons (-8.8% qoq) and (3) exchange fluctuation loss of `23.3 bn versus
modest gain of `250 mn in 1QFY12. 2QFY12 net income (standalone) was at –`74.9 bn versus –
`37.2 bn in 1QFY12 and `52.9 bn in 2QFY11.
Refining margins decline sharply; domestic sales volumes increase 4.8% yoy
IOCL’s 2QFY12 refining margin declined sharply qoq to –US$0.03/bbl versus US$4.7/bbl in
1QFY12 and US$6.6/bbl in 2QFY11. We note that reported refining margins in the current quarter
include (1) adventitious/inventory loss of US$2.3/bbl and (2) exchange fluctuation loss of `12.3 bn.
2QFY12 domestic sales volumes increased 4.8% yoy to 16.4 mn tons. The yoy growth in sales was
led by strong growth in gasoline, LPG and ATF sales which was partially offset by decline in sales
of fuel oil and naphtha. The company reported adventitious gain of `9.9 bn in 2QFY12 versus `14
bn in 1QFY12 for its marketing segment.
Not much to look into quarterly results; earnings will depend on what the government will allow
We do not attach much significance to quarterly results given quarterly earnings for downstream
companies depend significantly on the net under-recovery which, in turn, is dependent on
compensation from the government. We assume that the government will ensure profits of the
downstream oil companies at a certain ‘minimum’ level as there is no other basis to forecast
earnings of the downstream oil companies in the current environment. Please see our note
‘Between a rock and a hard place’ for a more detailed explanation on our investment thesis on
downstream companies.
Revised earnings
We have revised our FY2012-14E EPS to `16 (-43.5%), `33 (+2.9%) and `37.7 (+2.9%) to reflect
(1) lower refining margins, (2) revised exchange rate assumptions, (3) 2QFY12 results and (4) other
minor changes. Key downside risk stems from higher-than-expected net under-recoveries.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Oil Corporation (IOCL)
Energy
Weak results and weaker macro environment. IOCL reported 2QFY12 net loss
(standalone) of `74.9 bn versus net loss of `37.2 bn in 1QFY12; our estimated loss was
`79.6 bn. We note that the quarterly results are not comparable given the fluctuation in
net under-recoveries due to timing and quantum of government compensation. We
have suspended ratings for the downstream oil companies given our inability to build
an investment thesis in the current uncertain macro environment led by government
inaction to tackle the burgeoning subsidy burden.
Results marred by net under-recovery and foreign exchange losses
IOCL reported 2QFY12 EBITDA (standalone) at –`53.2 bn versus –`18.6 bn in 1QFY12 and `68.9
bn in 2QFY11. The sharp qoq swing in EBITDA despite stable net under-recovery at `78.4 bn
(+2.1% qoq) reflects (1) refining margins at –US$0.03/bbl versus US$4.7/bbl in 1QFY12, (2) lower
crude throughput at 13 mn tons (-8.8% qoq) and (3) exchange fluctuation loss of `23.3 bn versus
modest gain of `250 mn in 1QFY12. 2QFY12 net income (standalone) was at –`74.9 bn versus –
`37.2 bn in 1QFY12 and `52.9 bn in 2QFY11.
Refining margins decline sharply; domestic sales volumes increase 4.8% yoy
IOCL’s 2QFY12 refining margin declined sharply qoq to –US$0.03/bbl versus US$4.7/bbl in
1QFY12 and US$6.6/bbl in 2QFY11. We note that reported refining margins in the current quarter
include (1) adventitious/inventory loss of US$2.3/bbl and (2) exchange fluctuation loss of `12.3 bn.
2QFY12 domestic sales volumes increased 4.8% yoy to 16.4 mn tons. The yoy growth in sales was
led by strong growth in gasoline, LPG and ATF sales which was partially offset by decline in sales
of fuel oil and naphtha. The company reported adventitious gain of `9.9 bn in 2QFY12 versus `14
bn in 1QFY12 for its marketing segment.
Not much to look into quarterly results; earnings will depend on what the government will allow
We do not attach much significance to quarterly results given quarterly earnings for downstream
companies depend significantly on the net under-recovery which, in turn, is dependent on
compensation from the government. We assume that the government will ensure profits of the
downstream oil companies at a certain ‘minimum’ level as there is no other basis to forecast
earnings of the downstream oil companies in the current environment. Please see our note
‘Between a rock and a hard place’ for a more detailed explanation on our investment thesis on
downstream companies.
Revised earnings
We have revised our FY2012-14E EPS to `16 (-43.5%), `33 (+2.9%) and `37.7 (+2.9%) to reflect
(1) lower refining margins, (2) revised exchange rate assumptions, (3) 2QFY12 results and (4) other
minor changes. Key downside risk stems from higher-than-expected net under-recoveries.
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