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Refinery throughput at 13.3 mmt; blended GRM at USD 6.3/bbl
Indian Oil Corporation (IOCL) reported highest ever refining throughput at 13.3
mmt in Q3FY11, up 9.8% Q-o-Q and 6.3% Y-o-Y. Quarterly blended GRM, at USD
6.3/bbl, was down 4.5% Q-o-Q (absence of inventory gains) but up 73.9% Y-o-Y
(increase in refining margins). Blended GRM for 9mFY11 stood at USD 5.3/bbl
against USD 4.8/bbl in 9mFY10. Pipeline throughput, at 17.1 mmt, was the highest
ever, up 9.9% Q-o-Q and 7.6% Y-o-Y. Consequently, pipeline EBITDA came in
higher at INR 8,630 mn (+12.2% Q-o-Q, +11.5% Y-o-Y).
Subsidy grant of INR 44.4 bn by GoI; net under-recovery at INR 13.3 bn
Domestic marketing sales for the quarter were highest ever at 17.3 mmt (+10.1%
Q-o-Q, +4.6% Y-o-Y) due to increase in Indian demand. IOCL’s marketing gross
under-recoveries for the quarter were at INR 86.6 bn (estimated INR 84.7 bn).
Government provided subsidy of INR 44.4 bn (assumed nil for Q3FY11) as partial
compensation for Q3FY11, while upstream firms provided discounts of INR 28.9 bn
(one-third of gross under-recoveries). Thus, net under-recovery for Q3FY11 stood
at INR 13.3 bn (15.4% of gross under-recovery) with the cumulative net underrecovery
in 9mFY11 at INR 57.2 bn (23.4% of 9m gross under-recoveries). With
provision of government subsidy, IOCL reported PAT of INR 16.3 bn.
Outlook and valuations: New SOTP at INR 424; maintain ‘HOLD’
We maintain our bearish stance on OMCs due to uncertainty regarding subsidy
sharing and diesel deregulation. We continue to believe that diesel de-regulation
may not happen in the near term due to upcoming assembly elections in certain
key states, which could increase OMCs’ under recoveries. Increasing diesel
spreads have led us to increase our FY11 and FY12 industry wide under-recovery
estimate to INR 690 bn and INR 820 bn, respectively. This has reduced our FY11
and FY12 earnings estimates for the company by 29.0% and 11.4%,
respectively. We have also cut our March 2012 SOTP by 4.7%, to INR 424/share
(445 earlier), due to the same. Though we have a positive stance on crude, we
continue to believe that earnings for OMCs will remain uncertain. Hence, despite
the fair value of IOC offering 36% upsides from current levels, we maintain our
‘HOLD/Sector Performer’ recommendation/rating on the stock. At INR 312,
IOCL is trading at 8.3x and 6.8x our FY11E and FY12E EV/EBITDA, respectively.
Refinery throughput at 13.3 mmt; blended GRM at USD 6.3/bbl
Indian Oil Corporation (IOCL) reported highest ever refining throughput at 13.3 mmt in
Q3FY11, up 9.8% Q-o-Q and 6.3% Y-o-Y. Quarterly blended GRM, at USD 6.3/bbl, was
down 4.5% Q-o-Q (absence of inventory gains) but up 73.9% Y-o-Y (increase in refining
margins). Blended GRM for 9mFY11 stood at USD 5.3/bbl against USD 4.8/bbl in 9mFY10.
Indian crude average for Q3FY11 was at USD 85.7/bbl, up 13.6% Q-o-Q and 13.5% Y-o-Y.
The INR appreciated 3.5% Q-o-Q and 3.8% Y-o-Y during the quarter; average USD/INR for
Q3FY11 was 44.86.
Marketing sales improve Q-o-Q with increase in demand
Domestic marketing sales for the quarter were highest ever at 17.3 mmt (+10.1% Q-o-Q,
+4.6% Y-o-Y) due to increase in Indian demand. Pipeline throughput, at 17.1 mmt, was
the highest ever, up 9.9% Q-o-Q and 7.6% Y-o-Y
Subsidy grant of INR 44.4 bn by GoI, net under-recovery at INR 13.3 bn
IOCL’s marketing gross under-recoveries for the quarter were at INR 86.6 bn (estimated
INR 84.7 bn). Government provided subsidy of INR 44.4 bn (assumed nil for Q3FY11) as
partial compensation for Q3FY11, while upstream firms provided discounts of INR 28.9 bn
(one-third of gross under-recoveries). Thus, net under-recovery for Q3FY11 stood at INR
13.3 bn (15.4% of gross under-recovery) with the cumulative net under-recovery in
9mFY11 at INR 57.2 bn (23.4% of 9m gross under-recoveries). With provision of
government subsidy, IOCL reported PAT of INR 16.3 bn.
Outlook and valuations: New SOTP at INR 424; maintain ‘HOLD’
We maintain our bearish stance on OMCs due to uncertainty regarding subsidy sharing and
diesel deregulation. We continue to believe that diesel de-regulation may not happen in the
near term due to upcoming assembly elections in certain key states, which could increase
OMCs’ under recoveries. Increasing diesel spreads have led us to increase our FY11 and
FY12 industry wide under-recovery estimate to INR 690 bn and INR 820 bn, respectively.
This has reduced our FY11 and FY12 earnings estimates for the company by 29.0% and
11.4%, respectively. We have also cut our March 2012 SOTP by 4.7%, to INR 424/share
(445 earlier), due to the same. Though we have a positive stance on crude, we continue to
believe that earnings for OMCs will remain uncertain. Hence, despite the fair value of IOC
offering 37% upsides from current levels, we maintain our ‘HOLD/Sector Performer’
recommendation/rating on the stock. At INR 312, IOCL is trading at 8.3x and 6.8x our
FY11E and FY12E EV/EBITDA, respectively.
Company Description
Indian Oil Corporation (IOCL) is a leading player in the Indian petroleum industry,
dominating refining (41% of the total refining capacity), marketing (47.7% of the total
marketing sales), and pipeline transportation (owns 71% of crude pipelines and 70% of
product pipelines). With its recent venture into E&P, gas, and petrochemicals, IOCL has a
presence across the industry chain.
Investment Theme
IOCL dictates the Indian petroleum infrastructure with a 40% share of refineries, 51%
share of retail outlets, and 70% share of pipelines. The company’s stable earnings from
pipelines cushion it from the overall downside risks in a high crude price scenario. IOCL
has refineries located in East India and North India. North India consumes 31% of total
sales and is deficit in petroleum product supplies, which provides IOCL an advantage,
since competitors rely on IOCL to supply products. IOCL is further strengthening its
position in North India through refinery expansion.
Key Risks
Increase in crude prices could increase under-recoveries for oil marketing companies,
including IOCL.
Any regulatory or policy change in the form of reduction in duty protection, decrease in
quantum of oil bonds, or retail price cut could impact IOCL’s earnings.
Competition from private players in auto fuel marketing could lead to reduction in market
share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Refinery throughput at 13.3 mmt; blended GRM at USD 6.3/bbl
Indian Oil Corporation (IOCL) reported highest ever refining throughput at 13.3
mmt in Q3FY11, up 9.8% Q-o-Q and 6.3% Y-o-Y. Quarterly blended GRM, at USD
6.3/bbl, was down 4.5% Q-o-Q (absence of inventory gains) but up 73.9% Y-o-Y
(increase in refining margins). Blended GRM for 9mFY11 stood at USD 5.3/bbl
against USD 4.8/bbl in 9mFY10. Pipeline throughput, at 17.1 mmt, was the highest
ever, up 9.9% Q-o-Q and 7.6% Y-o-Y. Consequently, pipeline EBITDA came in
higher at INR 8,630 mn (+12.2% Q-o-Q, +11.5% Y-o-Y).
Subsidy grant of INR 44.4 bn by GoI; net under-recovery at INR 13.3 bn
Domestic marketing sales for the quarter were highest ever at 17.3 mmt (+10.1%
Q-o-Q, +4.6% Y-o-Y) due to increase in Indian demand. IOCL’s marketing gross
under-recoveries for the quarter were at INR 86.6 bn (estimated INR 84.7 bn).
Government provided subsidy of INR 44.4 bn (assumed nil for Q3FY11) as partial
compensation for Q3FY11, while upstream firms provided discounts of INR 28.9 bn
(one-third of gross under-recoveries). Thus, net under-recovery for Q3FY11 stood
at INR 13.3 bn (15.4% of gross under-recovery) with the cumulative net underrecovery
in 9mFY11 at INR 57.2 bn (23.4% of 9m gross under-recoveries). With
provision of government subsidy, IOCL reported PAT of INR 16.3 bn.
Outlook and valuations: New SOTP at INR 424; maintain ‘HOLD’
We maintain our bearish stance on OMCs due to uncertainty regarding subsidy
sharing and diesel deregulation. We continue to believe that diesel de-regulation
may not happen in the near term due to upcoming assembly elections in certain
key states, which could increase OMCs’ under recoveries. Increasing diesel
spreads have led us to increase our FY11 and FY12 industry wide under-recovery
estimate to INR 690 bn and INR 820 bn, respectively. This has reduced our FY11
and FY12 earnings estimates for the company by 29.0% and 11.4%,
respectively. We have also cut our March 2012 SOTP by 4.7%, to INR 424/share
(445 earlier), due to the same. Though we have a positive stance on crude, we
continue to believe that earnings for OMCs will remain uncertain. Hence, despite
the fair value of IOC offering 36% upsides from current levels, we maintain our
‘HOLD/Sector Performer’ recommendation/rating on the stock. At INR 312,
IOCL is trading at 8.3x and 6.8x our FY11E and FY12E EV/EBITDA, respectively.
Refinery throughput at 13.3 mmt; blended GRM at USD 6.3/bbl
Indian Oil Corporation (IOCL) reported highest ever refining throughput at 13.3 mmt in
Q3FY11, up 9.8% Q-o-Q and 6.3% Y-o-Y. Quarterly blended GRM, at USD 6.3/bbl, was
down 4.5% Q-o-Q (absence of inventory gains) but up 73.9% Y-o-Y (increase in refining
margins). Blended GRM for 9mFY11 stood at USD 5.3/bbl against USD 4.8/bbl in 9mFY10.
Indian crude average for Q3FY11 was at USD 85.7/bbl, up 13.6% Q-o-Q and 13.5% Y-o-Y.
The INR appreciated 3.5% Q-o-Q and 3.8% Y-o-Y during the quarter; average USD/INR for
Q3FY11 was 44.86.
Marketing sales improve Q-o-Q with increase in demand
Domestic marketing sales for the quarter were highest ever at 17.3 mmt (+10.1% Q-o-Q,
+4.6% Y-o-Y) due to increase in Indian demand. Pipeline throughput, at 17.1 mmt, was
the highest ever, up 9.9% Q-o-Q and 7.6% Y-o-Y
Subsidy grant of INR 44.4 bn by GoI, net under-recovery at INR 13.3 bn
IOCL’s marketing gross under-recoveries for the quarter were at INR 86.6 bn (estimated
INR 84.7 bn). Government provided subsidy of INR 44.4 bn (assumed nil for Q3FY11) as
partial compensation for Q3FY11, while upstream firms provided discounts of INR 28.9 bn
(one-third of gross under-recoveries). Thus, net under-recovery for Q3FY11 stood at INR
13.3 bn (15.4% of gross under-recovery) with the cumulative net under-recovery in
9mFY11 at INR 57.2 bn (23.4% of 9m gross under-recoveries). With provision of
government subsidy, IOCL reported PAT of INR 16.3 bn.
Outlook and valuations: New SOTP at INR 424; maintain ‘HOLD’
We maintain our bearish stance on OMCs due to uncertainty regarding subsidy sharing and
diesel deregulation. We continue to believe that diesel de-regulation may not happen in the
near term due to upcoming assembly elections in certain key states, which could increase
OMCs’ under recoveries. Increasing diesel spreads have led us to increase our FY11 and
FY12 industry wide under-recovery estimate to INR 690 bn and INR 820 bn, respectively.
This has reduced our FY11 and FY12 earnings estimates for the company by 29.0% and
11.4%, respectively. We have also cut our March 2012 SOTP by 4.7%, to INR 424/share
(445 earlier), due to the same. Though we have a positive stance on crude, we continue to
believe that earnings for OMCs will remain uncertain. Hence, despite the fair value of IOC
offering 37% upsides from current levels, we maintain our ‘HOLD/Sector Performer’
recommendation/rating on the stock. At INR 312, IOCL is trading at 8.3x and 6.8x our
FY11E and FY12E EV/EBITDA, respectively.
Company Description
Indian Oil Corporation (IOCL) is a leading player in the Indian petroleum industry,
dominating refining (41% of the total refining capacity), marketing (47.7% of the total
marketing sales), and pipeline transportation (owns 71% of crude pipelines and 70% of
product pipelines). With its recent venture into E&P, gas, and petrochemicals, IOCL has a
presence across the industry chain.
Investment Theme
IOCL dictates the Indian petroleum infrastructure with a 40% share of refineries, 51%
share of retail outlets, and 70% share of pipelines. The company’s stable earnings from
pipelines cushion it from the overall downside risks in a high crude price scenario. IOCL
has refineries located in East India and North India. North India consumes 31% of total
sales and is deficit in petroleum product supplies, which provides IOCL an advantage,
since competitors rely on IOCL to supply products. IOCL is further strengthening its
position in North India through refinery expansion.
Key Risks
Increase in crude prices could increase under-recoveries for oil marketing companies,
including IOCL.
Any regulatory or policy change in the form of reduction in duty protection, decrease in
quantum of oil bonds, or retail price cut could impact IOCL’s earnings.
Competition from private players in auto fuel marketing could lead to reduction in market
share.
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