Buy IOC between Rs 348.35 to Rs 340. Stoploss at Rs 326 :: HDFC Securities

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Disappoints due to high inventory losses… • IOC :: ICICI Securities, link

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Sizzling Stocks: Mindtree , Indian Oil Corporation:: Business Line

Technicals - Cipla, Arvind, Hindalco, Karur Vysya Bank, IOC:: Business Line

IOC Q4'12 and FY2012 results -Microsec

Buy Indian Oil Corporation (IOC); Target : Rs 350: ICICI Securities, pdf link

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G o v e r n m e n t   s u b s i d y   l e a d s   t o   p r o f i t s …
Indian Oil Corporation (IOCL) declared its Q3FY12 results with revenues at
| 115641.8 crore, EBITDA at | 11158.2 crore and PAT at | 2488.4 crore.
The results were above our estimates  mainly on account of additional
budgetary support from the government (total compensation of | 45000
crore for 9MFY12) and higher upstream share at 47.1% of gross underrecoveries. IOCL had net over recovery of | 7002.2 crore during Q3FY12.
We expect gross under-recoveries at ~| 1,39,534 crore and ~| 1,28,672
crore in FY12E and FY13E, respectively. We believe the government will
make sure that the OMCs report profits for FY12E. Hence, we assume net
under-recoveries for downstream companies at 6% in FY12E while
keeping it at 8.8% for FY13E. We estimate IOCL will report EPS of | 15.6
and |  34.0, respectively, in  FY12E  and  FY13E. We recommend a BUY
rating on the stock with a price target of | 350.

ƒ Highlights of the quarter
The crude oil throughput grew 6.8% YoY to 14.2 MMT whereas total
sales increased 6.4% YoY to 18.4 MMT. The gross refining margins
(GRMs) at US$4.3 per barrel in Q3FY12 grew sequentially on a QoQ
basis due to inventory gain. Interest costs grew 116.4% on a YoY
basis due to a delay in government compensation towards underrecovery, which led to increase in working capital loans. The
company has made provisions of | 6170 crore as per Supreme
Court’s interim order in a case against the UP government regarding
entry tax on crude brought into Mathura refinery.
V a l u a t i o n
The stock is trading at 20.5x FY12E  and 9.4x FY13E EPS of | 15.6 and
| 34.0, respectively. We recommend a  BUY rating on the stock and a
price target of | 350 (valuation based on average of P/BV multiple: | 328
per share and P/E multiple: | 372 per share).

Indian Oil Corporation (Rs 282.4): BUY ::Business Line

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We recommend a buy in the stock of Indian Oil Corporation from a short-term perspective. It is seen from the charts of the stock that its long-term downtrend that started from its September 2010 peak of Rs 458, found support at its long-term base level at Rs 250 in December 2011.

Triggered by prolonged positive divergence in weekly and daily moving average convergence divergence indicators, the stock changed its trend. Since then, the stock has been on a medium-term uptrend. Following a minor correction, the stock took support around Rs 270 recently and continued its up move.

On Thursday, the stock climbed 2.4 per cent strengthening the up move. We notice that there is an increase in volume over the past three trading sessions, supporting the stock's current up move. The stock is hovering slightly above its 21- and 50-day moving averages. The daily relative strength index has entered into the bullish zone and weekly RSI is inching higher in the neutral region. Both daily as well as weekly price rate of change indicators are hovering in the positive zone implying buying interest.

We are bullish on the stock from a short-term perspective. We expect its up move to continue further and touch our price target of Rs 290 or Rs 300 in the upcoming trading sessions. Traders with short-term perspective can consider buying the stock with stop-loss at Rs 275.

Indian Oil Corporation ( IOC) Buy ::Motilal oswal

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 IOCL reported EBITDA of INR107.2b for 3QFY12 (v/s our estimate of INR8.7b), primarily due to net overrecovery
of INR70b (v/s estimated net under-recovery of INR40.3b), led by higher government compensation.
 Adjusted PAT was INR86.6b v/s estimated loss of INR11.7b. Comparative PAT was INR16.3b in 3QFY11 and a loss
of INR74.9b in 2QFY12. IOCL reported a PAT of INR24.9b due to one-time provision of INR61.7b towards entry
tax for its Mathura refinery in UP. It made this provision as per Supreme Court directives for a stay on Allahabad
High Court's order, which had directed IOCL to pay the entry tax. The Supreme Court had agreed to give
conditional stay if IOCL deposits 50% of the liability and provides bank guarantee for the rest. However, the
actual amount to be provided will be known only after the Supreme Court's ongoing hearing.
 Given the ad-hoc subsidy sharing, we believe quarterly financials are not indicative of the likely full-year
performance. We now model OMCs' subsidy sharing at nil in FY12 (similar to FY09 v/s 2% earlier) and upstream
sharing at ~40%, with the rest being borne by the government.
 3QFY12 reported GRM stood at USD4.3/bbl v/s USD6.3/bbl in 3QFY11 and adj. GRM of USD2.8/bbl in 2QFY12.
IOCL has restated its 2QFY12 GRM to USD2.76/bbl (v/s reported USD0/bbl). The restatement is on account of
new PPAC directive to exclude exchange gain/(loss) on crude liabilities for the purpose of GRM calculation.
Valuation and view
 We model Brent oil price of USD112/100/95/90/bbl in FY12/FY13/FY14/long-term. For FY12/13, we model
upstream share at 40%/38.7% and OMCs' share at nil/9%, with the rest being borne by the government.
 We continue to believe that while reforms in the sector are extremely necessary over the long term, in the
near-term, price hikes are inevitable.
 The stock trades at 9.5x FY12E EPS of INR29.1 and 1.1x FY12E BV. Key things to watch (apart from subsidy
sharing) are positive contribution from its petchem division and GRM performance. Buy.

Q3FY12 Result update/Estimate change IOC:: Centrum

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Q3FY12 Result update/Estimate change

IOC    

Buy

Target Price: Rs372

CMP: Rs274

Upside: 29.2%

Provisioning dampens profitability for Q3

Like other OMCs, IOC also reported profits for Q3 but lower at Rs24.9bn due to provisioning for entry tax of Rs61.7bn. The company benefitted during the quarter due to expansion in petroleum product cracks (primarily naphtha and fuel oil) which led to average GRMs of US$4.3/bbl. The company received subsidies of Rs83.4bn and accounted for government compensation of Rs164.2bn during Q3. Sequentially, throughput and market sales also jumped 9.2% and 4.4% respectively.

m  Higher volumes and realisations lead to revenue jump: IOC reported 42.9% YoY and 29.7% QoQ rise in revenues at Rs1,156.4bn owing to higher volumes and high product prices (due to higher crude prices). Crude throughput jumped by 6.6% YoY and 9.2% QoQ to 14.2mmt while market sales were flattish YoY yet jumped 4.4% QoQ to 18.5mmt.

m  Provisioning for dispute over entry tax dampens profitability: IOC accounted for Rs164.2bn government compensation for Q3. Also, it received Rs83.4bn subsidies from the upstream.  Thus the company was partially compensated for the under-recoveries incurred in 9MFY12. Due to expansion in Naphtha and Fuel Oil cracks simple refiners benefitted during the quarter and hence IOC was also able to report healthy GRMs of US$4.3/bbl against US$2.8/bbl in Q2FY12. However, IOC made a provisioning of Rs61.7bn for the dispute over entry tax in the sate of Uttar Pradesh. Also, the company incurred forex loss of over Rs2.0bn which was partially offset by inventory gains of about Rs1.0bn. Provisioning along with some forex loss led to dampening of profitability for Q3. However, due to absorption of over Rs70.0bn of under-recoveries for 9MFY12, the company incurred a loss of Rs87.2bn during 9MFY12.

m  Petchem holds the key for IOC in medium term: IOC’s profitability for Q3 and 9MFY12 got impacted due to provisioning for dispute over entry tax. However, the company is on track with its capex plans and has incurred capex of over Rs100.5bn during 9MFY12. The company expects to attain 100% capacity utilisation by the end of FY12 and its benefit would be observed from FY13E onwards. We believe petchem remains a key catalyst for IOC incrementally. Although, we remain apprehensive about the petchem cycle in H1CY12, we are optimistic over petchem in the medium to long term and believe that the cycle’s upturn will be in H2CY12. We have changed our estimates for FY12E and FY13E marginally but maintain ‘Buy on the stock with a revised price target of Rs372 (earlier Rs365).

Thanks & Regards, 

Indian Oil Corporation -- The entry tax jolt:: Antique

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Key highlights
􀂄 IOCL lost UP entry tax case in Allahabad High court, liability of
INR84bn: Allahabad High Court has dismissed IOCL's petition and upheld the
UP Entry Tax Act 2007, whereby UP govt is entitled to levy an entry tax/octroi on
crude oil at 5% (USD5.5/bbl at current oil prices) for its Mathura refinery. IOCL
will have net liability of INR84bn (refer table on page 2) including last ten-year
demand with interest. Hon'ble Supreme Court while accepting the review petition
has asked IOCL to deposit 50% of the accrued tax liability (INR42bn) and furnish
bank guarantee for the balance within next few months. Hon'ble Supreme Court
has also asked IOCL to pay the tax at the prevailing rates for the future period till
the review petition is decided.
􀂄 Entry tax - an irrecoverable item for refiners, to make Mathura
refinery unviable: Entry tax has been an irrecoverable item for refiners and not
included as part of the refinery transfer price (RTP) as it is based on import parity
price and does not include local taxes. Entry tax burden of USD5.5/bbl is huge
with respect to average USD6.1/bbl GRMs made by Mathura refinery (8mmtpa)
during FY09-11 and an average net margin of USD3.9/bbl.
􀂄 Full price hike in marketing looks difficult, we expect 2.5% underrealisation:
IOCL will require MoP&NG approval (largely political clearance)
for raising prices on regulated products in UP to cover this additional tax. On nonregulated
products, IOCL will face the problem of substitution, as products imported
from nearby states will attract entry tax in UP, which can be fully set-off against
VAT. We believe that when Central Govt. itself is looking to raise prices of regulated
products, it would be very difficult for IOCL to separately raise price in UP to pass
through the entire entry tax leading to irrecoverable expense of ~2.5%.
􀂄 Impact on earnings: IOCL has to provide for this entire liability of INR84bn in
one go, wiping off FY12e earnings. Also payment of INR42bn in next few months
will increase interest liability by INR3.4bn in FY13e. Assuming 2.5% less pass
through, IOCL recurring EBITDA would be impacted by INR7.4bn annually (INR2.1/
sh post tax) on IOCL's recurring earnings.
Valuation and outlook
􀂄 Downgrade to HOLD: Considering Hon'ble SC doesn't reverse High Court
order, we have reduced our earnings for FY12-14e. We have revised our valuation
methodology and now value IOCL at an average of: i) FY12e 0.8x BV at INR174/
share; and ii) FY13e 10x EPS at INR200/share (FY13e revised EPS of INR20).
We value listed investments at INR80/share. We downgrade the stock to HOLD in
light of the above changes with a revised target price of INR267/share (earlier
INR314/share).

Buy Indian Oil Corporation (IOC) ::Motilal Oswal

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IOCL reported EBITDA loss of INR5.6b for 2QFY12 (v/s our estimate of positive EBITDA of INR52b) primarily due to (1) nil
government compensation v/s our estimate of INR79b, (2) negative GRM (-USD0.03/bbl v/s our estimate of USD6.8/bbl;
adjusted for forex loss, GRM was USD2.8/bbl), and (3) forex loss of INR23b. Net loss for the quarter was INR75b, v/s net
profit of INR53b in 2QFY11 and loss of INR37b in 1QFY12.
Net under-recovery sharing at 67% in 2QFY12, 44% in 1HFY12; model 4% in FY12
 Of the gross under-recovery of INR118b in 2QFY12, IOCL received INR39b from upstream as discounts on crude
purchases, but the government did not pay any compensation during the quarter. The net subsidy burden was
INR78b.
 For FY12, we model upstream share at 38.7%, government share at ~57% and OMCs' share at 4%.
Reported GRM negative; GRM adjusted for forex at USD2.8/bbl
 GRM for 2QFY12 was negative (-USD0.03/bbl v/s our estimate of USD6.8/bbl) as against USD6.6/bbl in 2QFY11 and
USD4.7/bbl in 1QFY12. IOC's reported GRM includes forex loss component on crude liability. Adjusting for the forex
loss of INR12.3b, GRM would be USD2.8/bbl. Further, the large underperformance v/s the regional benchmark Reuters
Singapore GRM (USD9.1/bbl in 2QFY12) in recent quarters is due to the difference in the product slate - IOCL is a
diesel-heavy refiner and cracks of diesel were down QoQ in 2QFY12.
Valuation and view
 We model Brent oil price of USD110/95/90/85/bbl for FY12/FY13/FY14/long-term in our estimates. Similar to earlier
years, we expect the government subsidy sharing to be finalized towards the end of the year.
 IOCL's petrochemical division reported positive EBIT of INR635m after continued losses for five quarters. Positive
contribution from this division would help IOCL to maintain its superior RoE compared with other OMCs.
 To account for the lower GRM in 2QFY12, we cut our consolidated EPS estimate for FY12 by 10% to INR30.7. The
stock trades at 9.4x FY12E consolidated EPS of INR30.7 and 1.1x FY12E BV. Valuations are reasonable; maintain
Buy.

Indian Oil Corporation: Weak results and weaker macro environment :: Kotak Sec

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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.

IOCL: ACCUMULATE Target Price: Rs 381 ::Emkay

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ACCUMULATE

CMP: Rs 288                                       Target Price: Rs 381

---

n     IOCL reported results which were below our estimates with EBIDTA loss at Rs.53.2bn and Net loss at Rs.74.8bn, however revenue grew by 15.3% to Rs.891.8bn

n     The direct market sale grew by 4.6% to 17.7mmt, while crude throughput increased by 7.5% to 13mmt YoY

n     Average gross refining margin for Q2 FY12 was at $-0.03/bbl as compared to $6.6/bbl YoY and $4.7/bbl QoQ

n     Valuations look reasonable at 1x FY13E ABV, maintain  ACCUMULATE rating with TP of Rs.381

Buy Indian Oil Corp; Target :Rs 376 ::ICICI Securities

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B e l o w   e s t i m a t e s   o n   l o w e r   s u b s i d y   p a y m e n t …
Indian Oil Corp (IOCL) declared its Q4FY11 results with revenues of |
101285.0 crore, EBITDA loss of | 1861.8 crore and net loss of | 3718.7
crore. The results were below our estimates mainly on account of lower
refining margins and higher net under-recoveries. The downstream
companies shared a higher net subsidy burden of 32.2% in Q1FY12
against 8.8% in FY11, which got reflected in the current quarterly results.
Refining margins stood at US$4.7 per barrel in Q1FY12, (40% QoQ
decline) that impacted the bottomline. We have maintained our Brent
crude oil prices estimates of US$100 per barrel, going forward. We have
assumed net under-recoveries for downstream companies at 8.8% in
FY12E and FY13E. We estimate IOC will report EPS of | 31.2 and | 37.2 in
FY12E and FY13E, respectively. We recommend a BUY rating on the
stock with a price target of | 376.
ƒ Highlights of the quarter
The crude oil throughput increased 7.8% YoY from 13.3 MMT in
Q1FY11 to 14.3 MMT in Q1FY12 mainly on account of higher
throughput from its Paradip refinery. The gross refining margins
(GRMs) decreased from US$7.9 per barrel in Q4FY11 to US$4.7 per
barrel in Q1FY12 on account of inventory loss (due to change in
customs duty structure) of $2.35 per barrel. The total market sales
increased 5.8% YoY from 17.2 MMT in Q1FY11 to 18.2 MMT in
Q1FY12. The net subsidy burden of 32.3% in Q1FY12 against 8.8%
in FY11 led to under-recoveries of | 7672.6 crore.
V a l u a t i o n
IOCL is trading at 10.3x FY12E and 8.6x FY13E EPS of | 31.2 and | 37.2,
respectively. We recommend the stock with a  BUY rating and a price
target of | 376 (valuation based on average of P/BV multiple: | 347 per
share and P/E multiple: | 405 per share).

Indian Oil Corporation: A loss in the quarter, but not to worry::Kotak Sec,

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Indian Oil Corporation (IOCL)
Energy
A loss in the quarter, but not to worry. IOCL reported 1QFY12 net loss of `37.2 bn
versus net income of `39 bn in 4QFY11; our estimated loss was `110 bn. The positive
variance despite lower-than-expected refining margins reflects government
compensation of `82 bn (nil assumed by us). We highlight that the quarterly results are
not indicative of the yearly earnings of the downstream companies as the government
compensation for the full year is decided only at the end of the year. We maintain our
ADD rating on the stock with a revised target price of `420 (`435 previously).


Net under-recovery results in loss of `37 bn in 1QFY12
IOCL reported 1QFY12 EBITDA (standalone) at –`18.6 bn versus `57.8 bn in 4QFY11 and –`26.7
bn in 1QFY11. The sharp qoq swing in EBITDA reflects (1) net under-recovery of `76.7 bn versus
over-recovery of `19.2 bn in 4QFY11 and (2) lower refining margins at US$4.7/bbl (-US$3.2/bbl
qoq). This was partly compensated by (1) lower staff cost at `11.7 bn (-52.3% qoq) and (2) lower
other expenditure at `40 bn (-30.4% qoq). 1QFY12 net income (standalone) was at –`37.2 bn
versus `39.1 bn in 4QFY11 and –`33.9 bn in 1QFY11.
Refining margins decline; domestic sales volumes increase 5.6% yoy
IOCL’s 1QFY12 refining margin declined sharply qoq to US$4.7/bbl versus US$7.9/bbl in 4QFY11
and US$3/bbl in 1QFY11; refining margin reflects an adventitious/inventory loss of US$2.35/bbl in
the quarter. 1QFY12 domestic sales volumes increased 5.6% yoy to 18.2 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. IOCL reported adventitious gain of `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. We see the recent decline
in crude oil prices as giving more confidence on this philosophy. Please see our note ‘Some relief
finally but it should last’ released on August 10, 2011 for the impact of decline in crude prices
on the investment thesis for the sector.
Revised earnings; stock offering good upside to current target price
We retain our ADD rating on the stock noting 29% upside to our revised target price of `420
(`435 previously) based on 10X FY2013E EPS plus value of investments. We have revised our
FY2012-14E EPS to `33.1 (+4.2%), `35.7 (-3.4%) and `40.9 (+3.3%) to reflect (1) 1QFY12
results, (2) higher crude prices, (3) revised exchange rate assumptions and (4) other minor changes.

Indian Oil : 1QFY12 results : CLSA

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1QFY12 results
IOC’s 1QFY12 net loss of Rs37.2bn was larger than our estimate. Weak
refining and petchem performance, a large inventory write-down in the
refinery, higher than estimated interest expenses and lower other income
were key drags. While decline in crude prices help the macro for all state
owned oil & gas stocks, we continue to prefer the upstream SOEs; the
R&Ms have larger EPS sensitivity to a change in subsidy sharing formula
while large crude price corrections may also predicate inventory losses.
Further, given declining return ratios, IOC’s 1.3x PB is unattractive. U-PF.
1QFY12 PAT came lower than our estimate
IOC’s 1QFY12 net loss of Rs37.2bn was larger than our estimate. Lower than
expected core GRMs (US$7.1/bbl cf. US$8.5/bbl), a large inventory writedown
(US$2.35/bbl impact on GRMs, Rs11bn) and poor petchem Ebit (loss of
Rs4.1bn, +144%QoQ) weighed on performance despite Rs14bn in product
inventory gains. Higher than expected interest costs (Rs10.4bn, +20%QoQ,
higher rates and debt) and lower interest income also pulled down profits.
Fall in crude to lower under-recovery but inventory losses will rise
Driven by rise in concerns around global growth and in turn oil demand, crude
prices have corrected by +10% in Aug-11. While this improves the macro for
all SOEs in India by cutting under-recoveries, refiners like IOC would also be
impacted by a rise in inventory losses. We continue to prefer upstream
stocks, therefore, over the downstream SOEs as a play on this theme.
Uncertainty on subsidy framework is a headwind
While upstream sharing reverted to one-third in 1QFY12 from 39% in FY11,
lower government support at 34.5% dragged IOC into losses. We model
government’s share at 55% for FY12 (downstream 11.7%) but note that this
framework will be uncertain till May-12. With a 1ppt change impacting FY12
EPS by 3%, IOC’s FY12 EPS will be indeterminable for another nine months.
Maintain U-PF; prefer upstream over downstream
As high capex will keep IOC FCF negative and pressure return ratios even in a
benign subsidy scenario, its 1.3x FY12 PB appears unattractive. Nonetheless,
decline in crude prices, possibility of a cap on subsidised LPG volumes or
newsflow around likelihood of formalisation of a subsidy sharing formula may
benefit all state owned oil & gas stocks. However, we would prefer to play
these through upstream names because of their higher historical stability and
lower earnings sensitivity to a change in the subsidy formula. Maintain U-PF.

Indian Oil -- High subsidy pushes bottomline into red :: Macquarie Research,

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Indian Oil
High subsidy pushes bottomline into red
Event
 IOCL announced a 1Q FY12 net loss of Rs37.2bn, which, when adjusted for
the limited subsidy reimbursement by the government, was ~10% below our
estimate due to mildly lower GRMs. First-quarter earnings for oil marketing
companies (OMCs) are typically the worst for the year (especially during high
crude prices regimes) due to large subsidy payouts being delayed by the
government; but they are not representative of earnings potential as subsidies
get finalized on an ad-hoc basis at year-end. We maintain our OP with a TP of
Rs412, and we recommend the stock as a cheap (1.3x FY12E P/BV)
countercyclical play in volatile, bearish market conditions.
Impact
 GRMs at US$4.7/bbl up 57% YoY; refinery volumes +7.7% YoY: High
product cracks (>US$15/bbl for gasoline and middle distillates diesel and jetkerosene)
kept GRMs healthy. However, they fell sharply QoQ due to a lack
of crude inventory gains that boosted GRMs in 4Q FY11.
 Upstream shared 33%, government 35%; net losses of Rs77bn for 1Q
FY12: The government allocated Rs82bn cash to IOCL (Rs150bn total to
OMCs), while upstream sharing reverted to the usual metric of 33% (from 38%
in 4Q FY11); hence, IOCL had net losses of Rs77bn for 1Q FY12. We expect
OMCs to share Rs80bn (7% of under-recoveries) in FY12 (Rs45bn by IOCL).
 Subsidy reduction to US$18bn possible through multiple drivers: The
increase in retail prices of petro products and duty cuts on auto-fuels and
crude in July have reduced FY12 under-recoveries by ~30% to US$26bn. A
recent sharp fall in crude prices of ~11% (Fig 10) has slashed diesel underrecoveries
to almost nil, while gasoline has entered over-recovery (Fig 7). At
the current run rate, we think FY12 under-recoveries could fall to ~US$18bn.
 Intensification on proposals for structural shift away from subsidy:
Political consensus is being built regarding reducing the quantum (through
limiting subsidised cylinders to 4-6/year) and ambit (through targeting them at
income groups above Rs0.6m/year) of the LPG subsidy and moving to a
cash-based subsidy transfer, possibly by 2012. Dual-pricing of diesel is
another proposal to curtail subsidies for passenger cars. All these measures
not only alleviate the burden on OMCs’ incomes, but also reduce the linked
working capital (and hence interest costs).
Earnings and target price revision
 No significant change to earnings. TP maintained at Rs412.
Price catalyst
 12-month price target: Rs412.00 based on a Sum of Parts methodology.
 Catalyst: A further decline in crude prices, subsidy reforms.
Action and recommendation
 We continue to believe that oil marketing companies offer a safe haven in
falling markets. With global macro-uncertainties looming large and crude
prices cooling on the back of that, OMCs provide an Indian domestic
consumption-linked investment avenue that is inversely correlated to falling
markets and crude.

Indian Oil Corporation – 1Q12 disappoints due to lower GRMs ::RBS

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1QFY12 PAT was substantially below our subsidy adjusted estimates primarily due to lower than
expected GRMs. Petchem business continued to report losses which we believe could be due to
a slow ramp up in petchem volumes.


􀀟 IOC reported a loss of Rs24.2bn at EBITDA level in 1QFY12 compared to our subsidy
adjusted loss estimate of Rs10.6bn. The disappointment was primarily due to lower than
expected GRMs and higher operational costs even though this was partly offset by higher
than expected product inventory gains.
􀀟 While refining throughput of 14.3mt (+7.7%yoy, +0.5% qoq) was in line with our estimates,
GRMs of US$4.71/bbl (US$7.85/bbl in 4QFY11) were significantly below our expectations of
US$8.2/bbl. The management stated that the reported GRMs include crude inventory loss of
US$2.35/bbl resulting out of fall in crude prices and scrapping of the customs duty on crude.
Note on June 25 2011, government of India (GOI) removed the 5% customs duty on crude
while Brent was down 4.8% qoq in 1QFY12. Product inventory gains for IOCL during the
quarter were Rs14mn compared to our estimate of Rs2bn and loss of Rs2.6bn in the
immediately preceding quarter
􀀟 During the quarter, IOC has accounted for Rs82bn as GOI contribution towards gross retail
under recoveries which was disclosed some days back. The net under recoveries for IOC in
1QFY12 were Rs76.7bn or 32.2% share in gross under recoveries.
􀀟 The petchem business continues to disappoint with yet another quarter of losses. In 1QFY12,
petchem segment reported a EBIT loss of Rs4.1bn compared to loss of Rs1.7bn in 4QFY11
and loss of Rs17bn in FY11. We believe the continued disappointment is due to slower than
expected ramp up in petchem volumes.
􀀟 The company reported net loss of Rs37.2bn in 1QFY12 vs our subsidy adjusted estimate of
Rs19.3bn reflecting the underperformance at EBITDA level.

Indian Oil Corporation - Results above estimates ACCUMULATE ::Emkay

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Indian Oil Corporation

Results above estimates

ACCUMULATE

CMP: Rs 326                                       Target Price: Rs 381

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n     IOCL reported results which were above our estimates with EBIDTA loss at Rs.18.6bn and Net loss at Rs.37.1bn, revenue grew by 40.8% to Rs.1012bn

n     Direct market sale grew by 5% to 19.2mmt, while crude throughput increased by 8.3% to 14.3mmt YoY

n     Average gross refining margin for Q1 FY12 was at $4.7/bbl as compared to $3/bbl, growth of 57% YoY. However GRM declined by 39.8% sequentially

n     Valuations look reasonable at 1.1x FY13E ABV, maintain  ACCUMULATE rating with TP of Rs.381

Indian Oil Corporation expects to receive Rs.110bn remaining cash compensation ::Emkay

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Indian Oil Corporation expects to receive Rs.110bn remaining cash compensation from the government

State-run Indian Oil Corporation expects to receive Rs.110bn remaining cash compensation from the government by June-end for incurring revenue losses on selling diesel , kerosene and cooking gas at controlled rates in 2010-11 . Company got a letter from the government stating their commitment to compensate against revenue loss. The actual cash transfer of Rs.110bn is expecting in the next 2-3 weeks, latest by June end. Last month, the government had agreed to provide Rs.200bn as full and final settlement for 2010-11. Of this Rs.110.bn was the share of IOC, while BPCL had to get Rs 45.9bn and HPCL, Rs 43.8bn.

OMC's continue to sell diesel, domestic LPG and kerosene at government ruled prices. At present, OMCs are losing around Rs.18/litre on diesel, Rs.30/litre on kerosene and Rs.330/cylinder of LPG. For FY11, OMC’s lost Rs343.8bn on sale of diesel, Rs.195.6bn on Kerosene and Rs.220.3bn on sale of LPG.

OMC’s are trading at 0.8-1.2x 1-year forward P/BV, which is below the 5-year average of 1.5x, valuation looks attractive at current level. We maintain our Buy rating on HPCL and Accumulate rating on BPCL and IOCL.