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Buy This Stock For Dividend Yield Of 7% & Decent Gains As Oil Prices Could Correct
Should oil prices fall, which is a high possibility after the Russia-Ukraine war, companies like Indian Oil should be big beneficiaries. In fact, all of the oil marketing companies should be beneficiaries. Emkay Global has a buy call on the stock of Indian Oil, for a nearly 16% upside on the stock from current levels.
Indian Oil: Net profits misses estimates
According to Emkay Global, Indian Oil posted posted Q4FY22 standalone EBITDA/APAT of Rs128.0bn/Rs61.5bn, up 36%/12% qoq. EBITDA which was in line. "While PAT missed our estimate by 10% as finance costs were 49% above expectation due to an increase in gross debt (up 8% yoy/25% qoq). Reported gross refining margins was USD18.5/bbl (vs. USD19.5 estimated), with core GRM at USD13.6/bbl (vs. USD10 est). Refinery utilization was healthy at 106% in Q4. Total marketing volume was largely in line, with domestic sales up 2.8% yoy vs. 3.1% for the industry," the brokerage has said.
Guidance
According to Ekay Global, Autofuel and LPG pricing is based on international prices, though current oil price volatility amid exceptional geopolitical concerns has led to a wait-and-watch policy. "As the Russia-Ukraine crisis abates, oil prices should correct. Mar'22-end saw a sequential jump in debt due to excise and other taxes to be paid, and it should normalize by the Jun'22 quarter. However, due to expansion projects, which are on track, overall debt would rise, but the debt equity ratio should be comfortable. Future capex would be similar to FY22 (Rs 285-290 bn)" Emkay has said in a report.
Indian Oil declares bonus issue as well
Emkay Global has valued Indian Oil on a SOTP basis with investments at a 30% holdco discount. "IOCL is at the top of our pecking order among oil marketing companies and we retain Buy on reasonable valuations and a 7% dividend yield," the firm has said. According to it, the key risks are adverse commodity/currency/polices and project issues.
The Board of the company has also has recommended issue of Bonus Shares in the ratio of 1:2 i.e. One new bonus equity share of Rs. 10/- each for every Two existing equity shares of Rs . 10/- each fully paid up subject to the approval of shareholders through postal ballot. The Board has recommended a final dividend of Rs. 3.60 per equity share having face value of Rs. 10/- each (pre-bonus), which translates into final dividend of Rs . 2.40 per equity share having face value of Rs. 10/- each (post-bonus) for financial year 2021-22, subject to the approval of the shareholders of the Company.
