Leading Brokerage Firms Give 'Buy' Rating On This Large Cap PSU Stock

Two leading stock-broking firms Prabhudas Lilladher and Motilal Oswal have suggested investors to buy shares of State-owned Indian Oil Corporation Limited (IOCL). Both the brokerage firms see a potential return on the investment in the company - 43.68% and 21% respectively, which has handed out a final dividend of 30% for the financial year 2023.

Indian Oil is a large cap Central public sector undertaking (PSU) that operates in natural oil exploration and manages refineries. It was founded in 1959, with its headquarters in New Delhi.

IOCL reported a standalone EBIDTA/PAT of Rs 153.4 billion (Q3: Rs36bn) and Rs 100.6 billion (Q3: Rs4.5bn) led by strong refining margins of USD15.2/bbl. For FY23, EBIDTA/PAT was at Rs 222.5 billion (-48%YoY) and Rs 82.4 billion (-66%YoY) while consolidated EBIDTA/PAT was at Rs 307/117 billion respectively.

Motilal Oswal suggests target price of Rs 105 per share

As per Motilal Oswal's research note, the company is set to commission various projects over the next two years, driving further growth. Refinery projects, currently underway, are expected to be completed as follows: Panipat refinery (25mmtpa) by Sep'24, Gujarat refinery (18mmtpa) by Aug'23 and Baruni refinery (9mmtpa) by Apr'23, according to the earlier guidance.

In the refining segment, it throughout came in line with Motilal Oswal's estimate at 19.1mmt (up 5% YoY). However, Indian Oil is likely to be impacted the most among its peers by a decline in refining margin. "It trades at 7.1x consolidated FY24E EPS and 0.8x FY24E PBV. We value the stock at 0.9x FY25E P/BV to arrive at our target price of INR105. We reiterate our BUY rating on the stock," it said.

Prabhudas Lilladher sets a higher target price of Rs 125

However, Prabhudas Lilladher is more bullish in its estimation. It feels that Indian Oil has reported better-than-expected Q4 results. "We believe OMCs are well placed to benefit from improving marketing margins and healthy refining profitability. We maintain 'BUY' with a price target of Rs 125 based on EV/EBITDA of 5.5x FY24E (7x earlier) as earnings environment stabilises. Retain Buy," it added.

Dividend Announcement

Additionally, the company board, in its meeting held on May 16, has recommended a final dividend of 30% for the year 2022-23, i.e. Rs 3 per equity share of face value of Rs 10 each on the paid-up share capital.

It was notified through a securities exchange filing that the final dividend would be paid within 30 days from the date of the declaration at the annual general meeting. The record date for payment of the final dividend would be fixed and intimated in due course.

Share Price Movement

The latest market price of the PSU's scrip is Rs 87.24. It has decreased marginally by 0.30% on an intraday basis, at the time of writing this note. In the last one year, the share price rallied by 11.46% and in the past three years, it has grown by 82.82%.

Disclaimer

The stock has been picked up from the brokerage reports of Motilal Oswal and Prabhudas Lilladher. Greynium Information Technologies, the author and the brokerage firms are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.