This Maharatna Company Gets 'Buy' Rating For Robust 41% Gains, Reported Strong GRM In 1QFY23

Motilal Oswal is bullish on Indian Oil Corporation Limited, a maharatna company. The brokerage recommends buy this stock of the company for a target price of Rs 100 apiece. The company reported an EBITA of 13.6b. In the refining segment, throughput came in at 18.9mmt that was broadly in line with the brokerage's estimate of an all-time high GRM. Indian Oil is likely to benefit the most among its peers from an uptick in refining margin, further supported by a robust near-term petchem margin. The stocks of the company have the potential to gain a 41% upside in 12 months, considering the estimated target price and the current market price of the stock.

Stock Outlook & Returns

The current market price of Indian Oil is Rs 71.15 apiece, it was opened at Rs 72.50, trading below 2.47% from Friday's, close of 72.95 apiece. As of now, the share is trading at Rs 3.45 above the 52-week low levels and Rs 23.18 below the 52-week high levels, respectively.

Its 52-week low was recorded on June 20, 2022, at Rs 67.70 apiece and its 52-week high was recorded on November 09, 2021, at Rs 94.33 apiece respectively. The PE ratio is 5.37. The P/B ratio is 0.75. TTM EPS is Rs 13.25. ROE is 18.79%. The dividend yield is 16.02% and the face value is Rs 10.

Over the years, the shares of the company have performed well and have given decent returns to shareholders given a positive return of 3.68%. However, in the long term the shares havr fallen. In the past 1 week, it declined nearly 1.11%, and 4.36% in past 1 month, respectively. In 3 years and 5 years, it has fallen nearly 21.91% and 42.24%, respectively.

GRM remains robust; refining throughput in line

Indian Oil's standalone EBITDA came in at Rs 13.6b (down 88% YoY) and it posted a loss of INR19.9b (v/s profit of Rs 60b in 4QFY22 and Rs 59b in 1QFY22). Utilization of high sulphur crude oil was 57.9% in 1QFY23 (v/s 61.2% in 4QFY22), with refinery capacity utilization rate at 108.4%. Indian Oil reported GRM of USD31.8/bbl (v/s our estimate of USD25.8/ bbl) with core GRM at USD25.3/bbl. Refinery throughput was largely in line at 18.9mmt. Gross marketing margin (including inventory) was negative Rs 7.6/liter in 1QFY23 (v/s Rs 2.3/liter in 4QFY22) with domestic sales of products at 21.3mmt. Petchem EBITDA/mt stood at USD199 (+19% QoQ, -51% YoY); Petchem sales volumes declined 2% YoY/17% QoQ to 0.64mmt.

Motilal Oswal Recommends buy for a target price of Rs 100 apiece

Indian Oil Corporation Limited is set to commission various projects over the next three years driving growth further. Refinery projects currently underway are expected to be completed as follows as per earlier guidance: Panipat refinery (to 25mmtpa) by Sep'24, Gujarat refinery (to 18mmtpa) by Aug'23 and Baruni refinery (to 9mmtpa) by Apr'23. Given the aggressive guidance of upcoming projects, we have assumed a capex of Rs 250b for FY23/24E with ROCE profile of 6-7%.

The brokerage SAID, "We expect dividend payout to be around similar levels of 51% for FY23-24 as well. The stock trades at 5.6x consol. FY24E EPS and 1.8x FY24E PBV. Indian Oil is likely to benefit the most among its peers from an uptick in refining margin, further supported by robust petchem margin in the near term. We value the stock at 2.5x FY24E P/BV to arrive at our target price of Rs 100. We maintain our BUY rating on the stock with 37% upside potential."

Indian Oil Corporation Limited

Indian Oil Corporation (IOC) is a Maharanta company. It is India's flagship national oil company and downstream petroleum major, was incorporated on June 30, 1959 as Indian Oil Company. It is a large cap oil 7 gas company with market capitalization of Rs 100,402 crore. The Indian Oil Group of companies owns and operates ten of India's 20 refineries with a combined refining capacity of 60.2 million metric tonnes per annum. These include two refineries of subsidiary Chennai Petroleum Corporation. The corporation's cross-country network of crude oil and product pipelines, spanning over 10,000 km and the largest in the country, meets the vital energy needs of the consumers in an efficient, economical and environment-friendly manner.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.