Indian Oil Corporation Share Drops As Net Profit Slips In Q4; Should You Invest?

Shares of Indian Oil Corporation Limited (IOC) slipped nearly 4 percent in the early trade on May 18 after it reported a 31.4 per cent drop in the fourth quarter (Q4) net profit on a margin squeeze in petrochemicals and losses on auto fuel sales. The state-run oil marketing company reported revenue of Rs 2,06,461 crore during the quarter under review, as compared to Rs 1,63,733 crore logged in the corresponding quarter of the previous financial year.

Standalone net profit of Rs 6,021.88 crore, or Rs 6.56 a share, in January-March, compared with Rs 8,781.30 crore, or Rs 9.56 per share, in the same period a year back, the company said in a stock exchange filing.

Sequentially, the profit was higher than Rs 5,860.80 crore in the previous quarter.

For the fiscal April 2021 to March 2022, IOC posted the highest-ever revenue by any Indian corporate at Rs 7.28 lakh crore or USD 96 billion (standalone). Consolidated revenue, after including earnings of subsidiaries like CPCL, came at Rs 7.36 lakh crore.

The Board of the company recommended the issue of bonus shares in the ratio of 1:2 — one new bonus equity share of Rs 10 each for every two existing equity shares.

It also declared a final dividend of Rs 3.60 per equity share (pre-bonus), which translates into a final dividend of Rs 2.40 per equity post-bonus for the financial year 2021-22.

The final dividend is in addition to the interim dividend of Rs 9.00 per share (pre-bonus) paid earlier.

Reflecting on the stellar operational performance of the company, IOC chairman S M Vaidya said, “This year, IndianOil has notched up the highest ever revenue from operations and as well as highest ever net profit.”

“This stellar achievement reflects our resolve to set new benchmarks of excellence even in the face of stiff challenges. This also validates our sustained focus on fuelling the socio-economic aspirations of new India,” he said.

Should You Buy, Hold or Sell?

Prabhudas Lilladher said: “We cut our FY23E IOCL’s earnings estimate by 45 per cent as we cut our marketing assumptions (diesel and petrol margins of –Rs3/0/litre vs +Rs3.5/3/litre earlier), even as we increase our GRM estimates to USD14/bbl vs USD7.4bbl earlier. We also lower our FY24E estimates by 19 per cent. We believe OMCs earnings will be hit by a sharp jump in marketing losses, despite improvement in refining profitability. We downgrade to ‘’HOLD from ‘BUY’ given high crude price volatility with a price target of Rs 131 (Rs 150 earlier). Any sharp correction in crude prices is an upside risk to our estimates.”
Yes Securities, said: “IOCL’s reported operating profit at Rs 118bn (-20% YoY +26% QoQ) stood below our (Rs145bn) but broadly in-line with consensus estimates (Rs 119.8 bn). The miss on our estimates stemmed primarily on higher than estimated operating expense, even as GRMs and gross marketing margins stood in-line. We have a BUY rating on IOCL with a TP of Rs 185/share.”

Motilal Oswal said: “It is likely to benefit the most among its peers from an uptick in refining margin, further supported by a robust petchem margin in the near term. We value the stock at 1x FY24E P/BV to arrive at our target price of Rs 164, an upside of 32 per cent. We maintain our Buy rating.”

Disclaimer: The views and investment tips by experts in this report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.

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