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Motilal Oswal
IOC (Buy)
Target: ₹152
CMP: ₹104.30
Indian Oil Corporation has reported a beat on EBITDA, driven by better-than-expected reported GRM ($10.6/bbl), marketing margins (₹6.1/lit), and petchem margins (EBITDA/mt of $419).
Lockdowns spurred by the second Covid wave in India have impacted demand for petroleum products - down 33 per cent/35 per cent for petrol/diesel in May’21 (v/s 2019); Refinery utilisation at about 84 per cent in May’21. Factoring in the same, we lower our FY22 EPS estimates by about 11 per cent weighed by the impact in Q1-FY22.
SG GRMs that have been trending above $2.5/bbl thus far in Q1-FY22 have fallen to sub $2/bbl levels – amid the emergence of Covid cases globally over the past few days.
In line with the company guidance, we believe the lifting of the COVID lockdowns across the globe would boost demand, driving an uptrend in GRM. We maintain Buy, with combined dividend yield of by about 15.3 per cent over FY22–23.
Indian Oil trades at 5.7x consol. FY23 EPS of Rs 18.3 and 0.8x FY23 PBV. IOC has traded at a huge discount in the recent past decade due to its capex cycle and CPSE-led liquidity. We value it at 1.1x FY23 PBV to arrive at target Price of ₹152.
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