Indian Oil Corporation (IOCL) has exceeded market expectations in its third quarter for the current financial year, reporting an impressive earnings before interest, taxes, depreciation, and amortization (EBITDA) of Rs 15,500 crore. Analysts note a significant annual jump of 2.9 times, attributing the beat to a higher-than-expected Gross Refining Margin (GRM) at $13.5 per barrel (bbl), surpassing the estimated $10.2 per bbl. Additionally, the elevated marketing gross margin at Rs 4.5 per litre, compared to the estimated Rs 3.1 per litre, contributed to the outperformance.
GRM and Marketing Margin Surge:
According to Motilal Oswal, a major trading company, IOCL’s Q3 EBITDA performance was driven by an excellent GRM of $13.5/bbl, which exceeded the expected $10.2/bbl. The solid marketing gross margin of Rs 4.5/lit also exceeded the expected INR 3.1/litre.
Meanwhile, refining throughput rose at 18.5 million metric tonnes (mmt), in line with expectations and representing a 4% annual increase. Domestic sales volumes in the marketing sector surpassed estimates at 23.3 million tonnes, representing a 1% annual increase. Singapore GRM rose to $7.2/bbl in the December quarter, suggesting that refining performance might improve in the following quarter.
Although the petrochemical (petchem) business recorded an earnings before interest and tax (EBIT) loss of Rs 200 crore, petchem sales volumes increased by 80% year on year to 0.67 million tonnes. The brokerage company forecasts higher margins for Polyethylene (PE) and Polypropylene (PP) in the fourth quarter, which might lead to a rebound in the sector in the following quarter.
Projects in Pipeline:
IOCL plans to commission a number of projects over the next two years, which will contribute to further growth. Notable projects include the Panipat refinery (25 mmtpa by September 2024), the Gujarat refinery (18 mmtpa by August 2024), and the Baruni refinery (9 mmtpa by December 2024).
Motilal Oswal analysts retain their ‘Buy’ recommendation for the company, with a target price of Rs 165.
Furthermore, IOCL’s excellent December quarter performance, particularly in refining and marketing, demonstrated resilience in an uncertain market situation.
The company’s strategic initiatives and possible recovery in the petrochemical business are positive for its future prospects, but market dynamics and external variables may impact its trajectory in the next quarters. Meanwhile, the Mumbai-based brokerage said investors are still bullish about IOCL’s future prospects.
