Indian Oil Shares Decline After Q4 Results, But Valuation Seen Attractive

Analysts expect Indian Oil Corp. Ltd. to benefit most among peers as refining margin recovers in the ongoing fiscal.

The optimism comes even as the nation's largest oil retailer missed analysts' estimates in the quarter ended March.

Indian Oil Q4 FY22 (Consolidated, YoY)

• Net profit down 26.38% at Rs 6,645.72 crore (Bloomberg consensus estimate: Rs 8,246 crore)

• Revenue up 26.14% at Rs 2,09,049.16 crore (Estimate: Rs 1,52,000 crore)

• EBITDA down 0.47% at Rs 14,272.63 crore (Estimate: Rs 17,353.1 crore)

• EBITDA margin at 6.83% against 8.65%.

• Recommended issue of bonus shares in the ratio of 1:2

• Recommended final dividend of Rs 3.6 apiece. This is in addition to the interim dividend of Rs 9 apiece paid during the year by the company.

For the fiscal ended March 31, 2022, Indian Oil reported its highest ever revenue from operations and net profit.

Analysts termed Indian Oil's valuation as "attractive".

Shares of Indian Oil shed over 5%, the worst in more than 11 weeks, on Wednesday. Trading volume is nearly quadruple the 30-day average.

Of the 35 analysts tracking the company, 26 maintain a 'buy', seven suggest a 'hold' and two recommend a 'sell', according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 26.2%.

Here's what brokerages made of Indian Oil's Q4 FY22 results.

Emkay Global

• Maintains 'buy', cuts target price from Rs 155 to Rs 140—still an implied upside of 12.6%.

• EBITDA was in line, while PAT fell below estimates due to a surge in finance costs.

• Cuts FY23E EPS by 20%, lowering marketing margins ahead.

• Current oil price volatility has led to caution on pricing of auto fuel and LPG.

• Rise in distillate spreads amid Russia-Ukraine war has led to all-time high GRMs for OMCs like Indian Oil.

• Resumption of price hike in auto fuels remains a trigger for growth, besides the cool-off in oil prices.

• Indian Oil is best-placed for growth among OMCs due to its high 90% refining to marketing ratio.

• Indian Oil's valuations are reasonable and places it at the top of the pecking order among OMCs.

Motilal Oswal

• Reiterates 'buy', raises target price from Rs 152 to Rs 164—an implied upside of 32%.

• Rise in Singapore GRM, petchem margin aided by a spike in product prices bodes well for the firm.

• Raises FY23 EBITDA/EPS estimate by 22%/35% due to an upward revision in GRM assumption for Q1 FY23.

• Expects the firm to be benefit more among its peers from an uptick in refining margins.

• Expects petchem margin to remain robust in the near term.

Nirmal Bang

• Maintains 'buy', cuts target price from Rs 148 to Rs 144—an implied upside of 16%.

• Raises FY23E earnings estimates by 31.96% on higher GRMs, which will offset the subdued retail margin assumption.

• Cuts FY24E earnings estimates by 3.84% on an expected decline in GRMs due to the projected fall in oil prices.

• Expects city gas distribution projects to enhance value, over five to 10 years.

• Finds the company's valuation 'attractive'.