Indian Oil Corp faces a slippery slope after weak Q4 results

Investors were disappointed that IOC’s standalone Ebitda fell arsenic overmuch arsenic 32% year-on-year successful the quarter, adjacent arsenic its gross was down conscionable 2.5%. Ebitda is net earlier interest, tax, depreciation and amortisation.

While the driblet successful profitability seems large, it is chiefly due to the fact that of inventory accounting — not an antithetic diagnostic for state-run Indian lipid selling companies (OMCs). However, the Street was broadly expecting IOC to spot an inventory summation past 4th acknowledgment to the steep sequential emergence successful lipid prices.

“IOCL amazingly reported a important interaction from crude inventory nonaccomplishment of ₹2,390 crore/$2.2 per tube successful Q4, contempt the crisp emergence successful end-of-period crude prices by $9.4 per barrel," said Hemang Khanna, expert astatine Nomura Financial Advisory and Securities (India) successful a study connected 1 May. For perspective, the brokerage had factored crude inventory gains of ₹1,400 crore/$1.3 per barrel. Accordingly, IOC’s reported gross refining borderline (GRM) successful Q4 came successful astatine $8.4 per barrel, missing analysts’ estimates.

Also read: OMCs recovered losses from 2-year frost connected substance rates with combined nett of ₹69,000 crore successful FY24

Moreover, IOC’s selling conception failed to compensate for the anemic showing by the refining business, starring to muted Q4 results. Even so, IOC’s FY24 show is thing to sneeze at, with standalone Ebitda rising by 212% year-on-year to ₹69,400 crore contempt halfway GRM dropping to $11.4 a tube during the twelvemonth from $20 successful FY23.

What gives? To commencement with, connected the profitability front, the institution had a favourable base. Secondly, the selling conception delivered a beardown performance. According to Nomura, FY24 Ebitda benefited from the betterment successful car substance selling margins to supernormal levels of ₹4.9 a litre versus a antagonistic ₹5.4 a litre successful FY23.

Investors person taken note. In the past twelvemonth IOC’s shares person gained astir 108%. But crisp upsides could good beryllium capped arsenic IOC faces near-term pressures successful some its cardinal segments. As analysts from Kotak Institutional Equities pointed out, Q1FY25 is acceptable to beryllium dismal for OMCs, fixed the crisp correction successful refining margins implicit past fewer weeks and the instrumentality of car substance under-recoveries since the caller terms chopped amid higher crude prices.

Meanwhile, the Ebit (earnings earlier involvement and tax) nonaccomplishment of IOC’s petrochemicals concern widened successful Q4FY24, wounded by little margins. But the concern is presently excessively tiny to determination the needle for the company, accounting for astir 3% of FY24 consolidated gross conception revenue.

Also read: Oil retailers hike ATF rates, slash commercialized LPG cylinder prices

IOC plans to treble its petrochemicals capableness by FY27. It has besides accrued its absorption connected different related businesses specified arsenic renewables. This would not lone derisk it from the fluctuation successful lipid prices but besides assistance its greenish push. Revenues from these person doubled betwixt FY22 and FY24 though their stock successful the full is inactive little than 5%.

Overall, IOC has capable currency and managed to little its nett indebtedness successful FY24, which should assistance with its diversification push. For now, investors should support tabs connected the resumption of regular revisions of petrol and diesel prices aft the wide elections. This should bring comfortableness connected selling margins.

Also read: India's lipid import measure could emergence to $101-104 cardinal successful FY25, says ICRA report