25 June 2020
4QFY20 Results Update | Sector: Oil & Gas
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TP: INR145 (+70%)
Best placed among OMCs – value discount to peers would shrink
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials & Valuations (INR b)
Adj. EPS (INR)
EPS Gr. (%)
Div. Yield (%)
FCF Yield (%)
800.7 / 10.8
158 / 71
IOCL reported higher-than-expected core GRMs, primarily due to discounts received
on crude during the quarter, in line with the GRMs of other Indian refiners.
After the plunge witnessed in crude prices for the quarter, prices recovered to
~USD40/bbl. We believe this would offer the company some relief in terms of
inventory gains going forward; however, the entire loss booked in 4QFY20 may
not be recovered. IOCL revalued inventory at ~USD36/bbl, which currently stands
For IOCL, the share of marketing in the total EBITDA increased to 32–40% over
FY19–20, from ~20% in FY17, offering a more diversified earnings mix. While
refining margins are dependent entirely on global macros, marketing margins are
more under the control of OMCs.
We continue to prefer IOCL despite the company having annual capex of ~INR260b
(the highest among OMCs); it is expected to report ~16% cumulative FCF yield in
FY21/FY22. Additionally, dividend yield appears attractive at 8–10%.
IOCL trades at 5.6x consol. FY21E EPS of INR15.1 (~42% discount to FY15–18) and
0.8x FY21E PBV (~11% discount to FY15–18). Reiterate Buy.
High inventory loss recorded…
The company posted huge inventory loss of INR185b (refining at INR162b
and marketing at INR23b) during the quarter. Adjusted EBITDA for inventory
stood at INR214.1b (v/s INR74.0b in 4QFY19 and INR50.3b in 3QFY20).
Reported EBITDA came in at INR29.3b and forex loss for the quarter was at
INR27.2b. Higher interest cost was offset by higher other income.
The company revalued its inventory at the end of the quarter and recorded
an exceptional item of INR113b (of which INR80b was refining and INR33b
was marketing); thus, PBT came in at loss of INR136.1b. IOCL stated that
total inventory loss of INR185b also includes revaluation loss.
IOCL has moved to a lower tax rate and re-measured its DTL. Reported PAT
stood at loss of INR51.9b.
Adj. PAT (for the exceptional item) came in at INR61.2b (v/s est. loss of
INR30.3b; gain of INR61b in 4QFY19 and INR23.4b in 3QFY20).
IOCL reported GRM at -USD9.6/bbl (below our est. of -USD5.5/bbl).
However, refining inventory loss translates to loss of ~USD17.8/bbl. Thus,
core GRM stood at USD8.2/bbl (v/s est. of USD2; USD1.4 in 4QFY19 and
USD2 in 3QFY20). Refining throughput for the quarter was in line with est. at
17.1mmt (-1% YoY, -2% QoQ). Refining EBITDA stood at a loss of INR124.5b
(v/s gains of INR12.1b in 4QFY19).
Marketing sales were 5% below est. at 19.2mmt (-7% YoY, -6%
QoQ), while the marketing margin came in at INR9.4/lit (+41% YoY, 2x QoQ).
Marketing EBITDA stood at gain of INR23.3b (v/s INR68.5b in 4QFY19).
Sales were flat YoY at 0.66mmt, while EBITDA/mt declined 54%
YoY to USD99/mt (-40% QoQ). This was weighed by margin contraction due
to demand destruction in an already oversupplied market. Petchem EBITDA
came in at INR4.8b (v/s INR10.1b in 4QFY19).
Shareholding pattern (%)
Mar-20 Dec-19 Mar-19
…thus, core GRM stands at USD8.2/bbl
FII Includes depository receipts
Swarnendu Bhushan- Research Analyst
(Swarnendu.Bhushan@MotilalOswal.com); +91 22 6129 1529
Sarfraz Bhimani - Research Analyst
(Sarfraz.Bhimani@MotilalOswal.com); +91 22 6129 1566
Investors are advised to refer through important disclosures made at the last page of the Research Report.
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