IOC

Buy Indian Oil above Rs 282; target Rs 298

Indian Oil Corporation (IOC) had been consolidating in last few trading sessions above its 50-DMA and yesterday it managed to close above the medium term resistance of 100- DMA. Based on hourly chart, stock has signaled an upside breakout above Rs 280 and stock is likely to head towards Rs 300 in the near term. Adding to it RSI has given another positive crossover which affirms positive momentum in the short term. In fact, the last couple of sessions it represents a high level bullish congestion area with high volume activity between Rs 275-280. We advise buying IOC above Rs 282 with stop loss of Rs 274 for target of Rs 298.

Accumulate Indian Oil Corporation; target Rs 381

IOCL reported results which were below our estimates with EBIDTA loss at Rs 53.2 billion and Net loss at Rs 74.8 billion, however revenue grew by 15.3% to Rs 891.8 billion.

The direct market sale grew by 4.6% to 17.7mmt, while crude throughput increased by 7.5% to 13mmt YoY.

Average gross refining margin for Q2 FY12 was at USD -0.03/bbl as compared to USD 6.6/bbl YoY and USD 4.7/bbl QoQ.

Valuations:

Due to lower gross refining margin, forex loss and no budgetary support from the GOI, IOCL reported net loss during the quarter. There is still uncertainty hovering on subsidy sharing mechanism for FY12E under recovery, which remains the key overhang on the stock. At CMP of Rs 288 valuations look reasonable at 1x FY13E P/Bv. We maintain our Accumulate rating with PT of Rs 381.

Maintains `Accumulate` on IOC

IOCL reported results which were above our estimates at EBIDTA and PAT Level, primarily due to cash compensation received from the government during the quarter. Revenue for the quarter was at Rs 1,012 billion (against our expectation of Rs 923 billion), growth of 40.8% YoY, and mainly on account of higher volumes plus better realization. EBIDTA loss during the quarter was at Rs 18.6 billion, as against Rs 26.6 billion YoY. Interest cost increased by 81.7% to Rs 10.3 billion. During the quarter the company reported net loss of Rs 37.1 billion, against Rs 33.8 billion YoY, mainly attributable to higher under recovery lead by higher crude oil prices, inventory loss and increase in interest outgo. Direct market sales grew by 5% to 19.2 mmt, while crude throughput increased by 8.3% to 14.3 mmt YoY.

The company received upstream discount of Rs 79.3 billion, in respect of crude Oil/LPG/SKO purchased from upstream companies, which has been accounted during the quarter. The company has received budgetary support of Rs 82 billion from the GOI for the under-recovery of cooking fuel and auto fuel during the quarter.

No clarity on subsidy sharing mechanism for FY12E:

At the end of FY11 Government has announced subsidy sharing formula for FY11 and forced upstream companies to bear higher burden of 38.7% (Rs 301 billion) from 33.3% earlier. For the full year the government has provided 52.5% as cash compensation and balance was borne by the OMC`s. The gross under recovery for the quarter stood at Rs 238 billion. There is still uncertainty hovering on subsidy sharing mechanism for FY12E under recovery, which remains a key overhang on the stock.

Interest cost increased by 81.7% YoY to Rs 10.3 billion:

During the quarter, interest costs have increased significantly by 81.7% YoY to Rs 10.3 billion in tandem with increase in borrowings during the quarter. Currently, borrowing stood at around Rs 674 billion.

GRM was at USD 4.7 a bbl as against USD 7.85 a bbl on QoQ:

During the quarter company has reported inventory loss of Rs.9bn plus product spreads declined especially in light and mid distillate segment resulting in lower gross refining margin for the quarter. GRM was at USD 4.7/bbl as compared to USD 7.8/bbl declined by 39.8% QoQ (Increased by 57% YoY). We expect GRM`s to remain at same level in the coming quarters.

Valuations:

Due to lower gross refining margin and higher under recovery IOC reported net loss during the quarter. There is still uncertainty hovering on subsidy sharing mechanism for FY12E under recovery, which remains the key overhang on the stock. However at CMP of Rs 326 valuation looks reasonable at 1.1 FY13E P/BV. We maintain `Accumulate` rating on the stock with target price of Rs 381.

 

Buy Indian Oil Corporation

Indian Oil Corp (IOCL) reported a 1QFY12 EBITDA loss of INR24b (v/s our estimate of EBITDA of INR35b) mainly due to (1) lower government compensation of INR82b v/s our estimate of INR148b, (2) lower-than-expected GRM of USD4.7/bbl (v/s our estimate of USD8.5/bbl) due to inventory loss of USD2.4/bbl. This however, was partially offset by a product adventitious gain of INR14b due to price hikes in June. 1QFY12 net loss was INR37b v/s net loss of INR33.9b in 1QFY11 and PAT of INR39b in 4QFY11. IOCL did not provide for income tax due to loss at the PBT level. Given the ad hoc subsidy sharing we believe quarterly financials are not indicative of the likely full-year performance.

Of the gross under-recovery of INR238b in FY11, IOCL received INR79b from upstream as discounts on crude purchases and INR82b from the government as a cash subsidy resulting in a net burden of INR76.7b. For FY12 and FY13 we model upstream share at one-third, government share at ~55% and OMC share at 6-13%, enabling IOCL to report RoE of at least 10%. 1QFY12 GRM was USD4.7/bbl (against our estimate of USD8.5/bbl) against USD7.9/bbl in 4QFY11 and USD3/bbl in 1QFY11. GRM in 1QFY12 were impacted by inventory loss of USD2.4/bbl, led by an oil price drop of USD7/bbl in 1QFY12. The petrochemical division losses continued during the quarter and EBIT loss was INR4b partly due to a shutdown at a new cracker at Panipat. Comparative loss was at INR4.8b in 1QFY11 and INR1.7b in 4QFY11. IOCL expects the new cracker to stabilize in 3QFY12 and contribute from 4QFY12.

We model Brent oil price of USD107/95/90/85/bbl in FY12/FY13/FY14/long-term respectively. We expect the government to spell out a likely sustainable subsidy sharing formula over the coming period. Positive contribution from IOCL's petchem division will help IOCL to maintain its superior RoE compared with other OMCs. The stock trades at 9.5x FY12E EPS of INR34.4 and 1.3x FY12E BV. Valuations are reasonable with implied dividend yield of 3%. Maintain Buy.

Buy Indian Oil Corporation; target of Rs 340

Indian Oil Corporation (IOC) has been consolidating in ‘flag’ pattern with volumes contracting in the declines after hitting an intermediate top of Rs 342. Applying ‘Elliot Wave Principle’ to medium term price trend, it suggest that stock has completed its Wave 4 and currently into Wave 5 of minute degree. Any decline towards 327.5 should be considered as sub wave 2 within the impulse Wave 5 and price should there on rally towards Rs 350 in the near term. The Daily RSI is also been consolidating above the 50, indicating strength in the stock along with daily price taking support at 20 DMA. We advise buying stock in the range of Rs 326-327.5 with stop loss of Rs 322 for Target of Rs 338.5.

Buy IOC; target of Rs 350-370

A strong Bullish pattern formed in Indian Oil Corporation (IOC) as prices bounced back from channel support indicates that the ongoing consolidation is over and prices are ready to resume their uptrend towards the upper band of the channel at Rs 370. Further confluence of 55 and 21 DEMA at Rs 323 levels is also underpinning prices. Though the stock traded with a strong positive bias, it was still within the prior candle range thus forming an Inside day pattern; however the strong close indicates upward bias. A breach above yesterday high at Rs 334 would also lead to breach of the larger falling channel confirming positivity.

Daily momentum is turning from oversold zone and is about to give a positive crossover while the weekly momentum is in Buy Mode. In the larger picture, a probable inverse head and shoulder seems to be forming. A breach above neckline at Rs 342 would confirm the breakout for a target of Rs 400 levels. Buy IOC above Rs 334 for a target of Rs 350/370 with stop placed below Rs 320 on closing basis.

Short IOC April Future; target of Rs 309

On the daily chart, Indian Oil Corporation (IOC) is trading near the resistance line which coincides with its 100- DMA, suggesting that the likelihood of further upside over the short-term has diminished. For now, the risk/return of establishing long positions is less than ideal. IOC on several occasions since last week of March 2011 has ran into its 100-DMA line and fallen back, and yesterday it was another attempt to close above the important moving average. Moreover, appearance of falling tops signifies the bulls inability to form higher highs. Based on above mentioned technical evidences, we recommend traders to short IOC April Futures between Rs 320-322 with stop loss of Rs 326 for target of Rs 309.

Buy IOC; target of Rs 402

On Thursday, the stock advanced by ~2% suggesting continuation of an intermediate uptrend. Moreover, the swift movement in the stock over the last few trading sessions is backed by high volumes. The stock is trading comfortably above its 20-DMA and 50-DMA, coinciding at Rs367, which is likely to act as a crucial support on any decline. Moreover, it has broken out from the rounding bottom pattern, suggesting more upside from the current levels. The daily RSI is already in strong buy mode. A move past Rs383 could take the stock towards the levels of Rs 398-402 in the short-term. Keeping in mind the above-mentioned evidences, we recommend traders to buy the stock above Rs 383 with immediate stop loss of Rs 375 for target of Rs 402. Traders can add fresh long positions on a close above Rs 390,

Buy Indian Oil Corporation

Indian Oil Corporation reported EBITDA loss of Rs 29 billion in 1QFY11. We had estimated an EBITDA of Rs 25 billion. The large variation from our estimate was primarily due to no compensation from the government (v/s our estimate of Rs 68 billion compensation) in 1QFY11. Product inventory gain of Rs 5 billion and actual gross under-recoveries being Rs 10 billion lower than our estimate provided some cushion. Reported net loss for 1QFY11 was Rs 33.9 billion (v/s PAT of Rs 36.8 billion in 1QFY10 and Rs 55.6 billion in 4QFY10). We assume that OMCs will share 11% of gross under-recoveries in FY11 and FY12. The stock trades at 10.7x FY11E EPS of Rs 35 and 1.6x FY11E BV. We expect government to come out with a sustainable subsidy sharing formula. We expect stock to trade at higher valuations than recent past due to better earnings quality, higher RoCE and RoE, improvement in cash cycle, and lower debt levels. Maintain buy

Buy Indian Oil Corporation

IIndian Oil Corporation reported EBITDA of Rs 73 billion for 4QFY10 v/s our estimate of Rs 110 billion. The significant variation from our estimate was due to: (1) lower than estimated compensation from the government at Rs 81 billion (v/s our estimate of Rs 109 billion) (2) lower than estimated GRM at USD 3.4 per barrel (v/s our estimate of USD 5 per barrel), and (3) higher than estimated staff cost of Rs 19.5 billion (v/s our estimate of Rs 12.9 billion). PAT was Rs 55.6 billion (v/s our estimate of Rs 61.6 billion) - down 16% YoY and up 8x QoQ. We expect to get more clarity on retail fuel pricing and subsidy sharing post the government decision on the Kirit Parikh Committee recommendations. Any partial deregulation (petrol/ diesel) and subsidy rationalization will be positive for the stock in terms for earnings predictability and could result in re-rating. In our estimates, we model oil market companies to share 10% of the auto fuel under-recoveries in FY11. The stock trades at 10.3x FY11E EPS of Rs33.2 and 1.3x FY11E BV of Rs 256. Maintain Buy.

Accumulate IOC

Government move towards raising APM gas prices to align at market rates gives us the confidence of petroleum sector reforms. The EGoM meeting in early June 2010 is expected to be a step towards swifter decision on the reforms front. These moves from the government have rekindled our hopes of partial/full deregulation in the Oil & Gas sector benefiting the public sector undertakings (PSUs).

Buy IOC; target of Rs 330

IOC has seen impressive volume expansion in last few trading sessions and appears to have taken support between Rs300-301 range. It could bounce till somewhere between Rs 325-330 levels in the near term. Our argument is further validated after the stock recovered from its 200-day DMA in Fridays session with strong volumes. Any move above Rs310 could take the stock towards Rs325 and higher in the short-term. Traders are advised to maintain a stop loss of Rs300 and go long. Book partial profit around Rs 325 and exit around the levels of Rs 330, say

Hold IOC, target of Rs 591

At its current market price (CMP) of Rs 562.6, Indian Oil Corporation Limited trades at a forward P/E of 10.5x and 9.1x for FY10E and FY11E, respectively. We have revised our estimates to factor in the recent developments in the sector. However, we believe the stock is already trading at a premium and discounts most of the positive developments. Based on our valuation, we have arrived at a target fair value of Rs 591, which does not provide any significant upside potential from the CMP. Thus, we give a Hold rating to the stock.

Buy Indian Oil Corporation

IOCs reported GRM for 4QFY09 was USD 4.5/bbl (v/s our estimate of USD 4/bbl) as against USD 9.02/bbl in 4QFY08 and negative USD 2.1/bbl in 3QFY09. Throughput in 4QFY09 was 14.8mmt, up 20% YoY and 23% QoQ. The key issue to watch in the near term would be likely freeing of retail prices (the Petroleum Minister has indicated that the proposal to free retail prices will be submitted to the Cabinet Committee in 6-8 weeks). The stock trades at 11.2x FY10E EPS of Rs 54.2 and 1.4x FY10E BV of Rs 419. Buy, our target price is under review.