Indian Oil rating – Hold: Inventory gain gave earnings a boost
Indian Oil Corporation’s (IOC’s) Q4FY21 recurring EPS is up 4x y-o-y driven by inventory gain vs loss, petrochemical Ebitda jump and fall in interest cost. FY21 recurring EPS is also up 4x y-o-y driven by same factors as in Q4 besides 37% y-o-y rise in auto fuel net marketing margin. We have raised FY22E EPS by 4% and TP by 5% to Rs 110 (3% upside) mainly on upgrade in petrochemical Ebitda to reflect the recent margin strength and outlook.
Net marketing margin is weak in FY22-TD at Rs 0.43/l. Rs 2.05-2.5/l price hike is required to boost it to Rs 2.5/l, which is our FY22 estimate. We are optimistic about future hikes given the government’s track record.
