Stock corner: ‘Hold’ on Indian Oil Corp; target price at Rs 149

Indian Oil Corporation’s Q2FY20 consolidated and standalone recurring EPS is down 83-93% YoY, despite supernormal auto fuel marketing margin, hit by inventory loss vs gain last year and fall in GRM. H1FY20 standalone and consolidated recurring EPS is down 63% YoY. Q2FY20 and H1FY20 EPS would have been up sharply YoY if inventory loss/gain would have been excluded. We have cut IOC’s FY20 GRM estimate but raised auto fuel net marketing margin estimate to factor YTD trends. The net impact of this is cut in FY20E EPS by 4%. The new target price of Rs 149 implies 1% upside. How IOC’s GRM pans out driven by IMO would be key to its H2FY20 and FY21 earnings outlook. We downgrade IOC to ‘Hold’ from ‘Add’.

Q2FY20 standalone and consolidated EPS is down 83-93% YoY hit by inventory loss of Rs 11.8 bn compared to a gain of Rs 44.1 bn last year, 50% YoY fall in petrochemical Ebitda and 81% YoY fall in GRM to $1.28/bbl. Q2 GRM excluding impact of inventory at US$3/bbl is also down 15% YoY, which is disappointing unless it was hit by Euro VI compliance-related shutdowns.