IOCL reported EBITDA loss of INR5.6b for 2QFY12 (v/s our estimate of positive EBITDA of INR52b) primarily due to (1) nil
government compensation v/s our estimate of INR79b, (2) negative GRM (-USD0.03/bbl v/s our estimate of USD6.8/bbl;
adjusted for forex loss, GRM was USD2.8/bbl), and (3) forex loss of INR23b. Net loss for the quarter was INR75b, v/s net
profit of INR53b in 2QFY11 and loss of INR37b in 1QFY12.
Net under-recovery sharing at 67% in 2QFY12, 44% in 1HFY12; model 4% in FY12
Of the gross under-recovery of INR118b in 2QFY12, IOCL received INR39b from upstream as discounts on crude
purchases, but the government did not pay any compensation during the quarter. The net subsidy burden was
INR78b.
For FY12, we model upstream share at 38.7%, government share at ~57% and OMCs' share at 4%.
Reported GRM negative; GRM adjusted for forex at USD2.8/bbl
GRM for 2QFY12 was negative (-USD0.03/bbl v/s our estimate of USD6.8/bbl) as against USD6.6/bbl in 2QFY11 and
USD4.7/bbl in 1QFY12. IOC's reported GRM includes forex loss component on crude liability. Adjusting for the forex
loss of INR12.3b, GRM would be USD2.8/bbl. Further, the large underperformance v/s the regional benchmark Reuters
Singapore GRM (USD9.1/bbl in 2QFY12) in recent quarters is due to the difference in the product slate - IOCL is a
diesel-heavy refiner and cracks of diesel were down QoQ in 2QFY12.
Valuation and view
We model Brent oil price of USD110/95/90/85/bbl for FY12/FY13/FY14/long-term in our estimates. Similar to earlier
years, we expect the government subsidy sharing to be finalized towards the end of the year.
IOCL's petrochemical division reported positive EBIT of INR635m after continued losses for five quarters. Positive
contribution from this division would help IOCL to maintain its superior RoE compared with other OMCs.
To account for the lower GRM in 2QFY12, we cut our consolidated EPS estimate for FY12 by 10% to INR30.7. The
stock trades at 9.4x FY12E consolidated EPS of INR30.7 and 1.1x FY12E BV. Valuations are reasonable; maintain Buy
government compensation v/s our estimate of INR79b, (2) negative GRM (-USD0.03/bbl v/s our estimate of USD6.8/bbl;
adjusted for forex loss, GRM was USD2.8/bbl), and (3) forex loss of INR23b. Net loss for the quarter was INR75b, v/s net
profit of INR53b in 2QFY11 and loss of INR37b in 1QFY12.
Net under-recovery sharing at 67% in 2QFY12, 44% in 1HFY12; model 4% in FY12
Of the gross under-recovery of INR118b in 2QFY12, IOCL received INR39b from upstream as discounts on crude
purchases, but the government did not pay any compensation during the quarter. The net subsidy burden was
INR78b.
For FY12, we model upstream share at 38.7%, government share at ~57% and OMCs' share at 4%.
Reported GRM negative; GRM adjusted for forex at USD2.8/bbl
GRM for 2QFY12 was negative (-USD0.03/bbl v/s our estimate of USD6.8/bbl) as against USD6.6/bbl in 2QFY11 and
USD4.7/bbl in 1QFY12. IOC's reported GRM includes forex loss component on crude liability. Adjusting for the forex
loss of INR12.3b, GRM would be USD2.8/bbl. Further, the large underperformance v/s the regional benchmark Reuters
Singapore GRM (USD9.1/bbl in 2QFY12) in recent quarters is due to the difference in the product slate - IOCL is a
diesel-heavy refiner and cracks of diesel were down QoQ in 2QFY12.
Valuation and view
We model Brent oil price of USD110/95/90/85/bbl for FY12/FY13/FY14/long-term in our estimates. Similar to earlier
years, we expect the government subsidy sharing to be finalized towards the end of the year.
IOCL's petrochemical division reported positive EBIT of INR635m after continued losses for five quarters. Positive
contribution from this division would help IOCL to maintain its superior RoE compared with other OMCs.
To account for the lower GRM in 2QFY12, we cut our consolidated EPS estimate for FY12 by 10% to INR30.7. The
stock trades at 9.4x FY12E consolidated EPS of INR30.7 and 1.1x FY12E BV. Valuations are reasonable; maintain Buy
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