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Thursday, December 7, 2023

IOC Shares Drop Over 2% Despite Beaten Street Estimates for Q1 Results; Buy, Sell, or Hold?

<p>Following the release of the company’s Q1 earnings, shares of the state-run oil refiner Indian Oil Corporation (IOC) dropped more than 2% on Monday. IOC’s share price dropped as much as 2.38 percent on the BSE, to Rs 93.01 per share.</p>
<p>IOC recorded a 37% increase in net profit for the quarter ending in April-June, coming in at Rs 13,750.44 crore compared to Rs 10,058.69 crore the prior quarter.<img decoding=”async” class=”alignnone wp-image-104208″ src=”https://www.theindiaprint.com/wp-content/uploads/2023/07/theindiaprint.com-download-2023-07-31t161839.920.jpg” alt=”” width=”1089″ height=”725″ srcset=”https://www.theindiaprint.com/wp-content/uploads/2023/07/theindiaprint.com-download-2023-07-31t161839.920.jpg 275w, https://www.theindiaprint.com/wp-content/uploads/2023/07/theindiaprint.com-download-2023-07-31t161839.920-150×100.jpg 150w” sizes=”(max-width: 1089px) 100vw, 1089px” /></p>
<p>Its combined net profit for the first quarter of FY2023–24 was Rs 14,735 crore. Due to the high global crude oil prices, the state-run corporation recorded a net loss of Rs. 883 crore during the same period in FY23.</p>
<p>The IOC’s operating revenue in the June quarter fell by 12% to Rs 2.25 lakh crore from Rs 2.55 lakh crore in the same quarter last year.</p>
<p>Its operating revenue fell 2.36 percent to Rs. 1.98 lakh crore in Q1 FY24 from Rs. 2.02 lakh crore in Q4 FY23.</p>
<p>Earnings before interest, taxes, depreciation, and amortization (EBITDA), which climbed by 44.5% to Rs 22,163 crore from Rs 15,340 crore, QoQ, improved operational performance throughout the quarter.</p>
<p>The average gross refining margin (GRM) for the April through June 2023 period was $8.34 per barrel, compared to the June 2022 period’s GRM of $31.81 per barrel.</p>
<p>Is it better to buy, sell, or hold?</p>
<p>Due to IOC Q1 earnings that fell short of expectations and a lower-than-anticipated refining margin, Nomura downgraded IOC to “Neutral.” The share’s target price is Rs. 105.</p>
<p>It anticipates that oil prices will stay high in the next months. According to the brokerage, based on current pricing, marketing margins have already fallen to below-normative levels, which would affect the segment’s contribution throughout H2FY24. According to Nomura, any reduction in retail prices might make the situation worse.</p>
<p>Retail losses on low retail margins for FY23, according to Nuvama Institutional Equities, have mostly been recovered. It continues to be wary of any price reductions implemented by the government before 2019 elections, which it sees as a major threat to margins.</p>
<p>The brokerage anticipates CY24 GRMs to exceed $10 per barrel. It increased the target price for the company to Rs 115 per share and has a “Buy” call on it.</p>
<p>IOCL’s Q1FY24 EBITDA and net profit exceeded expectations from ICICI Securities. The research highlighted that concerns about a worldwide recession and a lack of market momentum in China in Q1FY24 had caused a steep loss in GRMs, with Singapore GRMs falling by $4.1 per bbl QoQ for the quarter and IOCL seeing a significant drop in GRMs both YoY and QoQ.</p>
<p>According to ICICI Securities, “We continue to expect that the market would likely tighten in H2FY24, hence we currently factor-in GRMs of $10.5 for FY24E and $12/bbl for FY25E.</p>
<p>The brokerage firm maintained its ‘Buy’ recommendation on the company and increased the target price from Rs 115 to Rs 120 per share.</p>

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