Neutral IOCL; target of Rs 135: Motilal Oswal

Moneycontrol • 1 day ago

Original source

Key Investment Pillars

  • Marketing margins under pressure: IOCL's marketing margins are expected to remain under pressure due to high Brent prices, elevated diesel GRMs, and limited room for auto-fuel price hikes before the upcoming elections.
  • Refining gains partly offset by freight: Realized refining margins are likely to be lower than the headline GRMs suggest, as elevated shipping freight costs would offset part of the margin gains.
  • Earnings cut driven by marketing segment weakness: Despite a strong 2QFY27 performance, IOCL's earnings estimates have been cut, primarily driven by higher marketing segment losses.
  • Risk from crude assumption: The company's FY28/FY29 crude assumption of USD75/bbl remains conservative, and any upward revision would lead to further earnings cuts.

Thesis Validation Checklist

  • Monitor marketing margins: Investors should watch for any changes in marketing margins, particularly in the context of Brent prices and auto-fuel price hikes.
  • Refining throughput and GRMs: Keep an eye on refining throughput and GRMs, as they are crucial for IOCL's profitability.
  • Election-related price hikes: Any price hikes before the elections could impact IOCL's marketing margins and overall profitability.
  • Crude price movements: Changes in crude prices could affect IOCL's earnings, given its conservative crude assumption.