Indian Oil Corporation (IOC), a prominent state-owned oil marketing company, has recently unveiled its financial results for the fourth quarter of FY24. The report has brought to light significant fluctuations in key financial metrics, a development that has sparked immediate and crucial reactions from analysts and investors. Our analysis will delve into IOC’s performance, segment results, dividend announcements, and future projects, all while examining brokerage assessments of its Q4 results and share price.
Financial Overview
IOC reported a significant 40% decline in standalone net profit for Q4 FY24, amounting to ₹4,837.69 crore compared to ₹8,063.39 crore in the previous quarter. This decline was mirrored in its share price, which plummeted by 4.41% to ₹169.00 apiece on the BSE. These figures highlight the severity of the financial situation and its potential implications for investors.
At the operating level, IOC experienced a substantial decrease in earnings before interest, tax, depreciation, and amortization (EBITDA), down 33% to ₹10,435 crore from ₹15,488 crore. This decrease in EBITDA was accompanied by a contraction in EBITDA margins, which decreased by 250 basis points (bps) to 5.3% from 7.8% QoQ. These changes in EBITDA and EBITDA margins provide a comprehensive understanding of IOC’s operational performance.
Refining Margin and Throughput
The average Gross Refining Margin (GRM) for April-March 2024 stood at $12.05 per barrel, a significant decrease from $19.52 per barrel in the same period the previous year. The core GRM for the same period after adjusting for inventory loss/gain was $11.44 per barrel. Refinery throughput in Q4 decreased to 18.282 million metric tonnes (MMT) from 19.177 MMT in the previous year, while pipeline throughput remained steady at 24.593 MMT.
Segment Performance
IOC’s Petroleum Products segment witnessed a decline in revenue to ₹2.08 lakh crore from ₹2.11 lakh crore QoQ, with the segment’s EBIT falling to ₹7,271.57 crore from ₹11,428.88 crore sequentially. Conversely, the Petrochemicals segment reported an increase in revenue to ₹6,908.50 crore from ₹5,983.53 crore in the December quarter. However, the segment’s EBIT loss widened to ₹399.75 crore from ₹196.21 crore QoQ.
Dividend and Renewal Energy Projects
The Board of Directors has recommended a final dividend of ₹7.00 per equity share for the fiscal year 2023-24. In a move that underscores IOC’s commitment to future growth avenues, the board has also approved the implementation of 1 GW installed capacity of Renewal Energy (RE) projects at an estimated cost of ₹5,215 crore through its Wholly Owned Subsidiary (WoS). An investment of ₹1,303.75 crore as equity in the subsidiary has been greenlit for this initiative, signalling a promising future for IOC.
Brokerage Firms’ Assessments
Analysts from Nuvama Institutional Equities expressed concerns about near-term weak GRMs but maintained a positive outlook on the long-term refining prospects. They highlighted a potential peak in earnings growth, leading to a less favourable risk-reward scenario at current valuations. Emkay Global Financial Services acknowledged steady performance in IOC’s marketing segment but noted challenges in the petrochemicals segment. Despite revising the target price, Emkay Global retained an ‘Add’ rating on the stock.
Summary
Indian Oil Corporation’s Q4 FY24 results reflect a mixed performance across various segments amid challenging market conditions. While revenue and profitability have witnessed declines, the company’s strategic initiatives in renewable energy projects signify a commitment to future growth avenues. The assessments provided by analysts offer invaluable insights into market sentiments and expectations, serving as a reliable guide for investors in navigating the volatile landscape of the oil and gas sector.
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