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Geojit Financial Services
Indian Oil Corporation (Buy)
CMP: ₹127.5
Target: ₹148
Indian Oil Corporation’s Q2FY20 revenue stood at ₹1,32,376 crore (-12.7 per cent y-o-y; -11.8 per cent q-o-q). At segment level, petroleum products revenue was down 12.8 per cent y-o-y (96.8 per cent of total revenue). Also, petrochemicals revenue continued to descend (-39.8 per cent y-o-y). The average crude oil prices remained subdued for H1FY20 at $64.75/bbl (vs $73.68/bbl in H1FY19).
MS crack spread (pricing difference between a barrel of crude oil and the petroleum products) declined 18.0 per cent y-o-y, but improved on a q-o-q basis and HSD (high speed diesel) crack rose marginally by 4.0 per cent y-o-y, although increased at a higher rate of 32 per cent q-o-q. We expect the crack spreads to increase from FY21E onwards after the IMO mandate kicks in post January 2020, as the demand for diesel as marine fuel increases. In terms of petroleum product sales, export volumes fell 29.9 per cent y-o-y to 1.2 mt while domestic volumes rose 1.8 per cent y-o-y to 20.2mt. Refining throughput declined 1.6 per cent y-o-y to 17.5 mt.
The company expects demand of petroleum products to increase post monsoon and crude oil prices to remain stable in coming quarters. We also expect inventory losses to partly normalize in the near-term along with improvement GRM post IMO.
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