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Indian Oil Corp: GRM improvement drives profitability

What’s buzzing – Indian Oil Corp’s (IOC) Q2FY22 results were better than our estimates on the profitability front mainly on account of the refining segment.

Context - IOC’s topline increased 9.5% QoQ to Rs.169770.8 crore, ahead of estimated revenue of Rs.157292 crore. Marketing sales were at 18.9 MMT, up 1% QoQ marginally lower than estimate of 19.1 MMT. Crude throughput of 15.3 MMT in Q2FY22 (down 8.6% QoQ) was lower than our estimate of 15.8 MMT. Reported GRMs came in at US$6.6/bbl vs. our estimate of US$3.9/bbl while core GRMs were at US$4.8/bbl. Inventory gain of US$1.8/bbl supported overall margins and improved profitability for the segment. EBITDA at Rs.10628.1 crore (down 4.5% QoQ) was ahead of estimated EBITDA of Rs.8737.9 crore, mainly supported by refining segment. Other income of Rs. 1433.7 crore was higher than expected. Reported PAT was at Rs.6360.1 crore, up 7% QoQ (our estimate: Rs.3944.8 crore)

Our perspective - IOC’s marketing sales marginally improved QoQ in Q2FY22 and marketing segment performance was broadly in line with expectations. In the current quarter (Q3FY22-TD), overall fuel demand is expected to improve further. GRM beat resulted in higher operating profits. Incremental recovery in product cracks in current quarter (Q3FY22-TD) augurs well for IOC’s refining segment. Improvement in product cracks and recovery in fuel demand coupled with stable marketing margins will be important for IOC's performance in the near term.