- Indian Oil (IOC) reported a whopping loss of Rs225bn (all time high) for Q1 FY13 on the back of following negatives 1) Lack of any cash subsidy from the government 2) Inventory valuation losses for the refining segment due to fall in crude prices 3) Higher interest costs (78% up yoy) owing to increased working capital requirement and 4) Forex losses to the tune of ~Rs32bn.
- The company reported net sales of Rs969bn which was 5.1% up on yoy basis and 17.4% down over the trailing quarter. The sequential fall was on account of nil payments from government as against Rs208bn received in Q4 FY12. This was partially offset by higher realizations for products such as petrol, ATF and few other products. Market sales inclusive of exports remained flat sequentially and increased marginally on yoy basis.
- The non-payment of cash subsidy from government proved to be the major disappointment and the total under recoveries on sale of subsidized products stood at Rs174bn for the quarter. The delay in government payments resulted in ~20% rise in borrowings over the quarter and bled the company in the form of high interest payments. The interest costs were up 78% yoy and the borrowings at the end of the quarter were recorded at Rs909.2bn.
- The refinery throughput was 13.6mt, which implied a ~5% fall on yoy basis. Resultantly, the pipeline throughput was also recorded lower by 4.5% on yoy basis. The lower throughput was on account of a planned shutdown taken in some of the refining capacity during the quarter.
- The GRM’s for the quarter was reported at -$4.8/bbl owing to inventory valuation losses observed due to a fall in crude prices. The crude price declined by 21% over the quarter leading to an inventory valuation loss of $7.54/bbl and thereby driving the GRM’s into the red. Management informed that there was ~6.5mt of inventory in the system at any point of time (including transit pipelines, refinery tanks) which was prone to such losses or gains.
- Other overheads swelled on back of foreign exchange loss of Rs31.87bn reported during the quarter.
- Other takeaways:
The upstream sharing of subsidy burden has been observed at ~33-34% of the total under recoveries. Not only IOC has not received any payments from government in Q1 FY13, it is yet to receive ~Rs45bn which has been sanctioned towards a part of under recovery borne for FY12.
On petrol, the present under recovery for IOC is ~Rs1.37/ltr and the company lost Rs9.5bn in Q1 FY13 for the same.
With the timing of cash subsidy uncertain, the OMC’s are expected to report vastly fluctuating earnings going ahead. We maintain a Market Performer rating on the stock.
|(Rs m)||Q1 FY13||Q1 FY12||% yoy||Q4 FY12||% qoq|
|OPM (%)||(20.6)||(2.0)||(1855) bps||12.6||(3316) bps|
|Extra ordinary items||-||-||-||(15,396)||-|
|Effective tax rate (%)||0.0||0.0||(1.6)|
|PAT margin (%)||(23.2)||(4.0)||(1914) bps||10.8||(3397) bps|
|Ann. EPS (Rs)||(369.9)||(61.3)||503.7||208.7||(277.2)|
|As a % of net sales||Q1 FY13||Q1 FY12||bps yoy||Q4 FY12||bps qoq|
Valuation summary (Standalone)
|Y/e 31 Mar (Rs m)||FY11||FY12E||FY13E||FY14E|
|yoy growth (%)||23.3||32.4||13.1||2.4|
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