Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 February 12, 2016 COMPANY RESULTS REPORT REVIEW Analyst Sudeep Anand +91-22-4322 1190 sudeep.anand@idbicapital.com Nifty: 6,981; Sensex: 22,986 CMP Rs365 Target Price Rs440 Potential Upside/Downside +21% Key Stock Data Sector Oil and Gas Bloomberg / Reuters IOCL IN / IOC.BO Shares o/s (mn) 2,428 Market cap. 885,353 Market cap. (US$ mn) 12,976 3-m daily average vol. 106,915 Price Performance 52-week high/low Rs465/307-1m -3m -12m Absolute (%) (17) (11) 16 Rel to Sensex (%) (10) 0 36 Shareholding Pattern (%) Promoters 58.6 FIIs/NRIs/OCBs/GDR 3.9 MFs/Banks/FIs 12.9 Govt. 0.1 Non Promoter Corporate 19.7 Public & Others 4.8 Relative to Sensex 130 120 110 100 90 80 Indian Oil Corporation Ltd. Strong quarter!!! Summary IOC came out with a strong set of numbers in Q3FY16 led by higher crude throughput and healthy Grm. Revenue declined 22.1% yoy to Rs 834 bn while EBITDA came at Rs52.4 bn against loss of Rs24.8 bn and net profit at Rs 30.6 bn against loss of Rs26.4 bn in Q3FY15. Crude throughput increased 4.5% to 14.4mmt while sales volume jumped 1.9% to 19.6mmt. GRM came at US $6/bbl against a negative margin of US $7.7/bbl in last year same quarter. We believe, lower crude oil price and commencement of Paradip refinery of 15mmt would further boost profits. We keep our estimates and TP unchanged at Rs440. Upgrade to BUY from ACCUMULATE. Result Highlights & Investment Rationale Revenue fell 22% YoY on the back of lower prices IOC s revenue fell 22% YoY to Rs835 bn on the back of lower crude oil prices offset by higher crude throughput and sales volume. Crude throughput increased 4.5% to 14.4mmt while sales volume jumped 1.9% to 19.6mmt. Also, pipeline throughput increased 6.2% YoY to 20.5mmt due to higher sales of petroleum product. Net under-recovery came at Rs2 bn against Rs120 mn in Q3FY15. Healthy GRM and strong profits from pipeline division boosted EBITDA IOC s GRM came at US $6/bbl against a negative margin of US $7.7/bbl in last year same quarter due to higher naphtha crack spread. Out of the total EBITDA in Q3FY16, 43% of contribution was from refinery, 26% from pipeline, 21% from petchem and rest from marketing business. Also, total adventitious loss on products came at Rs9.7 bn which impacted profits. Lower interest cost boosted PAT, beats expectation The company s debt level has come down to Rs491 bn at the end of Q3FY16 compared to Rs549 bn after Q3FY15 (Rs566 bn after Q2FY16) due to lower crude oil prices. Consequently, interest expense was down 34% YoY to Rs6.1 bn (-16.3% QoQ). However, this was partially offset by 29% fall in other income to Rs6.5 bn. Consequently, net profit increased to Rs30.6 bn against net loss of Rs26.4 bn in Q3FY15. Maintain estimates and TP to Rs440; Upgrade to BUY from ACCUMULATE Upgrade to BUY We are further cutting our crude oil price estimates for FY16/FY17 to US$47/45/bbl from earlier US$47/65/bbl as we expect crude oil price to remain at lower levels in medium term. Also, start of Paradip refinery would boost GRM with its 15mmtpa refinery capacity with higher complexity of 12.2. Also, we expect almost 1.2mbpd of demand growth for crude oil in 2016 while new refinery capacity addition is expected to be around 800-900kbopd which would keep GRMs at higher level. We are keeping EBITDA/PAT estimates and TP unchanged at Rs440. Upgrading the stock to BUY from ACCUMULATE. Table: Financial snapshot Year Revenue EBITDA EBITDA (%) Adj. PAT EPS (Rs) PE (x) EV/EBITDA (x) RoE (%) RoCE (%) FY14 4,883,449 170,565 3.5 53,388 22.0 16.6 8.4 8.2 6.2 FY15 4,495,087 105,359 2.3 32,439 13.4 27.3 13.7 4.7 4.6 FY16E 3,065,789 214,193 7.0 119,706 49.3 7.4 6.7 16.2 11.0 Source: Capitaline IOCL Sensex FY17E 2,953,114 205,743 7.0 109,368 45.0 8.1 7.0 13.0 9.8
Table: Quarterly highlights Year-end: March Q3FY16 Q3FY15 YoY (%) Q2FY16 QoQ (%) Net sales 834,619 1,070,736 (22.1) 853,848 (2.3) Expenditure 782,198 1,095,506 (28.6) 846,899 (7.6) EBITDA 52,420 (24,770) - 6,949 654.4 EBITDA margin (%) 6.3 (2.3) 859bps 0.8 - Other income 6,500 9,102 (28.6) 5,765 12.7 Interest 6,104 9,290 (34.3) 7,293 (16.3) Depreciation 11,693 12,212 (4.2) 11,286 3.6 PBT 45,854 (32,846) - (1,604) - Tax 15,286 (6,478) - 1,688 805.6 Adjusted PAT 30,569 (26,368) - (3,292) - Adjusted EPS (Rs) 12.6 (10.9) - (1.4) - Throughput (MMT) 14.4 13.8 4.5 13.7 5.4 GRM(US$/bbl) 6.0 (7.7) (177.1) 0.9 562.2 Sales (MMT) 19.6 19.2 1.9 19.1 2.8 Table: IOC s share of under-recovery burden Q3FY15 FY15 Q1FY16 Q2FY16 Q3FY16 FY16E FY17E Auto fuel (3,250) 51,440 0 0 0 0 0 Cooking fuel 93,190 346,140 26,135 21,791 19,394 75,320 76,000 Total 89,940 397,580 26,135 21,791 19,394 75,320 76,000 Shared by: Government share 28,660 149,610 17,330 17,153 17,329 61,916 62,596 % share 31.9 37.6 66.3 78.7 89.4 30.0 30.0 Upstream discount 61,160 235,970 8,790 4,614 0 13,404 13,404 % share 68.0 59.4 33.6 21.2 0.0 70.0 70.0 IOC s share of under-recovery burden 120 12,000 15 24 2,065 0 0 % share 0.1 3.0 0.1 0.1 10.6 0.0 0.0 Source: IDBI Capital Research 2
Financial Summary Profit & Loss Account Cash Flow Statement Revenues 4,883,449 4,495,087 3,065,789 2,953,114 Growth (%) 5.8 (8.0) (31.8) (3.7) EBITDA 170,565 105,359 214,193 205,743 Growth (%) 23.9 (38.2) 103.3 (3.9) Depreciation & amortisation 63,600 52,190 54,763 60,165 EBIT 106,966 53,169 159,431 145,578 Growth (%) 32.4 (50.3) 199.9 (8.7) Interest 59,079 41,746 31,507 34,721 Other income 51,892 58,721 44,142 46,349 EBT 99,778 70,143 172,066 157,206 Income taxes 30,113 21,426 53,340 48,734 Effective tax rate (%) 30.2 30.5 31.0 31.0 Min int / inc from assoc (1,190) (402) (981) (896) Reported net income 70,856 49,120 119,706 109,368 Adjustments 17,468 16,681 - - Adjusted net income 53,388 32,439 119,706 109,368 Growth (%) 20.0 (39.2) 269.0 (8.6) Shares outstanding (mn) 2,428.0 2,428.0 2,428.0 2,428.0 Adjusted EPS (Rs) 22.0 13.4 49.3 45.0 Growth (%) 20.0 (39.2) 269.0 (8.6) DPS (Rs) 5.0 5.0 5.0 5.0 Balance Sheet Cash and cash eq 37,045 12,211 176,873 285,636 Accounts receivable 125,436 76,448 52,140 50,223 Inventories 723,396 499,174 349,649 345,658 Others current assets 506,891 416,845 420,398 424,194 Investments 158,949 160,687 137,510 137,510 Gross fixed assets 1,332,252 1,407,252 1,482,252 1,557,252 Net fixed assets 765,521 774,123 779,187 780,712 CWIP 339,754 396,761 400,729 404,736 Intangible assets 878 705 705 705 Deferred tax assets, net (64,228) (68,356) (79,024) (88,770) Other assets - - - - Total assets 2,593,641 2,268,598 2,238,168 2,340,604 Accounts payable 407,108 316,210 215,665 207,739 Other current liabilities 343,910 391,019 396,276 401,796 Provisions 262,463 280,773 291,111 301,688 Debt funds 889,325 581,541 531,541 531,541 Other liabilities 11,706 10,733 9,753 8,857 Equity capital 24,280 24,280 24,280 24,280 Reserves & surplus 654,851 664,043 769,543 864,706 Shareholder's funds 679,130 688,323 793,823 888,985 Total liabilities 2,593,641 2,268,598 2,238,168 2,340,604 BVPS (Rs) 279.7 283.5 327.0 366.1 Net income + Depreciation 134,456 101,310 174,469 169,533 Non-cash adjustments 28,684 (934) 29,129 26,060 Changes in working capital 153,506 330,525 81,062 6,384 Cash flow from operations 316,646 430,901 284,659 201,976 Capital expenditure (314,334) (132,008) (78,968) (79,007) Change in investments 14,558 (1,737) 23,177 - Other investing cash flow - - - - Cash flow from investing (299,776) (133,745) (55,791) (79,007) Issue of equity - - - - Issue/repay debt 22,183 (307,784) (50,000) - Dividends paid (14,206) (14,206) (14,206) (14,206) Other financing cash flow - - - - Change in cash & cash eq. 24,847 (24,834) 164,663 108,763 Closing cash & cash eq. 37,045 12,211 176,873 285,636 Ratio Analysis Profitability & Return ratios EBITDA margin (%) 3.5 2.3 7.0 7.0 EBIT margin (%) 2.2 1.2 5.2 4.9 Net profit margin (%) 1.1 0.7 3.9 3.7 ROE (%) 8.2 4.7 16.2 13.0 ROCE (%) 6.2 4.6 11.0 9.8 Working capital & Liquidity ratios Receivables (days) 9 8 8 6 Inventory (days) 58 56 60 51 Payables (days) 31 33 38 31 Current ratio (x) 1.9 1.4 1.6 1.8 Quick ratio (x) 0.2 0.1 0.4 0.5 Turnover & Leverage ratios Gross asset turnover (x) 3.8 3.3 2.1 1.9 Total asset turnover (x) 2.0 1.8 1.4 1.3 Interest coverage ratio (x) 1.8 1.3 5.1 4.2 Adjusted debt/equity (x) 1.3 0.9 0.7 0.6 Valuation ratios EV/Sales (x) 0.3 0.3 0.5 0.5 EV/EBITDA (x) 8.4 13.7 6.7 7.0 P/E (x) 16.6 27.3 7.4 8.1 P/BV (x) 1.3 1.3 1.1 1.0 3
Notes Dealing (91-22) 6637 1150 dealing@idbicapital.com Key to Ratings Stocks: BUY: Absolute return of 15% and above; ACCUMULATE: 5% to 15%; HOLD: Upto ±5%; REDUCE: -5% to -15%; SELL: -15% and below. IDBI Capital Market Services Ltd. (A wholly owned subsidiary of IDBI Bank Ltd.) Equity Research Desk 3rd Floor, Mafatlal Centre, Nariman Point, Mumbai 400 021. Phones: (91-22) 4322 1212; Fax: (91-22) 2285 0785; Email: info@idbicapital.com SEBI Registration: BSE & NSE (Cash & FO) INZ000007237, NSDL IN-DP-NSDL-12-96, Research INH000002459, CIN U65990MH1993GOI075578 Compliance Officer: Christina D souza; Email: compliance@idbicapital.com; Telephone: (91-22) 4322 1212 Disclaimer This document has been prepared by IDBI Capital Market Services Ltd (IDBI Capital) and is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. No person associated with IDBI Capital is obligated to call or initiate contact with you for the purposes of elaborating or following up on the information contained in this document. Recipients may not receive this report at the same time as other recipients. IDBI Capital will not treat recipients as customers by virtue of their receiving this report. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. In so far as this report includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed. Opinions expressed are current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis, the information discussed in this material, IDBI Capital, its directors, employees are under no obligation to update or keep the information current. Further there may be regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. IDBI Capital, its directors and employees and any person connected with it, will not in any way be responsible for the contents of this report or for any losses, costs, expenses, charges, including notional losses/lost opportunities incurred by a recipient as a result of acting or non acting on any information/material contained in the report. This is not an offer to sell or a solicitation to buy any securities or an attempt to influence the opinion or behaviour of investors or recipients or provide any investment/tax advice. This report is for information only and has not been prepared based on specific investment objectives. The securities discussed in this report may not be suitable for all investors. Investors must make their own investment decision based on their own investment objectives, goals and financial position and based on their own analysis. Trading in stocks, stock derivatives, and other securities is inherently risky and the recipient agrees to assume complete and full responsibility for the outcomes of all trading decisions that the recipient makes, including but not limited to loss of capital. Opinions, projections and estimates in this report solely constitute the current judgment of the author of this report as of the date of this report and do not in any way reflect the views of IDBI Capital, its directors, officers, or employees. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject IDBI Capital and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. IDBI Capital, its directors or employees or affiliates, may from time to time, have positions in, or options on, and buy and sell securities referred to herein. IDBI Capital or its affiliates, during the normal course of business, from time to time, may solicit from or perform investment banking or other services for any company mentioned in this document or their connected persons or be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or their affiliate companies or act as advisor or lender / borrower to such company(ies)/affiliate companies or have other potential conflict of interest. This report may provide hyperlinks to other websites. Except to the extent to which the report refers to the website of IDBI Capital, IDBI Capital states that it has not reviewed the linked site and takes no responsibility for the content contained in such other websites. Accessing such websites shall be at recipient's own risk. E-mail is not a secure method of communication. IDBI Capital Market Services Limited cannot accept responsibility for the accuracy or completeness of any e-mail message or any attachment(s). This transmission could contain viruses, be corrupted, destroyed, incomplete, intercepted, lost or arrive late. IDBI Capital, its directors or employees or affiliates accept no liability for any damage caused, directly or indirectly, by this email. 4
Disclosures I, Sudeep Anand, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report IDBI Capital Market Services Limited ( IDBI Capital ) and its associates (IDBI Capital is a wholly owned subsidiary of IDBI Bank Ltd. IDBI Asset Management Ltd., IDBI MF Trustee Company Ltd. and IDBI Intech Ltd.) are a full-service, banking, integrated investment banking, investment management, brokerage and financing group. We along with our affiliates are leading underwriter of securities and participants in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationships with a significant percentage of the companies covered by our Research Department. Investors should assume that IDBI Capital and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material. IDBI Capital generally prohibits its analysts, persons reporting to analysts, and their dependant family members having a financial conflict of interest in the securities or derivatives of any companies that the analysts cover. Additionally, IDBI Capital Market Services Limited generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of IDBI Capital. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have long or short positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. For the purpose of calculating whether IDBI Capital Market Services Limited and its affiliates holds beneficially owns or controls, including the right to vote for directors, 1% of more of the equity shares of the subject issuer of a research report, the holdings does not include accounts managed by IDBI Asset Management Company/ IDBI Mutual Fund. IDBI Capital Market Services Limited established in 1993, is a wholly owned subsidiary of IDBI Bank Limited. IDBI Capital Market Services Limited is one of India s leading brokerage and distribution house. IDBI Capital Market Services Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), and a dealer of the OTC Exchange of India (OTCEI) and is also a SEBI registered Merchant Banker and Portfolio Manager. Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like merchant banking, depository services and Portfolio Management. IDBI Capital Market Services Limited is also a depository participant with National Securities Depository Limited (NSDL) and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI) We hereby declare that our activities were neither suspended nor we have materially defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise letters or levied minor penalty on IDBI Capital for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time. We offer our research services to primarily institutional investors and their employees, directors, fund managers, advisors who are registered with us. The Research Analyst has not served as an officer, director or employee of Subject Company. We or our associates may have received compensation from the subject company in the past 12 months. We or our associates may have managed or co-managed public offering of securities for the subject company in the past 12 months. We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. We or our associates may have received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research Analyst or his/her relative s may have financial interest in the subject company. IDBI Capital Market Services Limited or its associates may have financial interest in the subject company. Research Analyst or his/her relatives does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report : IDBI Capital Market Services Limited or its associates may have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. The Subject Company may have been a client during twelve months preceding the date of distribution of the research report. Price history of the daily closing price of the securities covered in this note is available at nseindia.com and economictimes.indiatimes.com/markets/stocks/stock-quotes. 5