17 May After Railway Rally Next on the List? This High Dividend Paying Stock hits 52-week high post Q4 Results!

Lower Oil Prices Fueling Momentum for this PSU!”

The recent plunge in oil prices has sent shockwaves through the market, attracting the attention of investors seeking potential opportunities in oil-dependent sectors.

Among the companies garnering interest is Indian Oil Corporation Limited (IOC), a prominent player in the oil refining and marketing industry.

With a market capitalization of INR 1,22,863 crores, IOC stands as a key player in the sector. Known for its status as a high dividend-paying public sector undertaking (PSU), IOC currently offers an enticing dividend yield of 10%.

However, challenging market conditions in the first half of FY23, coupled with the government’s measures to control inflation, led to losses for oil marketing companies (OMCs) like IOC, resulting in no dividend payouts.

However, the tide has started to turn for IOC. In the third quarter of FY23, the company returned to profitability. This positive momentum, coupled with the recent dip in international oil prices, positions IOC to potentially expand its retail margins, yielding favorable outcomes in the fourth quarter of FY23.

Yesterday, IOCL reported a 52% growth in its consolidated net profit at Rs 10,841 crore for the quarter ended in March. and proposed a final dividend of 30% for the fiscal year 2022-23. This translates to Rs. 3 per equity share with a face value of Rs. 10/- each on the paid-up share capital.

As IOC adapts to the shifting dynamics of the oil market, investors and industry observers are closely monitoring the company’s performance and future prospects.

In this blog, we analyze the opportunities and challenges faced by IOC in the wake of plunging oil prices and gain insights into the potential impact on its growth trajectory and try to find the answer…

Is IOCL poised to become a multi-bagger as big investors show increasing interest in the PSU sector?

Company Introduction:

Indian Oil Corporation Limited (IOCL) is one of the largest oil and gas companies in India.

Established in 1959, it is a state-owned enterprise and operates under the Ministry of Petroleum and Natural Gas.

IOCL is engaged in the
-refining,
-marketing, and
-distribution of petroleum products,
-including fuels, lubricants, and petrochemicals.

It operates the largest network of refineries in India, ensuring a steady supply of petroleum products to various sectors such as transportation, agriculture, industrial, and household consumption. The company has a significant impact on the country’s economy and energy security.

Refining Capacity:

IOCL operates 11 refineries with a total refining capacity of over 80 MMTPA.

Product Range:

The refineries produce a diverse range of products, including
-gasoline,
-diesel,
-aviation turbine fuel,
-liquefied petroleum gas (LPG),
-bitumen,
-petrochemical feedstocks, and
-specialty products.

IOCL constantly invests in upgrading its refineries to enhance operational efficiency, meet stringent environmental standards, and produce higher-value products.

Marketing and Distribution:

Retail Outlets: IOCL operates over 50,000 retail outlets across India under the brand name “IndianOil fuel stations,” serving a wide range of customers.

Bulk Fuel Supply: The company supplies bulk fuels to industries, commercial establishments, railways, and the defense sector.

Aviation Fuels: IOCL provides aviation turbine fuel (ATF) to airports across the country, catering to the needs of domestic and international airlines.

LPG: IOCL is a major supplier of LPG, serving households, commercial establishments, and industries through its extensive distribution network.

Pipeline Transportation:

Pipeline Infrastructure: IOCL owns and operates an extensive network of pipelines for the transportation of petroleum products across India.

Efficient Logistics: The pipeline network ensures a reliable and efficient supply chain, reducing transportation costs and minimizing environmental impact.

Market Position:

IOCL holds a prominent market position, accounting for 32% of India’s refining capacity and approximately 42% share in the petroleum products market in fiscal year 2022.

It has a widespread network of 35,268 retail outlets and 12,838 LPG distributors, ensuring a strong presence in the domestic petroleum market.

Competitive Advantage:

IOCL benefits from its strategic importance to the government, which provides continued support and policies favoring the company.
The company’s strong brand presence, marketing initiatives, and extensive infrastructure give it a competitive edge in the industry.

Environmental, Social, and Governance (ESG) Factors:

Focus on Mitigating Environmental and Social Risks:

-IOCL has undertaken substantial investments to deliver BS-VI standard fuels across India, aiming for a 20% ethanol-blended fuel by 2025.

-IOCL is actively involved in renewable energy initiatives, with a renewable energy portfolio of 237.42 MW as of March 2022, including solar and wind plants.

-The company is spearheading the GoI’s sustainable alternative towards affordable transportation (SATAT) scheme, promoting the production and sale of compressed biogas (CBG) across the country.

-IOCL is also focused on water management, achieving nearly 90% wastewater recycling in its refineries and implementing rainwater harvesting projects.

-IOCL is committed to reducing operational emissions, expanding its footprint in hydrogen fuel, and developing fuel cell technology.

Robust Q4 Results:

-Indian Oil Corp reported a 52% growth in its consolidated net profit at Rs 10,841 crore for the quarter ended March. It was Rs 7,089 crore in the year-ago period.

-Revenue from operations jumped 10% year-on-year (YoY) to Rs 2.30 lakh crore in the March quarter, compared with Rs 2.09 lakh crore in the corresponding quarter of last year

-Revenue from the other business activities rose 21% to Rs 8,798 crore for the quarter under review.

-It was Rs 7,253 crore in the same quarter last year.

-OMCs’ marketing margins on diesel turned positive in the fourth quarter compared to losses in the third quarter. Revenues, however, fell marginally (0.6%) quarter-on-quarter from Rs 2.32 lakh crore in the third quarter.

-Segment-wise, revenue from petroleum products was at Rs 2.20 lakh crore during this quarter, up 11%  YoY from Rs 1.99 lakh crore.

-However, Sales from the petrochemicals business fell 27% to Rs 6,282 crore for the quarter ended March, compared with Rs 8009 crore.

Fundamentals:

• Current Price ₹ 87.0
• High / Low ₹ 87.7 / 65.2
• Stock P/E 12.5
• Industry PE 10.7
• PEG Ratio -0.83
• Book Value ₹ 99.2
• Price to book value 0.88
• Dividend Yield 10 %
• Return over 1year 4.91 %
• OPM 3.65 %
• Debt ₹ 1,48,977 Cr.
• Debt to equity 1.07
• Qtr Profit Var 54.8 %
• Qtr Sales Var 16.3 %
• Free Cash Flow ₹ 1,533 Cr.
• Promoter holding 51.5 %
• FII holding 6.91 %
• Public holding 10.1 %
• DII holding 11.9 %
• Chg in FII Hold -0.10 %
• Chg in DII Hold 0.38 %

Important factors to monitor

The company’s ability to manage

-inventory valuations,
-marketing margins, and
-debt levels

Risks and Challenges:

Change in the GoI’s support philosophy or reduction in its stake below 51%.

Exposed to risks such as

-volatility in crude oil prices,
-fluctuations in the rupee-dollar exchange rate, and
-regulatory changes.

Geopolitical tensions and their impact on crude oil prices can affect IOCL’s operating performance.

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