Emkay IOC Limited
Update
Result
Research Results inline with expectation, Maintain BUY
1st February, 2010 IOCL reported results which were inline with our estimates, primarily due to
budgetary support provided by the Government of India of Rs.44bn during the
BUY quarter. Revenue for the quarter was at Rs.652bn (against our expectation of
Rs.672bn), decline of 2.9%. EBITDA during the quarter was at Rs.17.2bn, decline
Price Target Price of 66.8% on a y-o-y basis. There was a fire incident at Jaipur terminal, amounting
to Rs. 2.8bn have been accounted during the quarter. Interest cost declined by
Rs.311 Rs.392
72.8% as debt levels have reduced significantly as compared to last year. During
the quarter the company reported net profit of Rs.6.9bn, decline of 76.5% on a y-o-
y basis.
Sensex – 16,358
During the quarter the company received budgetary support of Rs.71bn from the
GOI for the under-recovery of cooking fuel. However, this is substantially lower
than Rs.44.8bn of cooking fuel under-recovery that the company incurred for
9MFY10.
Though there has been some clarity on sharing mechanism (upstream companies
Price Performance sharing entire auto-fuel under-recovery), more budgetary support from GOI is
needed to keep IOCL in black. We expect GOI’s budgetary support to increase
(%) 1M 3M 6M 12M only if it is able to garner larger funds from disinvestment.
Absolute (2) (4) 10 38
Auto fuel under-recovery shared entirely by upstream
Rel. to Sensex 4 (6) 6 (22)
Source: Bloomberg We believe the highlight of IOCL’s results was the entire under-recovery of auto fuel
been shared by the upstream company. Upstream discount (pertaining to auto fuel
under-recovery) was Rs.43bn in Q3FY10 and Rs.20bn in Q2FY10. We believe these
are pointer towards proper sharing mechanism, auto fuel to be shared by upstream,
Stock Details cooking fuel by government.
Sector Oil & Gas
Reuters IOC.BO Budgetary Support towards under-recoveries on sales of LPG, Kerosene
Bloomberg IOCL@IN The Government of India has confirmed budgetary support of Rs.71bn to IOCL, of which
Equity Capital (Rs mn) 24280
Rs.44.8bn has been accounted for the nine months ended December ’09. The
Face Value (Rs ) 10
remaining amount will be accounted for in Q4FY10. We believe further budgetary
No of shares o/s (mn) 2428
support to OMC’s would largely depend on the disinvestment program of the
52 Week H/L (Rs ) 395/190
Market Cap (Rs bn /USD mn) 732/15,132
government and the amount that it collects through disinvestment.
Daily Avg Vol (No of shares) 984687
Daily Avg Turnover (US$ mn) 6.3 Interest cost significantly down
During the quarter, interest costs reduced by 72.8% to Rs.4bn as debt on the books
have reduced significantly. Net debt during Q3FY10 was at Rs.234bn. However, delay
Shareholding Pattern (%) in the issuance of oil bonds and recent increase in the crude oil prices might lead to
31/12/09 30/09//09 30/06/09 uptick in the interest cost in Q4FY10.
Promoters 78.9 78.9 78.9
FII/NRI 0.8 1.0 1.0 GRM at US$3.7 per bbl in Q3 FY10
Institutions 5.3 5.5 5.5 During the quarter, company has reported GRM of US$3.7 per bbl, which shrunk the
Private Corp. 9.4 9.2 9.2 average GRM from US$5.42 per bbl in 1HFY10 to US$4.84 per bbl in 9M FY10. For 9M
Public 5.6 5.4 5.4 FY10, GRM stands at US$ 4.84 per bbl compare to US$3.37 per bbl, up 44% on YoY
Source: Capitaline basis.
Valuation attractive, Maintain Buy
Amit Adesara We believe one of the highlights of the quarter was the entire under-recovery of auto
amit.adesara@emkayglobal.com fuel been shared by the upstream company as was the case in H1FY10. Though there
+91 22 6612 1241 has been some clarity on sharing mechanism (upstream companies sharing entire auto-
fuel under-recovery), more budgetary support from GOI is needed to keep IOCL in
Dhaval Joshi black. We expect GOI’s budgetary support to increase only if it is able to garner larger
dhaval.joshi@emkayglobal.com funds from disinvestment. At CMP, the stock trades at 1.5x and 1.3x FY10 and FY11
+91 22 6612 1282 P/BV. We maintain our BUY rating on the stock with target price of Rs.392.
Paragon Center, H -13 -16, 1st Floor, Pandurang Budhkar Marg, Worli, Mumbai – 400 013. India
IOCL L I M I T E D Result Update
Income Statement
Quarterly Result
Particulars Q3FY10 Q3FY09 Q2FY10 %YoY %QoQ
Net Sales 704097.7 705340.6 609697.0 -0.2 15.5
Net Sales 652257.2 612856.7 607873.0 6.4 7.3
Other Operating Income 7015.6 1654.0 1824.0 324.2 284.6
Govt of India (Special Oil Bonds) 44824.9 90829.9 0.0
Other Income 6782.8 18176.9 8481.1
Total Income 710880.5 723517.5 618178.1 -1.7 15.0
Total Expenditure 693625.2 671509.5 603559.1 3.3 14.9
Operating Profit 10472.5 33831.1 6137.9 -69.0 70.6
EBIDTA 17255.3 52008.0 14619.0 -66.8 18.0
Depreciation 7996.4 7275.3 7805.2
EBIT 9258.9 44732.7 6813.8
Interest 4090.7 15054.0 3477.2 -72.8 17.6
PBT 5168.2 29678.7 3336.6
Tax 1797.7 92.8 493.0 1837.2 264.6
PAT 6965.9 29585.9 2843.6 -76.5 145.0
Emkay Research 1 February 2010 2
IOCL L I M I T E D Result Update
Financials
Income statement Balance sheet
Rs. mn FY08 FY09 FY10E FY11E Rs. Mn FY08 FY09 FY10E FY11E
Revenue 2449691 3046261 2482089 2512892 Sources of Funds 819942 944439 988178 1053618
Expense 2346610 2983509 2308400 2359940 Shareholders Funds 410863 439982 528458 593898
Operating Profit 103081 62752 173690 152951 Equity Share Capital 11924 11924 24280 24280
OPM% 4 2 7 6 Reserves & Surplus 398939 428058 492038 545123
Other Income 41409 44274 37024 27954 Loan Funds 355232 449721 419721 399721
Depreciation 27097 28817 33708 38408 Deferred Tax Lia/(Ass) 53848 54736 40000 60000
PBIT 117393 78209 177006 142497 Application of Funds 818281 939878 981129 1053992
Interest 15512 39521 33578 31978 Fixed Assets 419420 525785 642077 718669
PBT 101491 42501 143428 110520 Gross Block 565182 617186 717186 817186
Tax 31178 11369 43028 33156 Less: Depreciation 239597 273262 306970 345377
PAT 70313 31132 100400 77364 Net Block 325586 343925 410217 471809
Capital WIP 93835 181861 231861 246861
Investments 215358 322321 377392 385009
Current Assets 529313 445352 247782 240612
Inventories 309415 251496 81603 82616
Debtors 68205 59379 20401 20654
Cash & Bank Balance 8244 7980 10897 2461
Loans & Advance 135547 115981 115981 115981
Other current Assets 7901 10516 18900 18900
Current Liabilities 345810 353580 286122 290298
Current Liabilities 328964 327546 260087 264264
Provisions 16846 26035 26035 26035
Cash Flow Kay Ratio
Rs. Mn FY08 FY09 FY10E FY11E FY08 FY09 FY10E FY11E
Profitability Ratio
Net Profit Before tax 100804 43286 143428 110520 EBITDA % 4.2 2.1 7 6.1
Depreciation 27074 30377 33708 38408 NPM% 2.9 1 4 3.1
Interest 15460 39521 33578 31978 ROCE% 9.3 3.6 14.2 10.9
WC Changes ROE% 17.1 7.1 19 13
Trade Receivables -1725 16313 -38978 253 Per share Data
Other receivables EPS 59 26.1 84.2 64.9
Inventory -62455 68976 169893 -1013 CEPS 81.7 50.3 112.5 97.1
Current Liabilities 66629 -9591 -67458 4176 BVPS 344.6 369 212.0 234.5
Operating cash flow -50301 -220016 265786 184322 Valuation Ratio
Direct Taxes paid -43609 7607 -43028 -33156 PE 10.9 24.5 7.6 9.9
Net Operating cash flow -93910 -212409 222758 151166 P/BV 1.9 1.7 1.5 1.3
Purchase of FA -69031 -126304 -100000 -100000 EV/EBITDA 7.3 12.3 5.2 6.1
Purchase of Investments 0 0 -130071 -77617 Gearing Ratio
Sale of Investments 93465 299388 75000 70000 Debt/Equity 0.9 1 0.8 0.7
Repayment of loans 0 0 -30000 -20000 Net Debt/Equity 0.4 0.4 0.5 0.5
Interest paid -17184 -43419 -33578 -31978
Dividend Paid -18134 -8484 -1192 -1192
Financing Cash Flow 49086 39504 -64770 -53170
Cash at the end 8244 7980 10897 2461
Emkay Research 1 February 2010 3
IOCL L I M I T E D Result Update
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Emkay Global Financial Services Ltd.
Paragon Center, H -13 -16, 1st Floor,
Pandurang Budhkar Marg, Worli, Mumbai – 400 013.
Tel no. 6612 1212. Fax: 6624 2410
Emkay Research 1 February 2010 4