Indian Oil Corp faces a slippery slope after weak Q4 results

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₹2,390 crore/$2.2 per barrel in Q4, despite the sharp rise in end-of-period crude prices by $9.4 per barrel," said Hemang Khanna, analyst at Nomura Financial Advisory and Securities (India) in a report on 1 May. For perspective, the brokerage had factored crude inventory gains of ₹1,400 crore/$1.3 per barrel. Accordingly, IOC’s reported gross refining margin (GRM) in Q4 came in at $8.4 per barrel, missing analysts’ estimates.

Also read: OMCs recovered losses from 2-year freeze on fuel rates with combined profit of ₹69,000 crore in FY24 Moreover, IOC’s marketing segment failed to compensate for the weak showing by the refining business, leading to muted Q4 results. Even so, IOC’s FY24 performance is nothing to sneeze at, with standalone Ebitda rising by 212% year-on-year to ₹69,400 crore despite core GRM dropping to $11.4 a barrel during the year from $20 in FY23. What gives? To start with, on the profitability front, the company had a favourable base.

Secondly, the marketing segment delivered a strong performance. According to Nomura, FY24 Ebitda benefited from the recovery in auto fuel marketing margins to supernormal levels of ₹4.9 a litre versus a negative ₹5.4 a litre in FY23. Investors have taken note.

In the past year IOC’s shares have gained about 108%. But sharp upsides could well be capped as IOC faces near-term pressures in both its key segments. As analysts from Kotak Institutional Equities pointed out, Q1FY25 is set to be dismal for OMCs, given the sharp correction in refining margins over past few weeks and the return of auto fuel under-recoveries since the recent price cut amid higher crude prices.