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IOC: Riding high
Feb 22: Brokerages are bullish on IOC's performance going ahead. Here are the reasons:
8(a) GRMs are on track for a US$ 2/bbl improvement from Q1FY18, as Paradip utilisation improves to >95% (from 85% now); (b) marketing EBITDA is guided to hold steady at Rs 20bn per quarter on cost reduction; and (c) future investments will mostly cater to efficiency gains across the value chain (refinery, marketing), while greenfield investments have peaked out.
 Paradip to bump up GRMs by ~US$ 2/bbl: IOCL’s Paradip refinery is on track to attain >95% utilisation levels in Q1FY18.  Expectation is for ~US$ 11/bbl GRMs for Paradip considering its product slate advantage (80% output comprises diesel and petrol). With operating costs at ~US$ 2/bbl, this refinery would prove more efficient than peers Bina (BPCL-Oman Oil JV) and Bhatinda (HPCL-Mittal Energy JV).
8Sustained benefits from cost reduction in marketing business: IOCL has consciously worked towards reducing logistic costs, especially for product sales to eastern parts of the country. Commissioning of incremental pipeline capacities and the start-up of its Paradip refinery (making it cost-effective to deliver marketing volumes to eastern India) have been major factors in the cost reduction. About 40% of product sales from Paradip would be through pipelines once the Paradip-Raipur-Ranchi pipeline is fully commissioned in Q1FY18. Marketing EBITDA at Rs 20bn per quarter looks sustainable (Rs 1,000/MT, excluding inventory adjustments).
8Diversification remains biggest strength: Competition from private refiners will have the least impact on IOCL considering (a) marketing EBITDA is 20% of the total (vs. 50-60% for HPCL/BPCL), (b) marketing EBITDA/unit is the lowest among OMCs and (c) refining earnings (50% of total EBITDA) will remain the primary growth driver post efficiency gains, while pipelines and petrochemicals (~30% of total) provide stability. ROE looks sustainable at >20% levels.
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