IOCL’s 2Q EBITDA missed our estimate due to a combination of higher inventory losses, lower petrochemical profits and lower marketing earnings. Paradip ramp up remained slow, with utilisation of 43% but management attributed this to stabilisation of units and remains confident of much better ramp up in 2H. Despite the miss, IOCL is on track to meet our full year FY17 estimate which is 27% above consensus, making upgrades likely. Maintain buy.
IOCL’s 2Q EBITDA was 20% below our estimate due to higher product inventory losses (Rs 7.3 billion vs estimate of Rs 2.6 billion), lower petrochemical EBITDA (R18.3 billion vs R20.3 billion in 1Q) and lower than expected contribution from marketing business.
Management pointed towards continued import related losses (mainly on LPG) in the marketing business but did not specify the quantum. GRM at $4.3/bbl was largely in line with our estimate — management indicated that there was no significant inventory gain or loss in the quarter in refining. Some of the miss in EBITDA was offset at PBT level by lower interest expense and higher other income. As in the last several quarters there was no subsidy burden for IOCL in 2Q.
IOCL is well on track to meet our full year FY17 EPS estimate of R36/share (standalone) having reported R24/share in 1H. Our full year estimate is 27% above consensus — as a result we expect upgrades to consensus estimates going forward.