Nuvama Institutional Equities retained its ‘Reduce’ rating on Indian Oil Corporation as the gross refining margins in Q1 FY26 plunged 66% year-over-year to $2.15 per barrel. The GRMs were below those of peers like BPCL at $4.9 and HPCL at $3.1. The brokerage has a target price of Rs 130 on the stock, implying a downside of 7% from the current market price.
This can be attributed to inventory loss of $4.8 a barrel despite a rise in Russian crude share to 24% in Q1 from 14% in Q4.
Nuvama on IOCL: Capex to increase debt
Plus, the brokerage house expects that FY26 capital expenditure guidance of Rs 33,500 crore to stay high on refining, petchem expansion, and NE projects. This shall weigh on RoCE and may lift the company’s debt.
Nuvama on IOCL: EBITDA and net profit came below estimates
IOCL’s EBITDA in Q1FY26 came in at Rs 12,600 crore, which was up 46% YoY, while the net profit stood at Rs 5,700 crore, jumping more than 100% YoY. However, both the numbers missed the brokerage’s estimates on the back of weak refining, petchem, and inventory losses, partially offset by strong marketing margins.
However, IOCL gained market share in Q1 compared to BPCL and HPCL. Also, LPG underrecoveries rose to Rs 23,600 crore against Rs 3,700 crore in Q1, but more details are awaited on LPG compensation.
“IOCL’s peak earnings are behind owing to weak near-term refining margin, LPG under-recoveries and the weak petchem segment. Moreover, a high capex cycle shall keep return ratios muted too, rendering risk-reward unfavourable,” said Nuvama in a research note.
IOCL’s share performance
The petchem major’s share price has fallen 6% in the last one month. However, IOCL’s share price has given a return of almost 16% in the past six months. The stock has corrected by over 17% in the last one year. IOCL’s stock price has surged 3.6% year to date.