Stock watch: IndianOil
New Delhi   28-Mar-2011
LTP: 310.90, 52-WK H/L: 458.90/274, EPS: 37.45

Business & background: The government-owned IndianOil is the largest refining and oil marketing company in India. It operates eight refineries with a capacity of 49.7 mmtpa and has majority control over Chennai Petroleum Corporation. IOC has a market capitalisation of over Rs 75,000 crore.

Prospects: Rather than fundamentals, IOC's profitability is driven by the subsidy-sharing mechanism and the quantum of under-recoveries. Plus, the indecision on diesel price de-regulations has led to disappointing performance by the stock, which has dropped from Rs 440 to Rs 310 over the past six months. Analysts expect IOC's refining margins to increase from $5.6 a barrel in FY11E to $6.4 a barrel in FY13E if crude prices fall. They also point out that IOC's earnings are least sensitive to crude prices compared with its peers, a factor that will play to the advantage of investors as it will ensure protection from downside risk in a high crude price scenario. IOC's earnings are least sensitive to crude oil prices compared with its peers, which may cap downside risk to the stock even if crude prices remain high.

Valuation: At present price level, the IOC stock is trading at 8.3 times its 12-month trailing EPS of Rs 37.45.