‘Buy’ rating on IndianOil as earnings higher than estimate in Q4
New Delhi   01-Jun-2012

IndianOil’s Ebitda for Q4FY12 at R140 billion was higher than our estimate of R131billion. This was primarily because of a forex gain of R15.5 billion in other expenditure and adventitious gain of R3.5 billion, which was partially offset by petrol losses of R9.5 billion.

PAT for the fourth quarter stood at R127 billion against our estimate of R86 billion. The variation in PAT, apart from the Ebitda flow, was on account of (a) lower depreciation at R11 billion against an estimate of R13.1 billion; (b) higher other income at R25.7 billion against an estimated R7.5 billion; and (c) tax gain of R2 billion against an estimate of R26 billion. This was, however, partially offset by (a) higher interest cost at R15 billion (estimated at R13.6 billion); and (b) one-time provision of R15.4 billion towards entry tax for its Mathura refinery in UP. In Q4FY11, PAT was R39 billion and, in Q3FY12, R24.9 billion.

Other income for Q4FY12 at R25.7 billion was higher than our estimate of R7.5 billion. For FY12, IndianOil’s reported PAT of R39.5 bilion was marred by one-time provision of R77.1 billion towards entry tax for its Mathura refinery in UP. IndianOil made this provision as per a Supreme Court directive while staying an Allahabad High Court's order against IndianOil. The Supreme Court had agreed to give a conditional stay if IndianOil deposited 50% of the liability and provided bank guarantee for the rest. However, the actual amount to be provided will be known later.

IndianOil's petrochemical division reported Ebit of R1.7 billion, the second positive Ebit in the last eight quarters. Volatility in petchem profitability is due to delay in the stabilisation at its Panipat cracker. Gross debt increased to R754 billion as on March 31, 2012, against R527 billion in March 2011. As petrol is a de-controlled product, the government did not compensate its losses of R22.2 billion in FY12 and R9.5 billion in Q4FY12. However, in FY12, IndianOil received 100% compensation towards the controlled products (diesel, kerosene and LPG) as the government shared 60.3% and upstream shared 39.7%. We expect price hikes for controlled products any time in the near future. The stock trades at 9.5x FY13E EPS of R28.1 and 1x FY13E BV. We maintain a buy rating on the stock.