Indian Oil Corporation (NS: IOC ): Our ADD rating on Indian Oil Corporation (IOCL) with a target price of INR 82 is premised on (1) recovery in domestic demand for petroleum products, (2) improvement in refining margins for FY23/24 and (3) gradual improvement in marketing margins over FY23-24 vis-à-vis FY22 levels.
DLF (NS: DLF ): During Q1FY23, DLF booked robust presales of INR 20.4bn (+101/-25% YoY/QoQ) and maintained FY23 presales guidance of INR 80bn. During the quarter, it launched 0.7msf, with 7.6msf in the pipeline for FY23 (6msf launched in FY22). In value terms, for Q2/Q3/Q4FY22, launches worth INR 20/25/20-25bn are in the pipeline. New products contributed 75% to sales in Q1FY23 and are expected to be EBITDA margin accretive at 50% plus. Collections were subdued at INR 10bn and are expected to improve from Q3FY23, with a significant ramp-up in business activity. DCCDL, rental income improved to INR 9.3bn (+20%/+7% YoY/QoQ), with occupancy flat at 88%. The occupancy is expected to increase to the mid-90s within the next twelve months, with FY23/24 rental income exit run-rate improving to INR 44bn/49bn. Given that there are (1) price hikes in premium projects; (2) robust launch plans; and (3) expected increase in office occupancy levels, we maintain BUY on DLF, with a TP of INR 450/share.
DCB Bank (NS: DCBA ): DCB Bank’s earnings were significantly ahead of our estimates, driven largely by strong traction in loan growth (+17% YoY) and lower credit costs (50bps - annualised), partially offset by elevated opex intensity. While gross slippages surged to ~8.3%, driven by the gold loans and KCC portfolio (Q4FY22: 5.5%), healthy upgrades/recoveries led to a marginal 10bps sequential improvement in GNPA, to 4.2%. The stress pool continues to remain sticky (NNPA + restructured book at ~8% of loans); however, management reiterated credit costs to remain range-bound (~50-60bps) on the back of improving collection efficiency and a granular and secured loan book (~95%). With a stubborn stress pool and elevated opex intensity for driving business throughput, we see limited near-term levers to reflation in return ratios. We trim our FY23/FY24 earnings estimates by 7%/5% to factor in NIM moderation and maintain ADD with a revised TP of INR126 (0.9x Mar-24 ABVPS).
Indian Oil Corporation
Marketing losses erode refining gains
Our ADD rating on Indian Oil Corporation (IOCL) with a target price of INR 82 is premised on (1) recovery in domestic demand for petroleum products, (2) improvement in refining margins for FY23/24, and (3) gradual improvement in marketing margins over FY23-24 vis-à-vis FY22 levels.
Reported EBITDA stood at INR 17bn (-85% YoY, -86% QoQ), 40% below our estimates, affected by high other expenses. IOCL reported higher-than-expected loss of INR 20bn (HSIE: INR 10bn loss), owing to very weak performance from the marketing segment. Losses were offset by above- estimated GRMs, refinery inventory gains, and higher throughput. Reported GRM stood at USD 31.8/bbl (HSIE: USD 23.2/bbl), while core GRM was at USD 25.3/bbl (HSIE: USD 17.8/bbl).
Refining: Crude throughput in Q1 was 1% above estimate at 18.9mmt (+13% YoY and +4% QoQ). Capacity utilisation stood at 108.4%. Reported GRM stood at USD 31.8/bbl vs USD 18.5/bbl in Q4FY22 and USD 6.6/bbl in Q1FY22. Our derived refining EBITDA, at INR 239bn (+9.6x YoY, +2.2x QoQ), improved substantially, driven by higher GRMs and throughput. We estimate core GRMs for IOCL at USD 9.5/8.8 per bbl in FY23/24E.
Marketing: Domestic marketing sales volume stood at 21.3mmt (+23% YoY), while exports were at 1.7mmt (+6% YoY). Derived marketing EBITDA loss stood at INR 254bn, impacted by weak marketing margins and likely higher inventory loss on account of excise duty cut on petrol/diesel. We expect blended gross margins of INR 3/3.5 per liter in FY23/24E.
Updates: (1) IOCL’s gross debt, as of Jun-22 end, stood at INR 1,089bn, (+27% YoY, -1.7% QoQ). (2) A forex loss of INR 29bn was reported in Q1.
Change in estimates: We cut our FY23/24 EPS estimates by 6/4% to INR 12.5/14.2 to factor in lower marketing margin estimates; however, the same was offset marginally by higher crude throughput estimates.
Our SOTP target, at INR 82/sh, is based on 5x Mar-24E EV/e for standalone refining and petchem businesses, 6x Mar-24E EV/e for marketing business and pipeline business respectively, and INR 23/sh for other investments. The stock is currently trading at 5.1x on FY24E EPS. Maintain ADD.
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