Indian Oil Corporation Ltd (IOC) witnessed a 3% surge in its share price during Tuesday's trade, driven by a confluence of positive developments. The oil marketing company reported better-than-expected March quarter results, alongside a second round of petrol and diesel price hikes within a week. Additionally, the company's board approved a significant joint venture for a Sustainable Aviation Fuel (SAF) project and declared a dividend.
Strong Q4 Performance Exceeds Estimates
IOC's March quarter performance surpassed analyst expectations, with Motilal Oswal Financial Services (MOFSL) noting that the beat was likely propelled by inventory gains. The company's Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) came in 30% above MOFSL's Q4 estimate, reaching approximately Rs 21,940 crore, a substantial 62% year-on-year increase. Marketing and refining throughput aligned with estimates, while other income exceeded projections. Furthermore, IOC booked a reduced LPG under-recovery of Rs 240 crore, down from Rs 960 crore in the preceding quarter.
Auto Fuel Price Hikes Boost OMC Outlook
The recent increase in petrol and diesel prices significantly contributed to the positive sentiment surrounding IOC and other oil marketing companies (OMCs). Petrol prices in New Delhi climbed by 87 paise to Rs 98.64 per litre, and diesel by 91 paise to Rs 91.58. This move is considered marginally positive for OMCs, which had been incurring daily losses of around Rs 750 crore on auto fuel marketing. Brokerages like Systematix and Nomura had previously anticipated a series of auto fuel price hikes, with Nomura suggesting a 25% per litre increase was needed for OMCs to break even.
Strategic Sustainable Aviation Fuel Venture Approved
Adding to the positive news, the IndianOil board approved the formation of a 50:50 joint venture with M11 Energy Transition. This venture, with an estimated project cost of Rs 1,063.60 crore, aims to establish a 100 KTPA HEFA-based Sustainable Aviation Fuel (SAF) project at Paradip. This strategic move aligns with global efforts towards decarbonization in the aviation sector and positions IOC at the forefront of sustainable energy solutions.
Dividend Declaration and Government Compensation
Further bolstering investor confidence, the company board declared a dividend of Rs 1.25 per share, pending shareholder approval at the upcoming Annual General Meeting. Separately, the Ministry of Petroleum and Natural Gas (MoP&NG) approved compensation of Rs 14,490 crore to IOC for under-recoveries incurred on the sale of domestic LPG up to March 31, 2026. This amount will be released in 12 equal monthly installments, with Rs 3,620 crore already recognized in Q4.
Following these developments, IOC's stock rose 2.88% to hit a high of Rs 135.65, somewhat trimming its year-to-date fall. Despite the positive news, MOFSL has maintained its 'Neutral' rating on the stock for now.