Share Price of IOCL Dips to Nine-Month Low Amid Q2 Profit Slump

Indian Oil Corporation Ltd. (IOCL) witnessed a significant fall in its share price, reaching a nine-month low as Q2 results revealed a sharp profit decline. On October 29, IOCL’s share price dropped by 3% after reporting a 93.2% drop in net profit, pressured by reduced marketing margins and weak refining performance. Here’s a closer look at what impacted IOCL’s financials this quarter.

Q2 Results Highlights

In its latest financial report, IOCL disclosed a drastic fall in profits, driven by lower refining margins and dwindling revenues in its core petroleum segment. Key figures include:

• Revenue: Down 9.6% QoQ to Rs 1,73,847.58 crore
• EBITDA: Declined by 56% to Rs 3,772.42 crore
• EBITDA Margin: Narrowed to 2.2% from 4.5%
• Net Profit: A steep decline of 93.2%, settling at Rs 180.01 crore for the quarter ended September 30, 2024

Factors Affecting Revenue: Petroleum Segment Takes a Hit

The primary reason behind the revenue dip was a 10% drop in the petroleum segment, largely due to weakened demand during the monsoon season. Despite steady revenues from petrochemicals at Rs 6,813.36 crore, the petroleum sector downturn significantly impacted IOCL’s overall revenue performance, bringing down the company’s share price.

Shrinking Gross Refining Margins

IOCL’s gross refining margins, a key metric for profitability, also took a substantial hit. For the first half of FY25, the gross refining margin was $4.08 per barrel, marking a steep 68.9% drop from the previous year. After adjusting for inventory losses, the margins further dropped to $2.97 per barrel, emphasizing the challenges faced by the refining segment. Inventory losses affected the bottom line as IOCL acquired crude oil at higher prices amid falling market rates, pushing down share prices.

Rising LPG Losses and Government Subsidies

A considerable portion of IOCL’s financial strain stems from rising losses in its LPG segment. The company’s cumulative LPG loss grew to Rs 8,870.11 crore by the end of Q2 FY25, nearly double the Rs 4,000 crore in Q1. This increase can be attributed to government-mandated subsidies, requiring IOCL to sell LPG cylinders below cost. These sustained losses in LPG sales weighed heavily on the company’s bottom line and influenced share price movement.

Exceptional Gains and Supreme Court Ruling

Despite the profit slump, IOCL managed to cushion some losses through an exceptional gain of Rs 1,157.30 crore. This gain followed a favourable Supreme Court ruling on VAT input tax credit under the Gujarat VAT Act 2005, which provided temporary relief to the company amidst financial strain.

Conclusion: Share Price Outlook

With the current financial pressures, IOCL’s share price hit a nine-month low, driven by weak refining margins, reduced demand, and sustained LPG losses. While the Supreme Court ruling provided some relief, the company’s outlook may remain under strain unless there’s a rebound in refining margins or adjustments in the LPG subsidy framework. Investors will likely watch for improvements in these areas, as IOCL navigates through these challenging conditions.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.