The broking firm Jefferies has raised the target price to Rs 135 from Rs 130 earlier on the stock of Indian Oil Corporation. It, however, has kept the rating unchanged to “Hold” on the stock. It has also raised the net profit estimates for FY24 to 26%, without tweaking the FY25-26 estimates.
The brokerage said that the company’s earnings before interest, tax, depreciation, and amortisation beat the estimates and the reason can be large inventory gains in refining and marketing. This surge was despite a 20% decline in crude price during the quarter.
Jefferies believes that the regional refining margins will remain in the range in the current year. They will stay near the long-term average if oil demand remains muted, rising product inventory levels, and ongoing refining capacity additions.
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“We do not expect a sustainable improvement in ROE (return on equity) to justify higher P/B (price-to-book) multiples compared to hist avg (historical average),” said Jefferies in a research report.
On the risk side, the brokerage house sees any cut in fuel prices might hurt the company. The company’s marketing profits will decrease if oil prices rise. “Spike in crude prices brings back the risk of subsidies and volatility in marketing margins. Oil demand environment deteriorates, leaving refining margins soft,” it said.