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Indian Oil: Why Indian Oil Might be Dalal Avenue’s Favourite OMC Inventory

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Indian Oil, the country’s largest oil advertising and marketing company (OMC), may emerge as a top pick among OMCs in 2017 given expectations of higher ear nings surprise as soon as its 15-million tonnes per annum (MTPA) Paradip refinery achieves full utilisation in March 2017.

The Paradip refinery is prone to match RIL’s gross refining margin (GRM), thereby improving the margin profile of Indian Oil (IOC).

At the top of the September 2016 quarter, Paradip refinery was oper ating at 43% of its total capacity. Several elements make the refinery an necessary catalyst in IOC’s future growth. Its operating matrix is sort of much like Reliance Industries’ refinery, which delivers a superior GRM.

The complexity of a crude oil refinery is globally measured with the help of the Nelson complexity index. Higher the index better can be theoretical GRM of a refinery. The Nelson complexity index of Paradip refinery will likely be 12.2, in contrast with 12.7 for RIL.

Another factor is the Paradip refinery shall be optimised to provide higher proportion of excessive margin products such as diesel, gasoline, and aviation turbine gasoline (ATF).

Also, being a coastal refinery, it’s going to assist scale back the inventory holding interval. This could lower the inventory loss throughout instances of upper volatility in crude costs.

The refinery will account for 20% of the company’s complete installed capacity of sixty nine MTPA. This can result in lower import of petroleum merchandise, which in flip oil and gas news aberdeen will scale back IOC’s exposure to forex fluctuations.

The combined impression of these elements is expected to generate $2.5-three.5 per barrel greater GRM for IOC.Analysts count on GRM of $6.1-6.Three per barrel for IOC for the subsequent fiscal, which doesn’t totally replicate Paradip refinery’s margin addition.

In line with Bloomberg’s consensus estimates, the FY18 earnings per share (EPS) for IOC are anticipated to develop by simply four.4% to Rs 32.7. This is prone to be revised upwards once the new refinery is totally commissioned. At Monday’s closing price of Rs 327.1, IOC was valued at 2.1 instances its guide, which is practically at 13% and 34% low cost to its friends, HPCL and BPCL, respectively.

With over 14% leap in the anticipated EPS, IOC is among the few corporations in the past three months to report earnings upgrades. The oil and gas news aberdeen valuation hole with other OMCs is likely to converge in the coming months as soon as increased GRM kicks in.Besides, a steady contribution from advertising and marketing and pipelines segments may also assist earnings.

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