IOC reported an increase of 14% y-o-y in net sales to Rs2,279.5 billion for FY08 led by an increase in sales volumes to 62.6 MMT (up 8% y-o-y). The increase in sales was also driven by 7.7% y-o-y increase in the refineries and 10.5% y-o-y increase in the pipeline throughput.
Further, accounting for oil bonds worth Rs190 billion for FY08 issued by the GoI for under recoveries has also led to the growth in net sales.
The company has suffered net under recovery of Rs97.7 billion after receiving discounts from the upstream companies amounting to Rs15.4 billion and oil bonds worth Rs190 billion from the GoI.
Margins under pressure
Despite more than four-fold increase in net under recoveries, EBITDA for FY08 increased 8.9% y-o-y to Rs127.2 billion. However, EBITDA margin witnessed a decline of 20 bps y-o-y to 5.6% owing to a steep rise in raw material prices and other expenditure during the year.
The growth in net profit was also attributable to 67% y-o-y jump in other income. Going forward, we believe that the increase in the borrowing cost due to the liquidity crunch would keep the margins under pressure.
At the current price, the stock trades at a forward P/E of 8.2x for FY09E and 7.2x for FY10E, respectively. Considering the liquidity crunch and under recoveries being incurred by the company, we reiterate our HOLD rating on the stock.