Indian Oil Corporation Limited (IOC) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Indian Oil Corporation Limited Q1 FY '26 Results Conference Call, hosted by Antique Stockbroking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Varatharajan Sivasankaran from Antique Stockbroking Limited. Thank you, and over to you, sir.

Thank you, Ziko. And a very good morning to everyone. I would like to welcome all the participants to this 1Q FY '26 Indian Oil Corporation conference call. We have with us the management represented by Mr. Anuj Jain, Director of Finance; Mr. Nitin Kumar, CGM, Corporate Finance and Treasury; Mr. Pramod Jain, CGM Treasury; Mr. Prabhat Himatsingka, CGM, Finance and Treasury. I would now to like hand over the call to Mr. Anuj Jain for his opening remarks, and then we can move to Q&A. Sir, the floor is yours.

Thank you. Dear investors and analysts, a very good morning to all of you. I take this opportunity to welcome all of you to the conference call organized by us post announcement of the first quarter results of financial year '25-'26. I thank each one of you for joining the call. I trust you have had an opportunity to review the accounts we have posted on our website and the updates that have been shared with most of you. In today's call, we would like to walk you through our performance for the quarter gone, providing some insights on the broader macroeconomic context and also share with you the strategic initiatives we are pursuing to strengthen our position as India's large oil and refining and marketing company. Friends, let me start with our quarterly performance. This quarter, we have registered a profit after tax of INR 5,689 crore, which was INR 7,265 crores in the preceding quarter and INR 2,643 crores in the corresponding quarter of financial year '25. The decline from the last quarter was primarily on account of inventory losses, which we are going to discuss further. Revenue from operations during this quarter stood at INR 218,608 crores. This marks an increase from INR 217,725 crores in Q4 of financial year '24-'25 and from INR 215,989 crore in the preceding -- in the corresponding quarter of financial year '24-'25. In August 2025, the Union Cabinet has approved compensation amounting to INR 30,000 crores to the 3 public sector oil marketing companies, Indian Oil, BPC and HPC, for the under-recoveries incurred on sale of domestic LPG. We are yet to receive an official communication in this regard for further details and accounting. And a note on the same was given in the financial results also. I'm pleased to share our operational performance this quarter has been robust surpassing several key benchmarks of previous quarters. Our sales for the quarter were highest ever and many other operational achievements were made. This is a testament to the strength of our operating model, the agility of our teams and the efficiency of our extensive distribution network. Friends, now the operational and financial highlights will be briefed by my colleague, Mr. Nitin Kumar, CGM, Corporate Finance and Treasury. Over to you, Nitin.

Thank you, sir. Good morning to you all. Kindly note that today's discussion may include forward-looking statements, which are based on currently available information, assumptions and expectations and are subject to uncertainties that could cause actual results, performance or achievements to differ materially from those expressed or implied. Participants are advised to refer to company's latest filings with regulatory authorities for a more detailed discussion on the risks and uncertainty. The past quarter has witnessed important developments, both globally and domestically. On the interest rate front, the U.S. Federal Reserve has maintained the federal fund rate in the range of 4.25% to 4.5% through July 2025, reflecting the Fed's cautious approach amid persistent uncertainty in inflation and growth outlook. In India, the Reserve Bank of India reduced a benchmark repo rate to 5.5% in May 2025, representing a cumulative cut of 500 basis points over the last 6 months. On the growth front, reaffirming India's position as the world's fastest-growing major economy, IMF has revised its forecast for India's economic growth to 6.4% for both 2025 and 2026, RBI has maintained its estimate of 6.5% for financial year '25-'26. S&P Global Ratings has upgraded India sovereign rating to BBB, underscoring the nation's strong fundamentals and resilient growth. This strengthens investor confidence and support and supports better financing conditions for Indian corporates, including our own growth plans. For our sector, demand dynamics remain strong. As per PPAC data, India's domestic consumption of petroleum products reached 61.65 million metric tonne in the last quarter of financial year '25-'26 versus 16.5 MMT in the preceding quarter, marking a growth of 2%. This uptick was led by a sharp rise in diesel and gasoline consumption. For the current financial year, PPAC forecasts 4.65% growth in domestic consumption of petroleum products. This continued expansion reinforces India's role as a key driver of global oil demand in 2025. As the country's largest oil refiner and marketer, we remain steadfast in our mission to ensure energy availability across the nation at affordable cost. Looking ahead, we have set ourselves the goal of increasing our share of the national energy basket from 9% today to 12.5% by 2050. This is aligned with expected doubling of India's overall energy demand by mid cycle. To achieve this, we are pursuing a balanced portfolio approach, continuing to strengthen our conventional fuel business while making decisive moves into cleaner and more sustainable energy pathways. Our 3 major refinery expansion projects are progressing well and are on track for mechanical completion by 2026. With these expansions, our group refining capacity will increase from 80.8 million metric tonnes per annum to 98 million metric tonnes per annum, providing a critical boost to our ability to meet growing national demand and support India's vision of energy self-reliance. In parallel, we are investing in pipeline and marketing infrastructure to further fortify our supply and distribution network, ensuring that energy reaches every corner of the country efficiently. We are simultaneously scaling up our petrochemical capacity as this remains a high potential growth area, given India's low per capita consumption and significant import dependence. Our objective is to raise petrochemical integration from the present 6% to 15% with a focus on niche and special chemical products. On the clean energy front, we are scaling up investments in electric mobility infrastructure, including EV charging and battery swapping stations alongside projects in natural gas, compressed biogas, biofuels and green hydrogen, including hydrogen mobility solutions. Thus, we anticipate a gradual tapering of spends on conventional assets with a growing share of our CapEx being direct towards petrochemicals and alternate energy segments. Areas where we are making high conviction in strategic investments for the future. We have begun this -- we have begun the new fiscal year with a strong strategic thrust through the launch of Project Sprint, which is our transformational road map to not only sustain, but also accelerate our leadership in the energy sector. Sprint represents the confluence of 6 strategic pillars, strengthening their core business, cost leadership, customer centricity, cutting-edge technology and innovation, the development of the next generation of leadership and readiness for the energy transition. The idea is to move decisively beyond business as usual and position Indian Oil to reach greater heights while reinforcing our core strengths. Now let me briefly touch upon the quarterly performance highlights. Talking about a few numbers here, the average price of crude Indian basket during this quarter witnessed a reduction of about 12.4% from the immediately preceding quarter, that is Q4 of financial year '25. Various geopolitical factors starting from OPEC+ production adjustments, imposition of tariffs by the U.S. government have contributed in cooling the crude oil prices. With respect to the crack spreads during Q1 of FY '25-'26, both MS and HSD cracks have improved in comparison to the previous quarter. In petrochemical space, the spreads of key products registered a marginal improvement during the quarter, though they continue to remain at subdued levels, a weak global economic outlook, coupled with the addition of new capacities continue to exert pressure on petrochemical prices worldwide. Now let me briefly touch upon the major verticals, refineries. I believe you all would have gone through the operational performance highlights updated on our website. The report GRM of $2.5 per barrel during this quarter is lower than the previous quarter, mainly due to inventory losses. However, the normalized GRM for the quarter at $6.91 per barrel is better than the previous quarter of $5.39 per barrel. The increase in GRM is attributable to the higher product crack spread during the quarter, pipeline. The capacity utilization was about 74% during this quarter as compared to 73% in the previous quarter. Pipeline throughput during the quarter is 26.3 million metric tonnes vis-à-vis 25.8 million metric tonne during the previous quarter. Marketing. During the quarter, Indian Oil achieved highest ever total quarterly sale of 26.328 million metric tonnes. During the quarter, 445 retail outlets were commissioned, taking the total number close to 40,666. During financial year '25-'26, we plan to set up more than 4,000 retail outlets. Petrochemicals. The sale of petrochemical products, including exports during this quarter was 0.83 million metric tonnes, similar to the preceding quarter -- similar to the previous quarter amounting to 0.83 million metric tonne. Gas. During the quarter, we registered natural gas sales of 1,644 TMT, that is 1,000 metric tons and CGD sales of 41 TMT as compared to natural gas sales of 1,787 TMT and CGD sales of 34 TMT during the preceding quarter, that is Q4 of financial year '24-'25. We have entered into a long-term sale and purchase agreement with ADNOC for supply of 1 million metric tons per annum of LNG over a 15-year period starting from '28-'29. Indian Oil and Trafigura Private Limited signed a confirmation memorandum for the supply of approximately 0.4 million metric tonne per annum LNG from July '25 to November 2029 under Indian Oil's first Henry Hub linked midterm contract with the first LNG cargo delivered on 26th -- on 20th August '25 at Dahej. These are major steps towards enhancing India's energy security and reducing exposure to the volatility of the spot LNG market. Alternate strategies. We have marked several technological and operational milestones this quarter. We have recently signed a landmark contract and hydrogen purchase agreement with L&T Green Energy Technology Limited for the establishment of 10 KtPA green hydrogen generation unit at our Panipat Refinery. The expected completion time of the project is around 2 years. Indian Oil's wholly owned Green Subsidiary Terra Clean Limited, has secured ISCS grid connectivity of 1,354 megawatt cumulative capacity across India, land procurement activity is under progress. Our Panipat Refinery has become the first in the country to be certified to produce sustainable aviation fuel by converting used cooking oil into jet grade fuel, a milestone in India's green aviation efforts and our broader sustainability journey. CapEx. During the quarter, the company incurred a total CapEx of INR 6,470 crores, encompassing investment across all verticals. For financial year '25-'26, the budgeted CapEx is INR 33,494 crores. These investments are aligned with our long-term strategic road map and National Energy priorities. Borrowings. With respect to the borrowing, by borrowing levels, the borrowing as on 30th June '25 has decreased by about INR 13,000 crores and is at INR 121,547 crores level as compared to INR 134,466 crores as on 31st March '25. The decrease in the borrowings were mainly on account of year-end excise duty payment. With the current debt-to-equity ratio of 0.66 as on 30th June '25, Indian Oil is comfortably placed to fund the ongoing CapEx plans. Let me take a pause here and request Director of Finance for his further remarks.

Thank you, Nitin. As we progress through financial year '25-'26, our priorities remain firmly anchored in operational excellence, disciplined capital allocation and strategic investments that not only reinforce our core strengths, but also position us at the forefront of the evolving energy landscape. I extend my sincere gratitude to our shareholders, employees, partners and all stakeholders for their unwavering trust and support. With this strong foundation, we are confident in our ability to deliver sustainable value and long-term growth even in the face of a dynamic and challenging external environment. I will end my briefing here. We will now take your questions. Thank you.

[Operator Instructions] Our first question for today comes from Probal Sen with ICICI.

Congrats on good set of numbers. Just wanted to understand how much of Russian crude did you process this quarter and what sort of discounts? Obviously, the other oils you have already mentioned their own assessment. Just wanted to get your sense on this.

See, as far as '24-'25 was concerned, we almost processed 22% Russian crude oil, which in quarter 1, it got increased to 24%. And July and this quarter is still going on. And the discount as usual, everybody has said the same thing. It's in the range of around $1.50 to the Dubai benchmark.

Got it. And sir, just the other thing, again, that was just to corroborate the inventory impact this quarter was because we had actually built up our crude positions, keeping in mind the geopolitical uncertainty. Is there anything else that we should be looking at because of the high inventory loss this quarter?

No, basically, I would say inventory levels are being maintained based on our shutdown schedules and other requirements. So this quarter, whenever you see Indian Oil maintains quite high inventory because of our Haldia refinery. So whenever the crude oil prices come down, we take an impact on our financial statements. So if you see -- because this question will be asked by others also, this quarter, we had an inventory loss of almost INR 6,500 crores, whereas if you see the last -- Q4 last year, we had a gain almost of INR 10,000 crores worth.

So primarily, just to sort of understand that, essentially, this was related to our building of positions based on our shutdown schedule, not because of any other reason. That's the reason why...

Not because of other reasons. This is all normal inventory. We have been maintaining our normal inventory in our books of accounts.

Understood. One more question, if I can just slip in with respect to the targets, the 2 targets that they have mentioned. Correct me if I got the numbers wrong. One was our goal of increasing share in Indian energy from 9% to 12.5%. And the second was the petchem yield in our overall portfolio, sir, from 6% to 15%. Now I just wanted to understand the road map for getting there, one, and the time line. I'm sorry if I missed that in the briefing. What are the time lines for achieving these 2 targets?

See, as far as increasing our energy basket share from -- to 12.5%, it is by 2050. That was a major target set by the company. And basically, as you see, apart from our traditional refining and marketing business, we are also venturing big into the petchem sector. We're also venturing into the renewable sector. We're also venturing into our -- all types of energy, which are CBG, gas, CNG. So all these factors put together, we have an ambitious target of high CapEx and definitely, based on the outcome of the additional investment, we hope that we will be at around 12.5% of the total energy basket in the country.

Right. And about the petchem share, sir, again, that's the same target, 6% to 15% is by CY '50 or that is an earlier target?

No, that will be somewhere around -- I think it was 2030 plus/minus 1 or 2 years. So this target should be achieved much before that. Because if you have seen that apart from my existing investments in petchem, we have also announced a big investment of almost USD 1 billion in the dual-feed naphtha cracker at Paradip Refinery. And I think this has also started.

Got it. Sir, one last housekeeping question. I didn't quite catch the last number shared by -- in the operational briefing. What is the debt equity ratio that was mentioned right now?

0.66.

0,6. And what is the kind of peak debt equity ratio given our higher CapEx over the next few years? What kind of peak are we looking at maybe, let's say, by FY '28 or '29?

See, generally, the target to remain within 1:1 debt equity ratio.

So that would be the target?

So this is our benchmark what we internally keep.

Our next question comes from Sumeet Rohra from Smartsun Capital.

Congratulations for the entire team at Indian Oil. Sir, firstly, I want to congratulate you...

Sorry to interrupt you, sir. Mr. Rohra sorry to interrupt you there, sir. Sir, you're not audible, sir. May I request you to use your handset, please.

Okay, sure, sure. And congratulate you and the entire team at Indian Oil for doing a wonderful job. Sir, I would like to basically just spend a couple of minutes to talk to you more on the investor angle. Sir, firstly, it is very heartening. And congratulations to all the 3 companies in our downstream sector. Today, Copper India posted a profit of INR 439,000 crores in the first quarter gone by. And the oil marketing companies have reported a profit of INR 16,000 crores plus, which is about 4% of India's profit just the 3 companies. But sir, here as an investor, I come in, the market cap of the oil marketing companies is well under 1% of India. So on a sustainable basis, you guys are doing about 3% of profit of India, but your market cap is just not improving. If you just recall one thing, in 2017, our market cap was INR 2 lakh crore when our balance sheet was about INR 2.5 lakh crores. Today, sir, our market cap is INR 2 lakh crores, but our asset value has gone well above INR 5 lakh crores. So sir, one thing which clearly market tells us which we cannot ignore is the matter of fact is that market does not have clarity in the earnings of the oil companies, which is actually happening, but the confidence element is clearly missing, right? Because otherwise, for 7-year period, the market cap cannot be same when the underlying business is growing so well. And it's not only for you, it's for all the 3 companies. So sir, as a management, it is our humble request that a market cap should be please considered in the evaluation because it is an integral part of every stakeholder, maybe an investor, maybe be a shareholder, maybe even the government because the government is a principal owner because ultimately, market cap is all what matters at the end of the day when you evaluate how much return has the company given. Sir, just on the -- question on the LPG point of view. So this press release that stated that this was for FY '25. Is my understanding correct that the entire money would be accounted for in Q2 in spite of it being paid in tranches, this money would be accounted for in Q2. Your clarity on that, sir, would go a long way in addressing many things, sir.

I will address the second question first. As far as the breakup of INR 30,000 crores is concerned, we are awaiting the final modalities to be received from MOPNG. And according -- as per the Union Cabinet has already given INR 30,000 crores. But how it will be shared and how much it will be given for which period, we are waiting the final details from the MOPNG. So based on the communication from the ministry, we will be able to share further details with our investors. But I'm happy to say that there was a lot of concern in the past whether the oil companies will be getting this compensation or not. But again, back-to-back, government has supported to the oil marketing companies on this side, which if you remember out of INR 28,000 crores, we got INR 22,000 crores. And now out of INR 41,000 crores, we got INR 30,000 crores. So I think this is a good sign for the continued support to the oil marketing companies. And coming to the first part where you said that market cap, see, for the past 3 years, you have seen such a huge geopolitical factors affecting the oil and marketing companies. So I think this is also one of the factors, which is affecting the companies -- how the investors see these oil marketing companies. But definitely, on the operational front, I can definitely talk about Indian Oil that our operational parameters have been beyond our targets. And we have rapidly ramped up of all our operational funds and the projects -- another one thing I would share is a lot of projects got -- we started the project during COVID time. And now the projects are almost going to be completed. So this is a time we are spending a lot of money, but the income has not started coming in our P&L. So in the next 1 year, you will see all the projects getting commissioned and the income starts coming in our books of accounts. So that should give a big comfort to our industry.

Just one thing if I may add, sir. The matter of fact that our cash flows are getting stronger as we go ahead. I would request that you should, I mean, consider buyback because that will be very effective in boosting our EPS, our financial matrix and also it will be a sign of strength signifying that the way we are looking at our thing. So I would say -- I would request, sir, a buyback should definitely be considered, sir.

Okay. Point noted, sir. Thank you.

Our next question comes from Achal Shah from AMBIT Capital.

Am I audible?

Yes.

Sir, just wanted to understand about the aviation business. So currently, what is our market share, margin structure? And what are the volumes we are doing? Can you shed some light on that broad numbers would help?

As far as market share is concerned, our market share is between 55% to 60%. Keeps on waving, really from 55% to 60%.

Okay, sir. Sir, about the margins, like how much are we making on EBITDA level or on a per liter basis, that would be useful?

See, generally, I don't see margin on -- see, we have an integrated margin. That is why we come with the gross refining margin figures in our financial statement. But as such, if you see the international market, the refining -- the trend on the aviation front is quite robust and the kind of growth aviation business is seeing year-on-year, we are very bullish on the aviation business in our company.

Sir, like is there any discounting to maintain the market share because crack spreads have been positive, but like any idea on that front?

See, in any of the products which are competitive, discounts are part of the game. And it keeps on -- based on the market dynamics, we fine-tune our strategy. But as such, what I'm saying, there's so much growth in the aviation sector that all the companies who are in the aviation business will have a very robust growth forward. And our company is very, very focused on the aviation business. This is one business which is going to some maximum growth in the country. We have a refining expansion coming. There also, we are focusing on ATF production maximization also.

Got it. Just one more question on the throughput per outlet. Sir, what is our throughput per outlet for like FY '25 or for 1Q FY '26? And what are the steps we are taking to increase that there since BPC is leading on a throughput per outlet basis. So to increase the throughput, what are some steps we are taking?

See, my pipeline throughput is around 130, 1-3-0.

KL per month? This is for KL per month.

KL per month, yes. And see, we are taking a lot of strategies, as Nitin also shared with you. Project Sprint we have started, where we have -- one of the three targets is, one, increase the PPT. How it will be done is, first, we are targeting the middle selling retail outlets. Number two, we also are seeing the low selling retail outlets, how we can work with our channel partners to increase the sales of our retail outlets. And number three, we are also trying to commission new retail outlets in the segments, which are having a traditionally high pipeline throughputs. As you understand, if you compare with BPC or other oil marketing companies, Indian Oil has been going to the area where generally the throughputs are not high, in the Northeast, in the remote areas. So that is the strength of the company also that we are present in all the markets in a good strength. So it may affect my PPT, but it gives me leverage to encash. Whenever any expansions are required, any new products are to be introduced, any new expansions are there, we are also targeting a few other expansion, and we have already a joint venture company in fertilizer sector. So I think we see all these things on a holistic basis where we will be able to encash even those retail outlets where who doesn't give me higher PPT today.

Sir, so would we be thinking of discounting?

Pardon?

Would we give additional discounts versus the other PSU OMCs?

All the three oil marketing companies generally maintain the same pricing strategy in the market. So that way, all the 3 marketing companies are aligned to each other.

Sir, just one last question. What was LPG under recovery per cylinder in 1Q FY '26? And in August or currently, what is the per cylinder loss under recovery?

See, if you see the LPG under recovery in last -- in Q1 financial year '25-'26, it was around in the range of INR 160 to INR 165 per cylinder. And today, it is in the range of INR 100 to INR 105 per cylinder as on date.

Our next question comes from S. Ramesh with Nirmal Bang Equities.

Can you share the breakup of the inventory loss you mentioned between refining and marketing?

See, we'll only -- I can give indicative figure. It is around 50, 50 percentage what would be the -- my loss in the crude and the product side.

And the total inventory loss is INR 6,500 crores, did I hear it correct?

Yes, yes, that is correct.

Okay. So if you look at your gas business, the revenue Y-o-Y, if you look at last year first quarter and this year first quarter is more or less same at INR 10,000 crore, but the profits have crashed from INR 654 crores to INR 50 crores. So what is happening there? Is there a loss in your LNG business? We know that the CGD business is not that big. So you may have had some challenges there. But what is happening on the LNG business? And going forward, how do you see the gas business perform both in the stand-alone CGDs and your LNG business?

See, as far as gas business is concerned, that is one of the most profitable business for Indian Oil. The margins -- internationally, the prices have been high or presently in the past 1 quarter. So definitely, it affected our profitability.

Okay. So what is the way forward? How do you see the gas segment move from here in terms of the growth in your CGD business, in terms of the CapEx and CGD and the number of CNG stations there?

See, if you segregate my gas segment, one is the LNG, one is the CNG, that continues to be a reasonably stable business for me. Number two is, my LNG business for the industrial use. There, the margins have come down because of the high pricing in the international market. And the third segment, CGD segment, it is definitely becoming stronger day by day. But as on date, it doesn't give you a huge either profit or negative to my gas business.

Okay. Sir, can you share what is the kind of CapEx you're going to do in the stand-alone CGD? And what is the kind of growth in volumes you expect from the volumes you have shared for the first quarter, say, over the next 2 years?

Yes, give me 1 minute. See, as far as I'm concerned, we have a target of spending almost INR 22,000 crores in my total CapEx, which I'm envisaging in my CGD segment. Already, I have spent almost INR 4,000 crores to INR 5,000 crores as on date. And we aim to spend almost INR 1,000 crores each year in the CGD segment. We want to monetize our investments in the times to come. And definitely, we will spend our money as GA, we assume that the GA starts giving the money to me. But my predominant focus is my LNG segment to the industrial use and also CNG business.

Okay. So going back to LNG in your petrochemical business, so LNG, they have -- NO terminal you're planning to expand that. So how do you see the LNG economics going forward? What is the kind of breakeven you need because there's a lot of competition from the new terminals at Dhamra and Petronet LNG is talking about something in Gopalpur. So in terms of your current cash flows from the NO terminal, if you can shed some light in terms of what is the profit or loss you're making? And how do you see that changing, but based on your expansion plan from 5 million tonnes to 10 million tonnes?

See, if I see my existing NO terminal capacity utilization, in '23-'24, it was around 18%, which went up to -- which became 25% in '24-'25. And this year, I'm expecting it to again go up to 31% to 32%. By next year, it should be quite high because the way the infrastructure is getting generated created along with the NO terminal, definitely the demand from the NO terminal will go high.

Okay. So last doubt on petrochemicals. So we all know that the margins are under pressure globally. You have an integration plan in terms of increasing the share of petrochemicals. So in terms of your competitive advantage, if you revisit this narrative about the domestic market being import dependent, what is the kind of cost leadership you will enjoy based on your integrated capacities? Would you be there in the top 10% or 25% in terms of cost leadership? And would that be your competitive advantage to kind of ramp up the petrochemical business and cash flows, assuming that the excess capacity may not get mitigated because China keeps adding capacity. So that's a clear overhang. So given that context, how do you see you remaining competitive once your expansion plans are completed?