Why Indian Oil Share Price is Falling

Editor's note: The share price of Indian Oil Corp (IOC) has shown a steady decline in the past few sessions.

Shares of the PSU company have been under pressure since the government doubled the windfall tax on diesel and aviation turbine fuel in July 2022.

Even after crude oil prices fell to seven-month lows, IOC was unable to pass the cost cut to the end users.

A similar downward movement in shares of IOC was seen in June 2022. We discussed the probable causes behind the fall.

Much has changed since then. Read on to know more....

Why IOC Share Price is Under Pressure

The Russia-Ukraine war has severely impacted the global market on all fronts. Be it commodities, currencies or the oil market, the war changed the scenario and had an effect on multiple industries.

The oil market, especially crude oil and natural gas, was badly affected. This is because the US announced economic sanctions on Russia and banned Russian oil imports, which sent crude prices to the sky.

As the Russia-Ukraine war goes well into its fourth month, the global energy market remains in turmoil.

The refineries are seeing a soaring GRMs (Gross Refined Margin) because of the price hikes in crude oil and natural gas.

Amid all this, shares of Indian Oil Corporation (IOC), the county's biggest oil firm, have been taken to the cleaners and has wiped away a quarter of its value in the past two months.

Let's take a look at some reasons why this could have happened...

#1 Pressure due to marketing margin

Marketing margin is the difference between the price of the raw material purchased to the finished goods price.

In the fourth quarter of 2022, the marketing margin for IOC was down Rs 2 per litre and it widened the company's loss to Rs 8.6 per litre.

The first negative marketing margin was reported in March 2022 at Rs 9.9 per litre. It further fell to negative 7.71 per litre in April 2022. Since then, auto fuel net marketing margins have been negative.

This fall in the margin has left shares of IOC with a negative impact.

Update: Changing the gear, for the first time since February 2022, crude oil prices corrected 30% registering a seven-month low. The recent collapse in crude came amid expectations of weaker global demand and strength in US dollar.

Indian refineries have been securing discounted supplies from Russia.

Yet, they are not passing on the cost savings derived from purchasing discounted Russian crude oil to the end-users of diesel and petrol. It was because of the high losses in June quarter 2022.

To tame inflation when crude oil prices were rising, the government caped the retail prices. Due to this, IOC incurred a loss of Rs 15 per litre on diesel. The fall in crude prices reduced this loss to Rs 8 per litre.

Due to this offset the company was unable to pass the benefit of cost cutting.

#2 Changes in shareholding pattern

The movements done by the promoters, domestic institutional investors including mutual funds and financial institutions, and foreign institutional investors (FIIs) usually impact the market price of the stock.

IOC saw a huge change in the financial institution/banks holding. This holding in the company was down to 0.625% from 8.32% in the previous financial year.

During the March 2022 quarter, IOC's mutual fund holding was also down to 2.29% from that of 3.38% in the previous quarter.

While FIIs increasing stake is a good thing, clearly domestic institutions have turned bearish on the stock and have consistently reduced their holding by a big margin.

Update: For the June quarter 2022, FIIs have reduced their stake in the company to 8.2% from 8.4% in the previous quarter.

For more details, you can have a look at Indian Oil Corporation's latest shareholding pattern.

#3 Disappointing Quarterly results

IOC, in the March 2022 quarter, reported a total revenue growth of 43% YoY to Rs 177.3 bn.

However, the company's net profit showed a decline of 31.4% YoY to Rs 69.5 bn. This was a result of margin squeeze in petrochemicals and losses on the auto fuel sales.

Revenue from operations rose to Rs 206 bn with a YoY growth of 26%. This was because of the rise in the GRM (Gross Refining Margin) due to the surging of crude oil rate in the country.

For the full financial year 2021-22, IOC has declared a final dividend of Rs 3.60 per equity share (pre-bonus), which translates to Rs 2.40 per equity share post-bonus.

Update: In the June 2022 quarter, IOC reported a revenue growth of 68% YoY to Rs 2.5 tn. However, the net profit tumbled down 85.6% YoY to Rs 8.8 bn from Rs 61.4 bn in the same quarter last year. This decline was due to the higher crude oil prices.

How shares of Indian Oil Corporation have performed recently

IOC share price is down 12% in the past one month. It has eroded over a quarter of its market value in the past two months.

The company touched its 52-week high of Rs 141.5 on 11 September 2021 and its 52-week low of Rs 101.9 on 8 October 2021.

It is currently trading just 2% away from its 52 week low.

IOC is currently trading at a PE (Price to Earnings) multiple of 4.05 times while it is also undervalued on the price to book front at 0.9%.

IOC shares are currently trading 27% down from its 52-week high.

About Indian Oil Corporation

Indian Oil Corporation is a Maharatna company controlled by the government of India (GOI).

It has business interests straddling the entire hydrocarbon value chain - from Refining, Pipeline transportation and marketing of Petroleum products to R&D, Exploration & production, marketing of natural gas and petrochemicals.

It has a network of fuel station, bulk storage terminals, inland depots, aviation fuel stations, LPG bottling plants and lube blending plants.

It also has set up approximately 257 electric vehicle (EV) charging station and 29 battery swapping stations at its energy pumps across the country.

For more details about the company, you can have a look at Indian oil Corporation's financial factsheet and latest quarterly result.

You can also compare Indian Oil Corporation with its peers.

IOC vs BPCL

IOC vs HPCL

IOC vs MRPL

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