IOC shares erase early gains even after Q2 beat as refining outlook turns cautious

Shares of Indian Oil Corporation Ltd. opened higher but soon erased early gains and were trading with losses on Tuesday, October 28, after the state-run refiner reported its September quarter earnings.

Indian Oil's revenue came in at ₹1.79 lakh crore, slightly above Street estimates of ₹1.77 lakh crore, while net profit stood at ₹7,610 crore, beating the forecast of ₹6,353 crore.

EBITDA rose to ₹14,583 crore, higher than the expected ₹13,124 crore, with the EBITDA margin improving to 8.2% versus 7.4% estimated.

The company's gross refining margin (GRM) was $10.7 per barrel, higher than the projected $6.5 per barrel.

According to Jefferies, marketing margins on diesel and petrol averaged ₹7.4 and ₹11.6 per litre, respectively.

While margins have moderated so far in Q3FY26, the brokerage said there remains scope for healthy margins even if the government raises excise duties. However, Jefferies cautioned that the outlook for refining has weakened, as sanctions on Russia have reduced the supply of discounted crude.

Morgan Stanley, which maintains an 'Overweight' rating with a target price of ₹168, said Indian Oil's Q2 performance exceeded both consensus and its own projections.

The company's core profit after tax was ₹9,700 crore, adjusted for an estimated inventory gain of ₹670 crore ($1.8/bbl) and foreign exchange losses of ₹1,400 crore.

The brokerage said that Indian Oil's integrated margin of $12.6/bbl, including an LPG loss of $1.5/bbl, was the best in two years despite lower Russian crude intake.

Marketing volumes grew 5% year-on-year, outpacing the industry's 2% growth, as higher fuel refinery margins helped IOCL gain share from less integrated peers. Russian crude accounted for 19% of total intake, down from 24% in the previous quarter.

Nomura, which has a 'Buy' rating and a target price of ₹160, also said the strong refining performance.

It said IOCL's GRM of $10.7/bbl was driven by an inventory gain of $1.7/bbl, compared to a loss of $4.8/bbl in the June quarter.

Crude throughput fell 6% sequentially to 17.6 million tonnes, while adjusted net income rose 34% QoQ to ₹7,600 crore. The petrochemical segment turned profitable, reporting an EBIT of ₹170 crore against a marginal loss in the previous quarter.