Strong Margin Growth for IOC

Aided by Material LPG Compensation Boost in FY26

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INDIAN OIL CORPORATION'S performance in FY25 was muted, with standalone EBITDA declining 52% year-on-year and PAT down 67%, primarily due to significant one-offs. The underperformance was driven by an inventory loss of ₹5,500 crore, forex loss of ₹2,250 crore, and LPG uncompensated loss of ₹19,900 crore. Our recent interaction with the management, however, suggests that prospects for Indian Oil should improve materially.

LPG losses should moderate to ₹11,000-12,000 crore, thanks to a ₹50/cylinder price hike, a reduction in Asian propane prices. Inventory losses should be lower, due to lower volatility in prices, and forex is also expected to moderate. We remain positive on the stock given: (i) healthy probability of material LPG compensation in FY26; (ii) recovery in GRMs (gross refining margins); (iii) strong retail fuel margins due to fall in crude price; (iv) comfortable leverage; and (v) strong dividend yield. We reiterate our Buy rating.