Brokerages bullish on the shares of these Maharatna companies post Q1 results

Following the release of Q1FY23 results, many brokerages have given the shares of NTPC Ltd. and Indian Oil Corporation Limited (IOCL) a buy call rating. Sharekhan and ICICI Securities each set a target price of Rs. 185 and Rs. 190 for NTPC, respectively. Emkay Global has a target price of Rs. 90 while Sharekhan has a target price of Rs. 82 for IOCL.

Indian Oil Corporation Ltd

Sharekhan has said in a note that “Indian Oil Corporation Limited’s (IOCL’s) Q1FY23 standalone operating profit of Rs. 1,359 crore (down 87.8% y-o-y and 88.3% q-o-q) steeply missed ours/street’s estimate led by a higher-than-expected loss (large negative marketing margin on petrol/diesel on non-revision of retail prices) in the marketing business and sharper-than-anticipated decline in profitability (EBIT down by 53% q-o-q to Rs. 269 crore) at petchem business. Even all-time reported GRM of $31.8/bbl could not provide any much relief from massive loss in the marketing business. Excluding inventory gains of $6.5/bbl, the crore GRM improved by 86% q-o-q to $25.3/bbl reflecting strong transportation fuel (diesel, petrol and ATF) crack spreads. Volume performance was mixed with a 4%/6/8% q-o-q increase in refinery throughput/marketing volumes/pipeline throughput to 19 mmt/23 mmt/24 mmt, but petchem volumes declined by 17% q-o-q to 0.6 mmt. The company reported a net loss of Rs. 1,993 crore (versus expectations of a net loss of Rs. 525 crore and PAT of Rs. 6,022 crore in Q4FY22) primarily on losses in marketing business and weak performance of petchem segment.”

“IOCL is the most attractively valued stock among oil marketing companies (OMCs) with a valuation of 0.7x its FY2024E P/BV and 4.2x its FY2024E EPS and has a balanced earnings profile with steady contribution from the pipeline and petrochemical segments, besides refining & marketing. Potential monetisation of non-core assets (hydrogen plant) could unlock value. Moreover, we believe that H2FY22 would factor in the worst for OMCs and a gradual normalisation of refining & marketing margins would lead to overall earnings recovery and sustained good dividend yield (~12% on FY24E DPS). Hence, we maintain a Buy on IOCL but with a lower PT of 82 (reflects lower PE multiple given sharp fall in refining margins),” said Sharekhan.

Emkay Global has said in a note that “IOCL reported Q1FY23 standalone EBITDA of Rs46.9bn vs. our estimate of Rs29bn. Net loss stood at Rs19.9bn vs. our estimate of Rs27.2bn loss. EBITDA beat was primarily led by an increase in reported GRM of USD31.8/bbl vs. our estimate of USD29.0/bbl. Core GRM came in at ~USD25.3/bbl (vs. USD22 est.). Refinery utilization was strong at 108% in Q1. Total marketing volumes were a 7% beat, with domestic sales up 23% yoy vs. 17% for industry. Petchem EBIT fell 53% qoq to Rs2.7bn, with volume down 17% qoq. Assuming Rs33bn of marketing inventory losses (incl. excise hit), our blended margin works out to negative Rs6.6/kg (vs. est. of negative Rs6.4/kg). Non-autofuel-LPG margins were a beat. Gross debt was up 26% yoy at Rs1,089bn on higher working capital needs. We cut FY23E EPS by 23%, building higher interest, forex loss, and exceptionals, largely maintaining EBITDA and FY24/25E EPS. We roll over to Sept’24E, retaining target multiple. We have cut our Sept’23E TP by 4% to Rs90. Retain Buy on reasonable valuations.”

NTPC

The brokerage firm Sharekhan has said in its research report that “NTPC Limited’s Q1FY23 standalone adjusted PAT grew at healthy pace of 6% y-o-y to Rs. 3,359 crore, which was sharply below our estimate of Rs. 4,072 crore. The miss in earnings was primarily on the account of lower-than-expected rise of 5% y-o-y (down 2.6% q-o-q) in standalone regulated equity base to Rs. 69,060 crore, lower late payment surcharge of Rs. 152 crore (versus Rs. 265 crore in Q1FY22) and a higher tax rate of 26% (versus assumption of 22%). Operationally, NTPC added 3 GW/4.6 GW y-o-y of standalone/consolidated commercial capacities to 55GW/69GW and commercial generation/energy sold increased strongly by 21.6%/21.9% y-o-y to 87BU/81BU. Plant load factor (PLF) for thermal power plants stood at 80.4% in Q1FY23 (versus 69.7%/76.1% in Q1FY22/Q4FY22) and plant availability factor (PAF) was at of 90.3% versus 89.6% in Q4FY22.”

“NTPC’s risk-averse regulated business model provides earnings growth visibility/RoE improvement and RE expansion would drive gradual re-rating of the stock as it would allay concerns on the ESG front. Additionally, potential monetization of its RE and power trading subsidiaries could further improve shareholders’ returns in the coming years. Valuation of 1x FY24E P/BV is attractive given steep discount of 28% to historical average one-year forward P/BV multiple of 1.4x and a healthy dividend yield of ~4-5%. Hence, we maintain a Buy on NTPC with a revised PT of Rs. 185,” claimed Sharekhan.

Whereas ICICI Securities has said that “With strong focus on alternate energy spectrum, we believe NTPC may be able to break the underperformance of the last decade and may witness a rerating coupled with monetisation of the renewable energy arm in FY23E. We maintain our BUY rating on the stock. We value NTPC at 190 i.e. 1.3x FY24E book value.”

“NTPC has 2000 MW commercialised renewable capacity while ~4000 MW is under construction. It is expected to reach a capacity of 10 GW by 2026. The company expects to spend ~40% of total capex planned for FY23, FY24 on renewable projects,” stated ICICI Securities as a key trigger for future performance of the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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