Indian Oil Corporation Ltd (IOCL) experienced a notable setback as its shares dropped by 4.3% to an intraday low of ₹140.7 per share on the Bombay Stock Exchange (BSE). The slide follows the company’s disappointing Q2 results, revealing a net loss that contrasted sharply with the profit it reported in the same period last year.
This development has put IOCL under pressure, raising questions among market participants on whether to invest in stocks in the oil and energy sector amidst volatility.
Financial performance shows a sharp decline
Around midday on Tuesday, IOCL shares were trading at ₹141.15, reflecting a 4.04% drop. The BSE Sensex index also reflected the broader market decline, trading down by 0.36% at 79,717.02. IOCL’s market capitalisation stood at ₹2,00,450.98 crore as the market reacted to its disappointing Q2 financial results.
The financial report released by IOCL showed a net loss of ₹169.58 crore for the second quarter of FY25, a substantial drop from the ₹13,114.3 crore net profit it recorded in the same quarter last year. Sequentially, the company’s net profit also fell sharply from ₹3,528.5 crore reported in the previous quarter, illustrating the challenging market conditions impacting IOCL's performance.
Gross refining margins under pressure
One of the key factors contributing to IOCL's losses was the decrease in its gross refining margins (GRMs), which are essential indicators of profitability for refineries. During the first two-quarters of FY25, IOCL reported an average GRM of $4.08 per barrel, which represented a decline of 68.9% compared to $13.12 per barrel in the first half of FY24. The core GRM, which accounts for price adjustments and offsets any inventory loss or gain, stood even lower at $2.97 per barrel, indicating reduced profitability for the company in its core refining operations.
Revenue declines while expenses rise
IOCL also reported a 3.24% decrease in its revenue from operations, which came in at ₹1,98,615.8 crore, down from ₹2,05,283.03 crore in Q2 FY24. This decline is mainly attributed to a drop in revenue from petroleum products, the company’s primary revenue driver, which saw a decrease of 3.9% to ₹1,830 crore compared to the previous year.
On the expense side, IOCL faced increased costs, with total expenses rising by 7.49% to ₹2,01,760 crore, up from ₹1,87,699.29 crore in the same period last year. Notable among these expenses were a 7.6% increase in the cost of materials and a 6.1% rise in purchases of stock in trade. These growing costs have added further strain on IOCL's bottom line.
Growth in smaller segments provides limited relief
Despite the overall negative results, IOCL's petrochemical division saw a modest revenue increase of 3%, reaching ₹6,813.3 crore in Q2 FY25, up from ₹6,613.3 crore in the first quarter of the same fiscal year. Similarly, revenue from other business activities recorded a 12% growth, climbing to ₹10,236 crore compared to ₹9,137.9 crore in the corresponding quarter last year. However, these gains were not substantial enough to offset the losses faced in the core segments.
Market outlook and future implications
Over the past year, IOCL shares have shown strong growth, with an annual gain of 66.66%, a noteworthy contrast to the Sensex's 24.7% rise during the same period. However, the latest financial figures indicate a challenging road ahead for IOCL. With the decline in gross refining margins and rising expenses, IOCL may face increased pressure to stabilise its financials.
The current environment serves as a reminder of the volatility inherent in the oil and energy sector, sparking debate over whether now is an opportune time to invest in stocks within this market. As IOCL navigates these turbulent times, investors will be closely monitoring its performance and strategy in the quarters to come.
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