Indian Oil’s quarterly profit came in much higher than analysts expected. Most of the gain came from one-time inventory gains and very strong refining margins. The government is taking about half of that refining margin through an export levy, a detail most coverage has not highlighted.
Indian Oil Corporation reported standalone net profit of ₹21,630 crore for the September quarter, up 184% from ₹7,610 crore a year earlier. In the June quarter it had lost ₹2,661 crore. Analysts had expected profit of about ₹5,556 crore, so the result was almost four times the estimate.
EBITDA rose to ₹30,297 crore from just ₹1,947 crore in the June quarter, and the EBITDA margin rose from 0.7% to 12.1%. Consolidated profit was ₹22,503 crore.
Where the profit came from
Inventory gains. IOC recorded inventory gains of ₹6,948 crore in the quarter. It buys crude weeks before refining and selling it. When crude prices rise during that period, the inventory becomes more valuable and the company books a gain. Brent rose sharply in September, which produced large paper profits. These gains are one-time and reverse when prices fall.
Refining margins. IOC’s gross refining margin (GRM) was $36.67 a barrel before adjustments, compared with about $10.60 a year earlier. Global fuel shortages caused by the Gulf crisis have made refining very profitable, as Reliance’s results also showed.
The detail most coverage missed
IOC’s reported GRM, net of SAED, was $18.52 a barrel.
SAED is the special additional excise duty, a windfall tax the government applies to fuel exports when refining margins are unusually high. The difference between $36.67 and $18.52 means the government is taking roughly half of IOC’s refining margin.
That has two effects. For the government, it brings in significant revenue at a time when subsidies are pushing the fiscal deficit higher, so the levy partly offsets fertiliser and LPG subsidy costs. For IOC shareholders, it limits how much of the high-margin period reaches profits.
Lower debt
IOC also used the quarter to reduce debt. Borrowings fell to ₹1,16,578 crore at the end of September from ₹1,41,453 crore three months earlier, a reduction of almost ₹25,000 crore. That strengthens its finances ahead of the second half.
Domestic product sales fell 5% from the June quarter to 23.98 million tonnes, which suggests high prices are reducing fuel demand. Refinery throughput was 18.1 million tonnes.
What today’s oil fall means
This morning’s 3% drop in oil matters for IOC in two ways. Lower crude improves the marketing business, which sells petrol, diesel and household LPG at fixed prices. It also starts to reverse the inventory gains that inflated this quarter’s profit. If oil keeps falling, part of the ₹6,948 crore inventory gain will become a loss in the December quarter.
Lower prices would also reduce refining margins and the SAED levy. Profits would then fall back towards more normal levels, with the government’s windfall revenue falling too.
Renewables
IOC’s renewables subsidiary, Terra Clean, has 259.68 MW of capacity and targets 31 GW within five years through organic growth, acquisitions and joint ventures. That is a very large target from a small base, but this quarter’s cash flow gives IOC the means to invest.
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