According to management, to inventory-adjusted GRM ($3.4/bbl), impact of price lag impact for product prices (15 days for petrol/diesel, 1 month for kerosene/LPG, varies for other products) should be added to get normalised GRM that will be comparable to SG complex margins. As per IOC, the product price lag impact in Q1 was $1.8/bbl; thus normalised GRM was $5.2/bbl. Overall GRMs were impacted by the 22-day shut-down at Paradip in April. Marketing segment Marketing segment Ebitda of `43.7 bn was up a sharp 46% q-o-q. Similar to refining segment, the marketing segment also benefited from inventory gains.

Also, marketing earnings were boosted by relatively lower product exports of 1.25mmt (29-30% lower q-o-q and y-o-y), as IOC was able to place more products in domestic market and thus earn higher margins. Valuation methodology We value IOC’s refining/marketing/ petchem business at 6x/7x/6x FY20F EV/Ebitda multiples. We assign an 8x FY20F EV/Ebitda multiple to the pipeline business. We value listed investments at a 20% discount to market price. Our target price remains `220, which implies 37% upside. The stock currently trades at 7.5xFY20F P/E (FY20F EPS of 21.4). The benchmark index for this stock is the Nifty-50. Risks: Lower-than-expected GRMs and higher inventory/forex losses could be negative. A very sharp increase in oil prices and inability of OMCs to raise fuel prices in line with price increase would be a negative.