Indian Oil Corp’s Q4 Profit Surge Masks Persistent Refining Challenges

Indian Oil Corporation (IOCL) delivered a robust sequential rebound in its Q4 FY2024-25 results, reporting a standalone net profit of ₹7,265 crore—a 152% jump from the previous quarter. While this surge in profitability reflects operational improvements and margin stabilization, the broader narrative remains clouded by persistent headwinds in refining margins, LPG under-recoveries, and macroeconomic volatility.

Key Financial Highlights

The company’s Q4 performance was driven by a 91% sequential rise in EBITDA to ₹13,572 crore, with the margin expanding to 7% from 3.7% in Q3. This improvement contrasted sharply with the full-year average gross refining margin (GRM), which plummeted to $4.80/barrel in FY2025—down from $12.05/barrel in FY2024. Analysts highlighted that this decline, exacerbated by weak Russian crude discounts and global product oversupply, underscores the structural challenges facing Indian refiners.

Challenges and Headwinds

1. Refining Margins: The sequential GRM recovery in Q4 was modest, with the Singapore GRM dropping $1.7/barrel QoQ to $5.7/barrel. YES Securities noted that core integrated EBITDA margins shrank to $2.4/barrel—a 29% sequential decline—due to input cost pressures.
2. LPG Subsidies: LPG under-recoveries continued to weigh on profitability, with no policy resolution in sight. A depreciating rupee further amplified crude-linked import costs, squeezing margins.
3. Retail Fuel Margins: Diesel and petrol margins fell 29% and 21% QoQ to ₹6/litre and ₹10/litre, respectively, despite year-on-year growth.

Strategic Moves and Dividend

IOCL’s Board recommended a final dividend of ₹3 per share (30%), signaling confidence in cash flow stability. Meanwhile, the company revised the Barauni refinery expansion cost to ₹16,724 crore—up from ₹13,779 crore—reflecting inflation-driven project overruns. Additionally, a ₹1,086 crore investment in Terra Clean Ltd aims to boost renewable energy capacity by 4.3 GW, aligning with India’s net-zero goals.

Analyst and Market Outlook

• Nuvama Institutional Equities: Warned of a 42% YoY EBITDA decline for FY2025, citing weak refining GRMs and LPG subsidies.
• ICICI Securities: Highlighted that OMCs face margin pressures from crude volatility and currency fluctuations, with diesel and petrol margins slipping to ₹5.5/litre and ₹8.5/litre QoQ.
• YES Securities: Estimated blended marketing margins at ₹4.4/litre, noting that refining and marketing throughput remained constrained.

Stock Performance

Despite a 1.47% post-earnings rise to ₹137.77, IOCL’s shares remain 22.78% below their 52-week high. The stock’s April 2025 rebound (6.26%) followed a 37.22% decline between October 2024 and February 2025, reflecting investor skepticism about margin sustainability.

Conclusion

While Indian Oil’s Q4 results showcase a strong recovery in profitability, the underlying trends are mixed. The sequential rebound in net profit and EBITDA is a positive sign, driven by cost discipline and margin stabilization. However, the full-year GRM collapse to $4.80/barrel and persistent LPG under-recoveries highlight vulnerabilities.

Investors should weigh two key factors:
1. Global Crude Dynamics: A stabilization in crude prices and Russian crude discounts could alleviate margin pressures.
2. Policy Support: A resolution on LPG subsidies and currency management will be critical to sustaining profitability.

The dividend payout and renewable investments signal strategic resilience, but the road to sustained growth hinges on external factors beyond IOCL’s control. For now, the stock remains a high-yield play (8.84% dividend yield as of April 2025) but carries risks tied to refining sector volatility.

In summary, Indian Oil’s Q4 results are a flicker of hope amid a challenging landscape—encouraging but not yet definitive.