HDFC Securities maintains ADD on IOC with a target price of INR 107, owing to an expected recovery in demand for petroleum products and, subsequently, refining margins in FY22/23. Reported EBITDA/APAT were 18/8% above our estimates, owing to higher GRM of USD 1.26/bbl (HSIE: USD 0.8/bbl), higher- than-expected throughputs, a higher-than-expected other income, offset by higher-than-expected tax outgo and finance cost. Refining and marketing business' inventory gains were INR 9.2bn and INR 17.1bn. Adjusting for inventory gains and forex gain, core EBITDA comes to INR 66bn.

Refining: Crude throughput in 3Q stood at 17.9mmt (+2/+28% YoY and QoQ). Throughput grew as utilisation across refineries was at full capacity in 3Q, as demand grew post un-lock. Core GRM stood at USD 1.3/bbl vs USD +2.0/-0.8 in 3QFY20/2QFY21.

Marketing: Domestic marketing sales volume was 23.1mmt (-2/+22% YoY/QoQ). Blended gross margin stood at INR 4.5/lit (+12/+3% YoY/QoQ) in 3Q, but these do not seem sustainable in the near term. We expect blended gross margins to correct to INR ~4/lit in FY22/23E.

Call takeaways: (1) Utilisation in 3Q for refinery/pipeline stood at 102/92% owing to recovery in demand. Polypropylene plant at Paradip is operating at 52% capacity. (2) Capex plan for FY22 is of INR 250-300bn. (3) Borrowings as at Dec'20 end stood at INR 725bn. (4) The Board has approved implementation of a 9 MMTPA refinery at Cauvery Basin, Nagapattinam by Chennai Petroleum Corporation Limited (subsidiary) at an estimated cost of INR 294bn, to meet the demand of petroleum products in southern India. (5) The Board has declared an interim dividend of 75% i.e. INR 7.5/sh for FY21.

Change in estimates: We raise our FY21/22 EPS estimates by 68.9/13.1% to INR 20.8/12.5 per share to account for overall performance in 9MFY21 and a change in crude oil price assumption.