The management is confident of benefiting from IMO-regulation led rise in GRM (more so at Paradip refinery) and expects current marketing EBITDA levels to sustain in FY20. GRM rose in Q2TD on Philadelphia refinery closure after explosion. IMO-regulation led benefit (on higher demand for middle distillates) seen starting from Q3FY20 and last until end FY21.

Current high level of marketing margin to decline leading to normalized auto fuel margin of `2.5/lt in FY20/21E. The stock trades at 1x FY21E book.

We marginally reduce our GRM and petchem margin assumptions to reflect Q1 performance and assume higher auto fuel marketing margin of `2.5/lt (at normalized levels) for FY20. We lower our FX assumption for FY20/21 to `69.7/71.1 (vs `72.7/72.7 earlier). All in, these changes have minimal impact on our estimates. Maintain ‘add’ with revised TP of `156 (170 earlier), 1.2x FY21E book value. We also take comfort from 6% earnings CAGR, >5% FCF/dividend yield, >15% RoE and 1x book value trading multiple.

GRM: (a) Normalized core GRM stood at `2.27/bl. Underperformed benchmark S’pore GRM due to difference in light and middle distillate yields (IOCL is diesel-heavy), (b) Paradip refinery had similar performance as that of other refineries in Q1 but expected to improve as volumes ramp up at PP plant in coming months, (c) Inventory gains in Q1 (vs our expectation of inventory losses) as some of the crudes in its slate had higher price by end of Jun’19 vs. end of Mar’19 (against dip in benchmark crudes like Brent/WTI), (e) FO yield was low at 3.9%in Q1.