Expansion, margin improvement likely to drive gains for Indian Oil

The IOC petrochemicals segment posted a profit of Rs 170 crore versus a loss of Rs 1 crore in Q1FY26

Indian Oil Corporation’s (IOC’s) Q2FY26 operating profit of ₹14,600 crore beat Street estimates and was up 16 per cent on a sequential basis. It surged 287 per cent over the year-ago quarter on account of an improved refining performance.

 

The core refining margin of $8.9 per barrel was well above estimates ($6.9 per barrel in Q1FY26). It was at a premium of $4.9 per barrel to the benchmark Singapore gross refining margin (GRM) of $4 per barrel.

 

The reported refining margin of $10.7 per barrel was driven by inventory gain of $1.7 per barrel (versus an inventory loss of $4.8/barrel in Q1FY26). 

The blended marketing margin came in above estimate at ₹6.2 per litre.

 

Refining throughput and marketing volumes came in line. The crude throughput dropped 6 per cent quarter-on-quarter (Q-o-Q) to 17.6 million tonnes. Adjusted net income, at ₹7,600 crore, was up 34 per cent Q-o-Q.

 

IOC’s petchem segment posted a profit of ₹170 crore against a loss of ₹1 crore in Q1FY26.

 

IOC booked LPG under-recoveries of ₹2,120 crore in Q2FY26 (₹3,720 crore in Q1FY26), with a cumulative net negative buffer of ₹25,770 crore by September 2025.

 

The government has committed to compensation of ₹14,490 crore towards under-recoveries incurred on sale of LPG up to March 2025 and that is expected until March 2026. This is to be disbursed in 12 equal monthly instalments (EMIs), starting November 2025. The compensation will be recognised in revenue on a monthly basis.

 

The management says LPG under-recovery was ₹100/cylinder in Q2FY26, easing to about ₹40/cylinder currently.

 

The FY26 capex plan totals ₹33,500 crore, with ₹14,000 crore for refining, ₹10,000 crore for marketing and pipelines, ₹2,500 crore for petrochemicals and ₹2,000 crore as equity investments in renewables joint ventures.

 

The key refinery expansion projects at Panipat, Gujarat, and Barauni are scheduled for commissioning by June and August of next year. It would add around 18 million tonnes per annum (MTPA) to overall capacity (around 25 per cent at full utilisation).

 

The PX-PTA plant (₹14,000 crore) would be commissioned by Q3FY27 and a poly-butadiene rubber plant (₹3,000 crore) by June 2026.

 

The PX-PTA plant and polybutadiene rubber plant are expected to come online by Q3FY27.

 

IOC has also secured a mid-term LNG sourcing contract of ₹0.4 MTPA linked to the Henry Hub index, effective July 2025 to December 2029.

 

Russian crude contributed about 18-19 per cent of total crude intake during Q2. And, Q3 procurement remains around the same levels.

 

The capex intensity remains high but the GRM boosted Q2 performance.

 

The commissioning of multiple projects over the next two years should lead to growth. Net profit was well above estimates as well.

 

In H1FY26, IOC generated a cash flow from operations of ₹31,270 crore against ₹2,520 crore in H1FY25.

 

The standalone capex was ₹14,720 crore and at September 30, 2025, standalone capital work in progress (CWIP) stood at ₹76,860 crore. It is up from Rs 73,450 crore as of March 31, 2025.

 

Net debt was at ₹1.28 trillion, down from ₹1.34 trillion at end-March 2025. The current debt-to-equity ratio is 0.68 times.

 

In renewables, the target is 31 gigawatts (Gw) by 2030, including a 10ktpa green hydrogen plant at Panipat refinery.

 

While petchem margins are under pressure, IOC guides to remain operating profit positive in FY26.

 

One concern could be normalisation of high blended marketing margins, especially if the government decides to hike excise duty or there are retail price cuts.

 

There is the threat of potential cut off of cheaper Russian crude supplies due to geopolitics.  

 

Many analysts are neutral on the stock despite the strong results and a 5.5 per cent rise in the stock price on Wednesday.