Indian Oil shares: JM Financial sees downside potential on IOC stock; here’s why

Domestic brokerage JM Financial has reiterated its ‘Reduce’ rating on Indian Oil Corporation Ltd (IOC), with a 12-month target price of Rs 145 per share. The target suggests a potential downside of about 7 per cent from the current market price of Rs 156. The brokerage maintained its cautious stance despite the oil marketing major posting a strong earnings beat for the second quarter of FY26.

IOCL’s standalone EBITDA for Q2FY26 stood at Rs 14,600 crore, sharply higher than JM Financial’s estimate of Rs 10,600 crore and the Street’s expectation of Rs 13,400 crore. Consequently, Profit After Tax (PAT) surged to Rs 7,600 crore, well above the brokerage’s forecast of Rs 4,100 crore.

The stellar quarterly performance was driven primarily by the refining segment, which reported a robust Gross Refining Margin (GRM) of $10.7 per barrel, significantly above JM Financial’s estimate of $6.5 per barrel. The beat was led by a higher-than-expected core GRM of $8.9/bbl and a crude inventory gain of $1.7/bbl, resulting in a refining EBITDA of Rs 7,300 crore, far exceeding the projected Rs 2,700 crore.

However, the brokerage noted that the strong refining show was offset by weaker marketing performance. The marketing EBITDA was "slightly lower" at Rs 5,100 crore, missing JM Financial’s estimate of Rs 5,550 crore. IOCL’s implied market share also saw a mild dip, slipping to 38.7 per cent in petrol (MS) and 40 per cent in diesel (HSD) during the quarter. Meanwhile, the petrochemical segment EBIT, though showing a slight sequential improvement, "continues to be weak".

On the policy front, JM Financial highlighted a key update on LPG subsidies. The Ministry of Petroleum and Natural Gas (MoPNG) has approved Rs 14,490 crore in compensation to IOCL for LPG under-recoveries for FY25 and FY26, to be released in 12 equal monthly instalments starting November 2025. IOCL did not book any of this amount in its second-quarter results but will start recognising it from the next quarter.

Explaining its maintained stance, JM Financial said it reiterated the ‘Reduce’ call “on valuation grounds.” The brokerage noted that the stock is “trading at 0.97x FY27 PB (vs. last 3-year average of ~0.9x)”. While JM Financial expects “strong earnings growth over FY27–28” led by upcoming refining capacity additions, it believes the company’s integrated margins will eventually “normalise around historical levels.”