The stock has responded enthusiastically to the earnings momentum, surging 38.85% over the past year and currently trading at ₹175.65—just 1.32% below its 52-week high of ₹178.00. With shares outperforming the Sensex by a commanding 32.37 percentage points over the past 12 months and trading at an attractive 10x trailing earnings multiple, Indian Oil presents a compelling case for value-conscious investors seeking exposure to India's energy transition story.
The September 2025 quarter results underscore a dramatic shift in the company's earnings trajectory. After navigating through a challenging FY25 marked by volatile crude prices and compressed refining margins, Indian Oil has capitalised on improving industry dynamics. The company's standalone net profit of ₹7,479.57 crores in Q2 FY26 represents a substantial 32.19% increase quarter-on-quarter and marks a complete reversal from the ₹1,123.93 crore loss reported in Q2 FY25.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 1,78,628.15 | -7.13% | 7,817.55 | +14.73% | 9.09% |
| Jun'25 | 1,92,340.65 | -1.50% | 6,813.71 | -16.12% | 6.90% |
| Mar'25 | 1,95,270.29 | +0.65% | 8,123.64 | +284.04% | 7.70% |
| Dec'24 | 1,94,014.49 | +10.88% | 2,115.29 | -1347.37% | 3.90% |
| Sep'24 | 1,74,976.12 | -9.73% | -169.58 | -104.81% | 1.98% |
| Jun'24 | 1,93,844.91 | -2.42% | 3,528.49 | -31.47% | 5.12% |
| Mar'24 | 1,98,649.76 | — | 5,148.87 | — | 6.03% |
Financial Performance: Margin Expansion Powers Profitability
The standout feature of Q2 FY26 was the dramatic expansion in operating profitability. Operating profit before depreciation, interest, and tax (excluding other income) surged to ₹16,245.00 crores, translating to a robust 9.09% margin—the highest in the past seven quarters. This represents a sequential improvement of 220 basis points from Q1 FY26's 6.90% and a remarkable 711 basis points year-on-year leap from the depressed 1.98% margin in Q2 FY25.
On a standalone basis, net sales for Q2 FY26 stood at ₹1,78,628.15 crores, registering a 2.09% year-on-year increase despite a 7.13% sequential decline attributed to seasonal volume variations. The company's ability to maintain pricing discipline whilst navigating crude price volatility has been instrumental in preserving margins. Net profit margin expanded to 4.59% in Q2 FY26 from 3.54% in the preceding quarter, reflecting improved operational efficiency and better product realisations.
Interest costs remained well-managed at ₹2,269.69 crores in Q2 FY26, up marginally from ₹2,070.05 crores in the previous quarter but down from ₹2,546.37 crores in the year-ago period. The company's operating profit to interest coverage ratio improved dramatically to 7.16 times in Q2 FY26, providing substantial financial flexibility. Tax expenses of ₹2,912.85 crores at an effective rate of 26.23% were within normalised ranges, suggesting no material one-time adjustments.
Margin Dynamics: The Refining Renaissance
Indian Oil's margin recovery story is intrinsically linked to the refining cycle. After enduring margin compression through much of FY25, the company has benefited from improved gross refining margins (GRMs) in recent quarters. The 9.09% operating margin in Q2 FY26 reflects not just better crude-to-product spreads but also enhanced operational efficiency across its 11 refineries with 80.7 million tonnes per annum capacity. Product mix optimisation and higher value-added derivatives have contributed to this margin expansion, positioning the company favourably as domestic demand continues to grow.
Operational Excellence: Capital Efficiency Gains Traction
Indian Oil's return on equity (ROE) of 14.73% on an average basis demonstrates healthy capital efficiency, particularly impressive given the capital-intensive nature of refining operations. The company's latest ROE of 12.35% reflects the improved earnings trajectory, though it remains below the five-year peak levels achieved during periods of exceptionally strong refining margins. Return on capital employed (ROCE) stands at 12.12% on average, with the latest reading at 10.61%—adequate but suggesting room for further improvement as capital projects commissioned in recent years ramp up to optimal utilisation.
The balance sheet as of March 2025 reflects a well-capitalised enterprise with shareholder funds of ₹1,86,487.32 crores supporting total assets. Long-term debt stood at ₹51,755.75 crores, resulting in a debt-to-equity ratio of 0.28—conservative for an infrastructure-heavy business. The company's debt-to-EBITDA ratio of 3.18 times (on average) indicates manageable leverage, whilst the average net debt-to-equity of 0.68 provides financial headroom for growth investments.
✓ Key Operational Strength: Indian Oil's integrated value chain—from refining through pipelines to extensive retail distribution—provides natural hedges and margin stability. The company operates India's largest network of petrol pumps (over 35,000 outlets) and owns critical pipeline infrastructure, creating formidable competitive moats. This integration allows the company to capture value across the hydrocarbon chain whilst maintaining supply security.
Working capital management showed mixed signals in FY25, with changes in working capital consuming ₹733.00 crores compared to a positive contribution of ₹6,256.00 crores in FY24. This reflects inventory build-up and receivables management challenges typical of volatile commodity price environments. However, cash flow from operations remained robust at ₹34,699.00 crores in FY25, down from the exceptional ₹71,146.00 crores in FY24 but still providing ample resources for capital expenditure and debt servicing.
Industry Context: Riding India's Energy Demand Wave
Indian Oil operates at the epicentre of India's energy consumption story. As the nation's largest commercial enterprise by revenue, the company processes approximately one-third of India's refining capacity and controls nearly half of the petroleum products market. India's petroleum product demand has demonstrated resilience, growing at approximately 4-5% annually, driven by economic expansion, increasing vehicle ownership, and industrial activity.
The broader refining sector has witnessed cyclical margin pressures over the past 18 months, with Singapore gross refining margins—a key benchmark—fluctuating between $2-6 per barrel compared to the more robust $8-12 range seen in FY22-23. Indian Oil's margin recovery in recent quarters aligns with industry-wide improvements as global refining capacity adjusts to demand patterns and geopolitical supply disruptions create periodic opportunities.
| Metric | 5-Year CAGR | Industry Context |
|---|---|---|
| Sales Growth | 14.63% | Outpacing GDP growth |
| EBIT Growth | 28.19% | Margin expansion story |
| Sales to Capital Employed | 2.33x | Efficient asset utilisation |
| EBIT to Interest | 5.01x | Comfortable debt servicing |
The company faces intensifying competition from private sector refiners like Reliance Industries and Nayara Energy, but maintains competitive advantages through its unparalleled distribution network and government relationships. Indian Oil's diversification into petrochemicals, gas marketing, and renewable energy positions it strategically for the energy transition, though these segments currently contribute modestly to overall profitability.
Peer Comparison: Valuation Discount Reflects Opportunity
Indian Oil trades at a notable discount to certain private sector peers, offering value-conscious investors an attractive entry point. The company's price-to-earnings ratio of 10.02x compares favourably against Reliance Industries' 23.69x, though Reliance's petrochemicals and digital businesses command premium valuations. Against state-owned peers ONGC (9.16x) and BPCL (6.64x), Indian Oil's valuation appears reasonable given its superior scale and integrated business model.
| Company | P/E (TTM) | P/BV | ROE % | Dividend Yield | Debt/Equity |
|---|---|---|---|---|---|
| Indian Oil | 10.02 | 1.24 | 14.73% | 4.63% | 0.68 |
| Reliance Industries | 23.69 | 2.25 | 8.44% | 0.38% | 0.17 |
| ONGC | 9.16 | 0.91 | 13.84% | 4.68% | 0.34 |
| BPCL | 6.64 | 1.77 | 20.91% | 5.88% | 0.38 |
| Oil India | 13.81 | 1.47 | 16.68% | 2.37% | 0.45 |
Indian Oil's ROE of 14.73% sits comfortably in the middle of the peer group, superior to Reliance's 8.44% and ONGC's 13.84% but trailing BPCL's exceptional 20.91%. The company's price-to-book ratio of 1.24x appears attractive relative to its earnings power and asset base. Notably, Indian Oil offers the second-highest dividend yield amongst major oil sector peers at 4.63%, trailing only BPCL's 5.88%, making it particularly appealing for income-focused investors.
Valuation Analysis: Attractive Entry Point for Long-Term Investors
Indian Oil's current valuation metrics suggest the stock trades at attractive levels relative to both historical norms and intrinsic value. The P/E ratio of 10.02x represents a significant discount to the broader oil sector average P/E of approximately 15x, reflecting market scepticism about margin sustainability and government price controls. However, this discount appears excessive given the company's improving operational metrics and strategic positioning.
The price-to-book ratio of 1.24x implies the market values the company's assets at just 24% above book value—conservative for a business with established infrastructure, strong market positions, and improving returns. Enterprise value metrics tell a similar story: EV/EBITDA of 7.25x and EV/EBIT of 10.76x both suggest reasonable valuations for a capital-intensive business with steady cash generation. The EV/Capital Employed ratio of 1.14x indicates the market values the company's deployed capital at a modest premium, leaving room for upside as returns improve.
Particularly compelling is the PEG ratio of 0.21x, calculated using the five-year EBIT growth rate of 28.19%. Whilst past growth may not perfectly predict future performance, this metric suggests the stock offers growth at a substantial discount to conventional valuation. The valuation grade of "Very Attractive" assigned by proprietary models reflects this compelling risk-reward profile, though investors should note the grade changed from "Attractive" in July 2025 as the stock price appreciated.
Based on a discounted cash flow analysis incorporating normalised refining margins, steady volume growth, and moderate margin expansion, a fair value estimate for Indian Oil centres around ₹195-200 per share, implying 11-14% upside from current levels of ₹175.65. This estimate assumes GRMs stabilise in the $5-6 per barrel range and the company maintains operating margins around 7-8%—conservative relative to recent performance but prudent given historical volatility.
Shareholding Pattern: Institutional Confidence Building
The shareholding structure reveals gradually building institutional confidence. Promoter holding remains rock-solid at 51.50%—unchanged over the past five quarters—providing governance stability through the President of India's majority ownership. Foreign institutional investor (FII) holdings have climbed steadily from 7.38% in March 2025 to 8.58% in December 2025, with the most significant sequential increase of 88 basis points occurring in the latest quarter. This uptick suggests global investors are recognising the value proposition.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 51.50% | 51.50% | 51.50% | — |
| FII | 8.58% | 7.70% | 7.48% | +0.88% |
| Mutual Funds | 3.22% | 3.41% | 3.20% | -0.19% |
| Insurance | 6.77% | 7.00% | 7.07% | -0.23% |
| Other DII | 19.60% | 19.60% | 19.60% | — |
| Non-Institutional | 10.34% | 10.80% | 11.15% | -0.46% |
Mutual fund holdings experienced a marginal decline to 3.22% in December 2025 from 3.41% in September 2025, though this remains above the 2.72% level from March 2025. Insurance companies reduced exposure slightly to 6.77% from 7.00%, whilst other domestic institutional investors (DIIs) maintained steady holdings at 19.60%. The combined institutional holding of 38.17% provides meaningful liquidity and professional oversight, whilst the absence of promoter pledging eliminates governance concerns common in some listed companies.
Stock Performance: Momentum Accelerates Across Timeframes
Indian Oil's stock has demonstrated impressive momentum across multiple timeframes, significantly outperforming broader market indices. The shares have surged 7.69% over the past week alone, generating 6.75 percentage points of alpha versus the Sensex. This short-term strength builds on a robust 38.85% gain over the past year, during which the stock outpaced the Sensex by a commanding 32.37 percentage points.
| Period | IOC Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 7.69% | 0.94% | +6.75% |
| 1 Month | 6.49% | -2.46% | +8.95% |
| 3 Months | 3.78% | -0.14% | +3.92% |
| 6 Months | 24.27% | 3.26% | +21.01% |
| YTD | 5.53% | -2.21% | +7.74% |
| 1 Year | 38.85% | 6.48% | +32.37% |
| 3 Years | 123.90% | 36.98% | +86.92% |
| 5 Years | 160.03% | 64.28% | +95.75% |
The medium-term performance is equally compelling. Six-month returns of 24.27% with 21.01 percentage points of alpha demonstrate sustained momentum rather than a short-term spike. Three-year returns of 123.90% (86.92 percentage points ahead of the Sensex) and five-year gains of 160.03% (95.75 percentage points of alpha) underscore the stock's ability to compound wealth over extended holding periods, despite the cyclical nature of the refining business.
Technical indicators support the bullish narrative. The stock trades above all key moving averages—5-day (₹165.56), 20-day (₹160.90), 50-day (₹162.62), 100-day (₹159.79), and 200-day (₹151.63)—indicating strong technical momentum. The overall technical trend turned "Bullish" on February 2, 2026, with weekly MACD showing mildly bearish signals but monthly indicators pointing to continued strength. The stock's beta of 0.89 suggests lower volatility than the broader market, offering a favourable risk-reward profile.
Investment Thesis: Value Meets Momentum in India's Energy Champion
Indian Oil Corporation presents a compelling investment case built on four key pillars: attractive valuation, improving operational performance, strategic positioning in a growing market, and strong technical momentum. The proprietary Mojo Score of 87/100 with a "Strong Buy" rating reflects the confluence of these positive factors.
The "Very Attractive" valuation grade stems from the stock trading at just 10x trailing earnings with a 4.63% dividend yield—compelling metrics for a business with improving margins and steady cash generation. The "Good" quality rating acknowledges the company's healthy long-term growth trajectory (14.63% sales CAGR, 28.19% EBIT CAGR over five years), absence of promoter pledging, and strong institutional participation at 38.17%. The "Positive" financial trend reflects the dramatic Q2 FY26 turnaround with operating margins hitting 9.09%, whilst the "Bullish" technical trend captures strong price momentum across all timeframes.
✓ Key Strengths
- Market Leadership: Controls ~50% of India's petroleum products market with unmatched distribution reach
- Margin Recovery: Operating margin expanded to 9.09% in Q2 FY26 from 1.98% a year ago
- Integrated Model: Refining-to-retail integration provides natural hedges and margin stability
- Strong Cash Generation: Operating cash flow of ₹34,699 crores in FY25 supports growth and dividends
- Attractive Valuation: Trading at 10x P/E with 4.63% dividend yield versus sector average 15x P/E
- Growth Trajectory: 14.63% sales CAGR and 28.19% EBIT CAGR over past five years
- Financial Discipline: Conservative debt-to-equity of 0.28, no promoter pledging, comfortable interest coverage
⚠ Key Concerns
- Margin Volatility: Refining margins remain cyclical and vulnerable to crude price swings
- Government Influence: Pricing freedom limited by political considerations during fuel price spikes
- Energy Transition Risk: Long-term EV adoption could impact petroleum product demand
- Working Capital Pressure: FY25 saw ₹733 crore working capital outflow versus ₹6,256 crore inflow in FY24
- ROE Below Peak: Current 12.35% ROE trails historical highs, suggesting operational efficiency gaps
- Execution Risk: Large capital expenditure programme requires flawless execution to generate returns
- Subsidy Burden: Potential for government to impose subsidy obligations during price volatility
Outlook: What to Watch in Coming Quarters
Indian Oil's near-term trajectory hinges on sustaining the margin recovery witnessed in Q2 FY26. Investors should closely monitor gross refining margins, which drive operating profitability, and management's ability to optimise product mix amidst evolving demand patterns. The company's diversification into petrochemicals and gas marketing offers long-term growth avenues, though these segments currently contribute modestly to overall earnings.
↑ Positive Catalysts
- Sustained GRM Improvement: Refining margins holding above $5/barrel support profitability
- Volume Growth: India's petroleum demand growing 4-5% annually provides revenue tailwind
- Petrochemical Ramp-up: New units reaching optimal capacity enhance margins
- Retail Expansion: Adding outlets in underserved markets drives volume and market share
- Dividend Sustainability: 39.60% payout ratio allows consistent income for shareholders
↓ Red Flags to Monitor
- Margin Compression: GRMs falling below $3-4/barrel would pressure profitability severely
- Subsidy Imposition: Government mandating fuel subsidies during elections or price spikes
- Demand Slowdown: Economic deceleration impacting petroleum consumption growth
- Working Capital Deterioration: Further cash outflows from inventory or receivables build-up
- Capex Overruns: Project delays or cost escalations eroding return expectations
The energy transition represents both opportunity and challenge. Whilst electric vehicle adoption could gradually erode petrol demand over the next decade, Indian Oil's investments in biofuels, hydrogen, and renewable energy position it to participate in the evolving energy landscape. The company's established infrastructure and customer relationships provide competitive advantages in distributing alternative fuels, though execution will be critical.
The Verdict: Compelling Value in India's Energy Backbone
Mojo Score: 87/100
For Fresh Investors: Indian Oil Corporation presents an excellent opportunity to gain exposure to India's energy sector at attractive valuations. The stock's 10x P/E ratio, 4.63% dividend yield, and improving operational metrics create a compelling risk-reward profile. The recent margin expansion to 9.09% demonstrates the company's ability to capitalise on favourable refining economics, whilst the integrated business model provides resilience through cycles. Accumulate on dips towards ₹165-170 for a 12-18 month horizon targeting ₹195-200.
For Existing Holders: Continue holding with confidence. The Q2 FY26 results validate the investment thesis of margin recovery and operational improvement. The stock's strong momentum (38.85% one-year return, 32.37% alpha vs Sensex) reflects growing market recognition of value. Consider adding on any pullbacks to the ₹165-170 zone. The 4.63% dividend yield provides attractive income whilst waiting for capital appreciation.
Fair Value Estimate: ₹195-200 (11-14% upside from current ₹175.65)
Investment Horizon: 12-18 months for price targets; 3-5 years for full value realisation as capex projects mature and energy transition initiatives gain traction.
Note– ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance does not guarantee future results. The stock market involves risks, and investors may lose principal. The author and publisher are not registered investment advisers and do not provide personalised investment recommendations.
