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IOC: Nothing extra-ordinary - Views on News from Equitymaster
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  • Jun 15, 2001

    IOC: Nothing extra-ordinary

    The largest of the three oil public sector units (PSUs), Indian Oil Corporation (IOC) has scaled a new peak. Sales of the company have crossed Rs 1000 bn. The growth in sales is impressive considering the large base it operates from. However, sales growth is lower compared to the other two oil majors. Purchase of products and crude for resale grew by 18.8%.

    (Rs m) FY00 FY01 Change
    Sales 958,240 1,183,903 23.5%
    Other Income 5,466 11,935 118.4%
    Expenditure 903,986 1,136,617 25.7%
    Operating Profit (EBDIT) 54,254 47,285 -12.8%
    Operating Profit Margin (%) 5.7% 4.0%  
    Interest 10,060 16,738 66.4%
    Depreciation 19,953 12,239 -38.7%
    Profit before Tax 29,706 30,243 1.8%
    Extraordinary items - (617)  
    Tax 5,272 2,423 -54.0%
    Profit after Tax/(Loss) 24,434 27,203 11.3%
    Net profit margin (%) 2.5% 2.3%  
    No. of Shares (eoy) 389 779  
    Diluted Earnings per share* 31.4 34.9  
    P/E Ratio   4.7  

    Operating expenses have risen at a faster clip compared to sales resulting in pressure on the operating margins, which have fallen by 170 basis points for fiscal '01. Consequently, operating profit growth has shown a dip in FY01. The doubling of oil prices from $16 / barrel to $30 / barrel led to the immense pressure on margins. Raw material expenses were higher by 42.6% in the concerned fiscal.

    Staff cost of the company has increased by 52.7% YoY, which could be due to the VRS offered by the company. The extraordinary item pertains to VRS expense written off in FY01 while Rs 1.7 bn has been deferred.

    Interest cost of the company has registered significant increase. This could be mainly due to the company's funds being blocked in the oil pool account. Consequently, IOC may have resorted to short term borrowings to meet its working capital requirements. The oil pool account closed FY01 with an estimated deficit of Rs 120 bn. The policy on depreciation of LPG cylinders has been changed from 100% to 16.2%. Consequently, depreciation charge is lower by Rs 6.4 bn and to that extent pre-tax profits are higher.

    Pre-tax profits have been saved by other income, which has shown a considerable increase. Removing the effect of other income for both years the pre-tax and post tax would be lower by 24.5% and 19.5%. Effective tax of the company has also reduced significantly, propping up the bottomline. The effective tax rate has declined from 17.7% in FY00 to 8% in FY01.

    In the concerned fiscal IOC acquired control over Chennai Petroleum Corp. Ltd. (CPCL) and Bongaigon Refinery & Petrochemicals Ltd. (BRPL) from the Government for Rs 6.6 bn. At Rs 163 the company is trading on a multiple of 4.7x FY01 earnings.



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