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IOC: Tax blues - Views on News from Equitymaster
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  • Jun 19, 2002

    IOC: Tax blues

    The largest of the three oil public sector units (PSUs), Indian Oil Corporation (IOC) has logged in a marginal 3% decline in FY02 topline. The profit of the company rose by a tame 6% during the year.

    (Rs m) FY01 FY02 Change
    Sales 1,183,903 1,149,001 -2.9%
    Other Income 11,935 11,811 -1.0%
    Expenditure 1,136,617 1,085,476 -4.5%
    Operating Profit (EBDIT) 47,285 63,526 34.3%
    Operating Profit Margin (%) 4.0% 5.5%  
    Interest 16,738 15,419 -7.9%
    Depreciation 12,239 13,924 13.8%
    Profit before Tax 30,243 45,994 52.1%
    Extraordinary items (617) -  
    Tax 2,423 17,147 607.8%
    Profit after Tax/(Loss) 27,203 28,847 6.0%
    Net profit margin (%) 2.3% 2.5%  
    No. of Shares (eoy) 779 779  
    Diluted Earnings per share* 34.9 37.0  
    P/E Ratio   5.4  

    The encouraging factor was that the operating expenses saw a sharper decline compared to sales, resulting in a 150 basis points improvement in operating margins to 5.5%. Consequently, operating profit saw a 34% growth in FY02. The weakening of the oil prices during a major portion of FY02 led to this improvement. Infact, purchase of products and crude costs saw a 6% decline YoY.

    IOC managed to control other cost heads as well. Raw material expenses declined 10% YoY. Infact raw material expenses as a percentage of sales declined from 27.6% in FY01 to 25.6% in FY02. The VRS initiated by the company already seems to be showing results, as staff cost of the company declined by 16% YoY.

    Cost break-up
    (Rs m) FY01 FY02 Change
    Raw material 327,328 293,821 -10.2%
    Purchase of products & crude for resale 601,639 565,074 -6.1%
    Staff cost 18,350 15,456 -15.8%
    Other expenses 189,300 211,124 11.5%
    Total expenditure 1,136,617 1,085,476 -4.5%

    Unlike last year, interest cost of the company declined. This could be on account of settlement of pool claims for earlier years, consequently releasing company's funds in the oil pool account. The company's net profits would have been significantly higher but for deferred taxes. The company's tax provision shot up to Rs 17 bn, thereby reducing profit growth considerably.

    At Rs 201 the company is trading on a multiple of 5.4x FY02 earnings.



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