IOC: Integration to benefit - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

IOC: Integration to benefit

Jul 14, 2003

Indian Oil Corporation (IOC) is the leading player in the oil refining and marketing segment. In FY03, the company reported a significant growth in bottomline (112%). This was primarily on account of deregulation in the sector, which allowed oil PSUs to align prices in line with international crude prices. A sharp increase in petroleum product prices further supplemented oil PSUs to improve the bottomline. Let's take a look at the businesses of IOC. Consider refineries first. It has seven refineries with a total installed capacity of about 40 million tonnes per annum (MTPA), excluding subsidiaries. With the demand expected to increase at a CAGR of 3.5% up to FY07, the company is currently undergoing expansion activity in its existing plant to the tune of 9 MTPA. This is in addition to the plan of setting up a new 9 MTPA refinery at Paradip. If one were to include capacities of its two subsidiaries i.e. Chennai petroleum (7 MTPA) and Bongaigaon refinery (2.4 MTPA), total refinery capacity increases to 49.3 MTPA (43% of industry capacity of 114.7 MTPA).

The logical extension for any refining company is marketing and distribution and IOC has a sizable presence here as well. From the chart below, we can figure out that it has a dominant marketing infrastructure (50% market share). In FY03 alone, it added about 229 retail outlets taking its total number to 8,035.

It also has a major presence in lube oil markets, LPG and kerosene distributorship. IOC has a vast pipeline network of about 7,170 Km, which is used to transport crude oil and petroleum products. IOC also has presence in SriLanka and has about 20% market share in the country. Due to an over supply situation of petroleum products in the country, various companies are planning to increase their thrust towards exports.

Channel IOC IBP Others Total (%)
LPG bottling capacity (TMT) 3,321 - 3,040 6,361 52%
Lube Blending Capacity (TMT) 583 50 390 1,023 62%
Depots/Terminals (Nos.) 176 15 220 411 46%
LPG Bottling Plants(Nos.) 79 - 80 159 50%
Aviation fuel stations (Nos.) 93 - 29 122 76%
Retail outlets 8,034 2,079 9,717 19,830 51%
LPG distributors 4,120 64 3,726 8,000 52%
Kerosene/LDO dealers 3,500 375 2,617 6,492 60%

In order to lower the dependence on ONGC for crude supply, the company has also ventured into upstream business. IOC has garnered 12 blocks in consortium and also 2 blocks of Coal Bed Methane. Apart from this, it has been awarded one Farsi exploration block in Iran in consortium with ONGC Videsh and Oil India Limited. Thus, apart from being a leader in oil refining and marketing, the company has integrated itself to enter in the exploration front also.

In order to gain the synergies of integration, the company plans to enter into the petrochemicals business. It has plans to invest Rs 150 bn to enter into this segment. Currently, plants under construction are for Linear Alkyl Benzene (LAB), polyxylene (PX) and purified terephthalic acid (PTA). The company has recently announced that it would invest about Rs 80 bn to set up a naphtha cracker to utilize the naphtha (a refinery product). This apart it is considering setting up a polypropylene unit and a polymer complex to gain integration benefits.

At Rs 408, IOC is trading at a P/E multiple of 5.2x its FY03 earnings. The company has plans to integrate upstream and diversify into related fields of gas, power and petrochemicals to become an integrated energy company going forward. Though the long term prospects looks good for the company, the FY04 performance will be mired by pressure on refining margins and under recoveries in case of kerosene and LPG. While the company's ambitious plans are heartening, exploration has an inherent risk and as a result, profitability may be affected.

Equitymaster requests your view! Post a comment on "IOC: Integration to benefit ". Click here!

  

More Views on News

IOC Announces Quarterly Results (3QFY21); Net Profit Up 54.5% (Quarterly Result Update)

Feb 1, 2021 | Updated on Feb 1, 2021

For the quarter ended December 2020, IOC has posted a net profit of Rs 38 bn (up 54.5% YoY). Sales on the other hand came in at Rs 1,478 bn (up 0.6% YoY). Read on for a complete analysis of IOC's quarterly results.

IOC Announces Quarterly Results (1QFY21); Net Profit Down 40.8% (Quarterly Result Update)

Aug 3, 2020 | Updated on Aug 3, 2020

For the quarter ended June 2020, IOC has posted a net profit of Rs 21 bn (down 40.8% YoY). Sales on the other hand came in at Rs 901 bn (down 40.0% YoY). Read on for a complete analysis of IOC's quarterly results.

IOC 2018-19 Annual Report Analysis (Annual Result Update)

Aug 29, 2019 | Updated on Aug 29, 2019

Here's an analysis of the annual report of IOC for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of IOC. Also includes updates on the valuation of IOC.

More Views on News

Most Popular

4 Stocks to Make Your Portfolio Immune to the Second Covid Wave (Profit Hunter)

Apr 6, 2021

Rather than predicting the market, successful investing is more about preparing well and placing your bets accordingly.

If the Market Falls, I Will Do This... (Fast Profits Daily)

Apr 1, 2021

What should you do if the market falls? In this video, I'll tell you what I will do.

The Indian Real Estate Party Has Just Begun (Profit Hunter)

Apr 1, 2021

A favourable demand supply scenario makes a strong case for real estate prices.

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

The Dilemma of Investing in Bharti Airtel Views On News (Views On News)

Apr 1, 2021

Rahul Shah on whether Bharti Airtel will emerge as the next big thing in the Indian stock market

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

IOC SHARE PRICE


Apr 13, 2021 (Close)

TRACK IOC

COMPARE IOC WITH

MARKET STATS