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IOC plans large expansion in capacities - Views on News from Equitymaster
 
 
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  • Sep 7, 1999

    IOC plans large expansion in capacities

    According to newspaper reports, Indian Oil Corporation plans to invest Rs 600 bn by 2007 in refining, pipelines and allied infrastructure besides marketing and production of oil.

    Indian Oil Corporation (IOC) is India’‘s largest company in terms of sales. The company has a refining capacity of 31.4 m tonnes per annum (45% of the domestic refining capacity). The company also operates seven pipelines out of the 10 that India has.

    The Indian oil sector is witnessing a revolution. Most aspects of the business, except for direct marketing of oil products to the consumer, have been thrown open for private competition. This has resulted in the entry of a large number of private players in the sector. IOC, which continues to be the industry leader, is attempting to consolidate its position by stepping up capacities (refining capacity is set to double to 88 m tonnes by 2007). This is to prevent the company from getting marginalised after huge capacities that are currently being set up by Reliance, Essar and other players go on stream.

    IOC will benefit from exploiting the economies of scale that arise from such expansion. Moreover, it would continue to dominate the Indian oil sector well into the future.

    This step is likely to have a large impact on the Indian oil sector. This is so because India, which will be more than self sufficient in terms of say refining capacity in a few years time, will then have to grapple with a situation of over capacity. This could hurt margins and result in rationalisation of the industry. A similar scenario could be witnessed in other aspects of the sector. IOC will, however, be protected by virtue of its strong marketing infrastructure, which the new comers lack.

    Market View:

    The IOC stock has been rated as a ‘‘BUY’‘ by analysts mainly because of its strong marketing infrastructure, large refining capacity and control of major import infrastructure.

     

     

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