According to newspaper reports, the Indian Oil Corporation (IOC) has decided to expand the capacity of its refinery at Koyali (Baroda) to 18 m tonnes from the planned 12.5 m tonnes.
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 downstream oil sector has witnessed a sharp upsurge in the commissioning of capacities over the previous months. The pace is likely to continue leading to a total capacity addition of 39 million tonnes in FY00. Over the next one-two years there is likely to be an oversupply in some product categories. Moreover, as the industry is to be deregulated by 2002, there is likely to be a downward pressure on the prices of such commodities. This will mean lower margins for all players. However, players with marketing networks (like IOC) will be able to earn marginally better margins.
The decision to hike capacity may have been taken with the view of maintaining the company's dominance in the refining sector. The company has also lined up other ambitious expansion plans that are yet to be finalised. The refining sector is likely to witness intense competition and lower margins over the coming years. The key to success will lie in large capacities and owned marketing networks.
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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