{"id":11078,"date":"2018-12-21T22:10:07","date_gmt":"2018-12-21T16:40:07","guid":{"rendered":"https:\/\/trial.indiaeconomyandbusiness.com\/?p=11078"},"modified":"2024-01-31T08:07:34","modified_gmt":"2024-01-31T02:37:34","slug":"corporate-analysis-indian-oil-corporation","status":"publish","type":"post","link":"https:\/\/www.indiaeconomyandbusiness.com\/is\/corporate-analysis-indian-oil-corporation\/","title":{"rendered":"Corporate Analysis &#8211; Indian Oil Corporation"},"content":{"rendered":"<p>Indian Oil Corporation (IOC), the largest company by sales in the country, recorded revenue of almost Rs 5.2 lakh crore for FY18 (consolidated). Its revenue is more than three times the revenue of entire Cement industry! \u00a0Yet, profits remain subdued due to under recoveries and price restrictions but more importantly, absence of forward integration. The company may have a strategic mandate to meet country\u2019s fuel needs, it could still have built some surplus refining capacity to be used for forward integration which has far better margins. Here is a look at the company\u2019s businesses, strategy and financials.<!--more-->IOC is the largest refining company in the country with 80 million tons per annum (mtps) of refining capacity (including subsidiaries), nearly 1\/3<sup>rd<\/sup> of country\u2019s total capacity. The size places it at 137<sup>th<\/sup> rank in the global ranking of fortune 500 company. However, the ranking has slipped from 98<sup>th<\/sup> in 2011. Major petroleum products are diesel (HSD) accounting for over 35% of total production, Petrol (MS) 10%, LPG 10% and other products such as aviation turbine fuel, Naphtha etc. Other than petroleum products which account for over 95% of sales, company derives a small share of revenue from petrochemicals and gas, each contributing about 2-3%.<\/p>\n<p>Company has a unique business model as it is operating in a seller\u2019s market. This is reflected in the fact that its refineries run at almost 100% capacity utilization. However, that seems to have made the company complacent which does not seem to have put much thought on forward integration. Forward integration refers to further processing of petroleum products into petrochemical products such as polymers, glycols etc. Since petrochemicals have significantly high entry barriers and is not regulated like petroleum market, it has much better margins. This is evident from the fact that petrochemical products has share of as high as 15% in EBIT (earnings before interest and tax) with just 3% of sales for the company. EBIT margin for petrochemical business is 29% against less than 6% for petroleum business. It may be noted that its private sector counterpart, Reliance Industries processes almost 25% of its petroleum products into petrochemicals giving it that much better profitability.<\/p>\n<p>The company still doesn\u2019t seem to have any inclination to bridge this gap. The planned investment in petrochemicals is just 11% against 43% in refining during FY19. Even though company has stated its plans to expand refining capacity to as much as 150 mtpa in the annual report, improving petrochemicals business share doesn&#8217;t find mention.<\/p>\n<p>With a limited ability to increase revenue per ton, company is left with reducing cost per ton to maintain profitability. Company has made some progress by increasing the proportion of low grade, low cost crude oil from 18% to 21% over previous year. Similarly, processing of high sulphur crude has gone up to 55.6% from 51.6%.<\/p>\n<p>Another important element of the business model is greater reliance on pipelines for transport of raw material as well as products. Since the company works in an assured market, the risk of investment in pipeline is low. With total pipeline network of over 13,000 km, company is transporting over half of the material through pipelines which it plans to take up to 80%.<\/p>\n<p>Company\u2019s profit and loss account shows total income of Rs 5.2 lakh crore for FY 18 on consolidated basis. Cost of raw material &amp; stock in trade stands at nearly Rs 3.4 lakh crore. Operating profit stands at Rs 43,000 crore, or about 8% of sales. While operating margin is not very high, its interest and depreciation charges are quite low at Rs 11,500 crore, just 2.5% of sales. Net profit works out to Rs 22,600 crore.<\/p>\n<p>While company\u2019s profitability is not very high, it has a strong balance sheet. It has a total equity of over Rs 1.1 lakh crore against debt of just Rs 58,000 crore implying debt-equity ratio of 0.53:1. The company also has high trade payables of Rs 37,000 crore against receivables of just Rs 10,000 crore implying favorable working capital management. The total balance sheet at less than Rs 3 lakh crore is not very significant and company can leverage it to invest in more profitable businesses. In comparison, Reliance industries has over Rs 8 lakh crore of investment, which is significantly high even after excluding its investments in Jio.<\/p>\n<p>(Image courtesy of IOC Annual Report)<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Indian Oil Corporation (IOC), the largest company by sales in the country, recorded revenue of almost Rs 5.2 lakh crore for FY18 (consolidated). Its revenue is more than three times the revenue of entire Cement industry! \u00a0Yet, profits remain subdued due to under recoveries and price restrictions but more importantly, absence of forward integration. The [&hellip;]<\/p>\n","protected":false},"author":8,"featured_media":11079,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[856,919],"tags":[],"class_list":["post-11078","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporate","category-corporate-2","membership-content","access-restricted"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Corporate Analysis - Indian Oil Corporation - Indian Economy &amp; Business Analysis<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.indiaeconomyandbusiness.com\/is\/corporate-analysis-indian-oil-corporation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Corporate Analysis - Indian Oil Corporation - Indian Economy &amp; Business Analysis\" \/>\n<meta property=\"og:description\" content=\"Indian Oil Corporation (IOC), the largest company by sales in the country, recorded revenue of almost Rs 5.2 lakh crore for FY18 (consolidated). Its revenue is more than three times the revenue of entire Cement industry! \u00a0Yet, profits remain subdued due to under recoveries and price restrictions but more importantly, absence of forward integration. 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