Indian Oil Corporation-- Investor Presentation By Anirudha
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INDIAN OIL CORPORATION
Presented By: ANIRUDHA
INDUSTRY OVERVIEW
Indian Oil& Gas Sector– US$ 110 billion industry 6th largest consumer of petroleum products and expected to be at 4th position by 2010 (source: IBEF) Indian crude demand– 130 MMTPA 30% Domestic 70% Imported 19 Refineries– Capacity of 177 MMTPA Refining capacity expansion planned over 5 yrs. Is over 60% Approx. 7 lakh people employed in the oil & gas industry 1.58 lakh kiloleters of fuel dispensed from retail outlets every day amounting
COMPANY B ACKGROUND
COMPANY BACKGROUND Indian Oil Corporation at a Glance Ticker IOC Number of Shares 209934345 Promoters Holding 80.50% Market Capitalization (Rs.In crores) Employees 31945 Refinery Capacity (in MMTPA) Retail Outlet (including IBP)
Rs.48135.10
60.20 over 32,500
COMPANY BACKGROUND Shareholders Pattern
Refining Market Share
6%
9%
9%
15% 3% 1%
81%
22% 40%
Promoter Individuals
Institution Others
Bdy C orporate
Market Share Of Major Players 18%
9%
IOCL
BPCL
ONGC
RIL
ESSAR
3%
30% 16% 47%
49%
BPC L
HPCL
7%
Market Share in Pipeline
21%
IOC L
7%
HPC L
RIL
OTHERS
IOCL
ONGC
7%
HPC L
BPCL
COMPANY BACKGROUND
IOCL is a public sector undertaking formed in 1964 through the merger of Indian Oil Company Ltd. and Indian Refineries Ltd.
18th largest petroleum company in the world. Major supplier to Defense forces, Railways, STUs (army-96%; navy-100%; Airforce-90%; STUs-
87%; Railways-84%).
Only oil company to operate in every part of India.
B USINESS ANALYSIS
ONLY COMPANY TO HAVE PRESENCE IN HIGH CONSUMPTION NORTH AREA
UBIQUITOUS PRESENCE Refining: 10 Refineries; Refining market share of 40%
Gas: Sourcing & marketing
E&P: Forays In India & Overseas
Pipeline: 9273 kms pipeline (crude & product)
Marketing:Market share Of 45%; 55% of industry infrastructure
Petrochemicals: Operational Lab & Px/PTA Plants
PRODUCT PROFILE Butane & Lighter
CRUDE
90-220F
220-315F
SGU/LMU
LPG– 3.70%
NHT/CCR
MS- 17.40%
Naphta
Gasoline
DISTILLATION TOWER (Crude Unit)
KMU/DHDS 315-450F
ATF/SKO-4.50%
Kerosene
FURNACE
450-650F
VACCUM UNIT
DHDS
HSD-40.70%
BITUMEN-1%
Light Gas Oil
650-800F
Heavy Gas Oil
FCCU
800+F
Residue Fuel Oil
VSU
FO-32.70%
BUSINESS MODEL
CORE CAPABILITIES: st rong and well establi shed marketin g & dist ribution net wo rk, favo rable co verag e ratios pr ovi des su ppor t to i ts cr ed it profil e.
PARTNER NETWORK Maj or pa rtne rs rai lwa y, automobi le se ctor infras truc ture
ACTIVITY CONFIGURATION; high t ech infrastructure w ith on line automat ic qual ity co ntrol en sur es qual ity ch eck
COST STRUCTURE :r aw material i s the major compon ent of the cos t it almo st in curred 81% of total c ost foll owe d by interest and st aff cost .
CUSTOMER
OFFER
VALUE PROPOSITION: of fer petrol eum products like pet rol, high sp eed dies el, napht a & lubrica nt.
FI NANCE
CUSTOMER RELATIONSHIP; compan y ma intain lo ng t erm & co rdial rel ationsh ip w ith his c lient s DISTRIBUTION CHANNELS ; com pany has strong nation wid e di stribution netwo rk wi th 883 29 retail outlets.
REVENUE STREAMS; co mpany reve nue comes from w ide varie ty of pe trole um products and specia l pe trol eum prod ucts.
CUSTOMER SEGMENTS: fuels to mo st of t he sector i. e. automob ile av iat ion etc.
STRATEGIES TO FACE DOWNTURN
Entering into new business segment of city gas distribution Able to earn revenue through other business activity Planning to invest aggressively in petrochemical sector Initiating research in new frontiers (such as residue gasification coalto-liquid, gas-to-liquid, alternative fuels, synthetic lubes, nano-technology, etc.)
Planning to enter in retail business through opening retail outlets at prime location petrol pumps Investing in oil bonds to decrease debt level 180 new & cost effective product formulations developed Indalin+ technology for conversion of Naphtha to LPG/MS Creating Unique Selling Points in all customer segments Expanding the non-fuel business to improve cos. bottom line Marketing of alternate fuels and maintaining product differentation
PERFORMANCE ANALYSIS
REFINING: ANNUAL OPERATING HIGHLIGHTS
9 8 7 6
MMT
10
Gross Refining Margins $/bbl 9.02
6.2 5.3
4.6
5 $4
4.2
70 60 50 40 30 20 10 0
Refinery Throughput 62.3 47.4
FY08
FY09
3.37 Capacity Utilization
3 2
AprDec08
FY08
FY07
FY06
FY05
FY04
1 0
105 100 % 95 90 85
100
104
FY08
FY09
OPERATIONAL PERFORMANCE
•Due to increased crude prices and increasing under recovery, company has to reduce production
800 Rs bn
•Fall in sales due to decrease in domestic demand as well as export during Oct 08 to Mar 09
Sales & Sales Growth
600 400 200 0
JAS OND JFM AMJ JAS OND 07 07 08 08 08 08 Sales Sales Growth
200
•High cost of fund keeps pressure on operating profit •Non-revision of selling price also leads to fall in operating profit
Trend of PBDIT & OPM
25
100
20 15 % 10
50 0
-50 -100
35 30
150
Rs bn
•Lowest GRM in previous 5 yrs leads to decrease in OPM
60 50 40 30 % 20 10 0 -10
5 JAS OND JFM 07 07 08 PBDIT
AMJ JAS OND 08 08 08 OPM
0 -5 -10
Cost as a % of sales has increased due to high material cost because of high crude prices and increase in other expenses PAT has declined from the previous year due to heavy increase in under recovery during 1st half of FY09 and so it keeps pressure on NPM Continuous dividend payment policy taken by the company
60
Cost Structure as % of Sales
50 40 2007-08
30
2008-09
20 10 % 0 RM
Traded Goods
Staff
Depn
Interest
Other
Tax
PAT & NPM
60 Rs. (in bn)
FINANCIAL PERFORMANCE
6
40
4
20
2
0
-20
0 J AS07
OND07
J FM 08
AM J 08
J AS08
OND08
-40
-6 -8
-80
Trend of Dividend Payout
PAT(LHS)
0.95
NPM (RHS)
D/E Ratio
0.9 0.85 0.8 0.75 0.7
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
%
-4
-60
140 120 100 80 60 40 20 %0
-2
2005-06
` 2006-07
2007-08
-10
PROFITABILITY RATIOS FY05
FY06
FY07
FY08
FY09
OPM
5.32
4.46
4.97
4.56
-3.40
NPM
3.48
2.78
3.43
2.78
0.02
ROAvg.NW
18.47
14.49
15.71
14.83
0.13
ROAvg.CE
19.62
16.18
20.59
19.54
-13.94
CAPITAL MARKET PERFORMANCE
Under performed during half of FY09 because of high crude prices Sensex falls 40%, O&G falls by 33% whereas IOCL has fallen by 13%. Beta of stock is 0.60.
120
Relative Strength Index
100 80 60 40 20
Sensex
O&G
IOC L 27 March 2009
3 March 2009
6 February 2009
31 October 2008 25 November 2008 19 December 2008 14 January 2009
20 August 2008 12 September 2008 7 October 2008
28 July 2008
4 July 2008
12 June 2008
21 May 2008
25 April 2008
1 April 2008
0
WAY AHEAD
Governmental action in formulating a viable market related pricing policy
Rationalization of duties and taxes– move towards ‘GST’ regime
Planned set up off retail outlets to justify long term viability-planned township.
Evaluate options for retail outlets as receiving and storage points instead of only sales points—Warehousing facilities, Receipt points for NFRs etc.
Generate additional revenue and margin streams from Alternate Fuels– CNG, Auto-LPG and Bio-Fuel
Company’s revenue will grow after operation started at Panipat refinery
Company is diversifying its business through entering into city gas distribution segment
ISSUES AND CONCERNS
Volatility in crude oil prices.
Government controlled prices.
Rupee Fluctuation.
Lack of necessary infrastructure.
Depleting fuel resources.
Rising bad debts.
Delay in projects.
Cost of oil rigging is high.
CHALLENGES FOR COMPANY
Company is considering entering into other energy sub-sectors to compliment its own line of business.
Optimization of refining processes.
Logistics & supply chain management.
Timely execution and safe commissioning of project.
Consolidation of retail and direct consumer businesses through better offerings than competitors.
Retention of skilled manpower.
Enhancing profitability.
REFINERY BUSINESS: Set TO Deliver Strong Value Strategic Location, Proximity To Materials, Access to End Markets
India Emerging as a Global Refining Hub
Leverage Existing Project Execution Capabilities and Infrastructure
Refining Industry Outlook Remains Strong
Market Leader in Downstream Economies of scale Benefits
High Complexity, Cost Competitiveness, Product Flexibility and High GRM Potential
Presented By: ANIRUDHA
INDUSTRY OVERVIEW
Indian Oil& Gas Sector– US$ 110 billion industry 6th largest consumer of petroleum products and expected to be at 4th position by 2010 (source: IBEF) Indian crude demand– 130 MMTPA 30% Domestic 70% Imported 19 Refineries– Capacity of 177 MMTPA Refining capacity expansion planned over 5 yrs. Is over 60% Approx. 7 lakh people employed in the oil & gas industry 1.58 lakh kiloleters of fuel dispensed from retail outlets every day amounting
COMPANY B ACKGROUND
COMPANY BACKGROUND Indian Oil Corporation at a Glance Ticker IOC Number of Shares 209934345 Promoters Holding 80.50% Market Capitalization (Rs.In crores) Employees 31945 Refinery Capacity (in MMTPA) Retail Outlet (including IBP)
Rs.48135.10
60.20 over 32,500
COMPANY BACKGROUND Shareholders Pattern
Refining Market Share
6%
9%
9%
15% 3% 1%
81%
22% 40%
Promoter Individuals
Institution Others
Bdy C orporate
Market Share Of Major Players 18%
9%
IOCL
BPCL
ONGC
RIL
ESSAR
3%
30% 16% 47%
49%
BPC L
HPCL
7%
Market Share in Pipeline
21%
IOC L
7%
HPC L
RIL
OTHERS
IOCL
ONGC
7%
HPC L
BPCL
COMPANY BACKGROUND
IOCL is a public sector undertaking formed in 1964 through the merger of Indian Oil Company Ltd. and Indian Refineries Ltd.
18th largest petroleum company in the world. Major supplier to Defense forces, Railways, STUs (army-96%; navy-100%; Airforce-90%; STUs-
87%; Railways-84%).
Only oil company to operate in every part of India.
B USINESS ANALYSIS
ONLY COMPANY TO HAVE PRESENCE IN HIGH CONSUMPTION NORTH AREA
UBIQUITOUS PRESENCE Refining: 10 Refineries; Refining market share of 40%
Gas: Sourcing & marketing
E&P: Forays In India & Overseas
Pipeline: 9273 kms pipeline (crude & product)
Marketing:Market share Of 45%; 55% of industry infrastructure
Petrochemicals: Operational Lab & Px/PTA Plants
PRODUCT PROFILE Butane & Lighter
CRUDE
90-220F
220-315F
SGU/LMU
LPG– 3.70%
NHT/CCR
MS- 17.40%
Naphta
Gasoline
DISTILLATION TOWER (Crude Unit)
KMU/DHDS 315-450F
ATF/SKO-4.50%
Kerosene
FURNACE
450-650F
VACCUM UNIT
DHDS
HSD-40.70%
BITUMEN-1%
Light Gas Oil
650-800F
Heavy Gas Oil
FCCU
800+F
Residue Fuel Oil
VSU
FO-32.70%
BUSINESS MODEL
CORE CAPABILITIES: st rong and well establi shed marketin g & dist ribution net wo rk, favo rable co verag e ratios pr ovi des su ppor t to i ts cr ed it profil e.
PARTNER NETWORK Maj or pa rtne rs rai lwa y, automobi le se ctor infras truc ture
ACTIVITY CONFIGURATION; high t ech infrastructure w ith on line automat ic qual ity co ntrol en sur es qual ity ch eck
COST STRUCTURE :r aw material i s the major compon ent of the cos t it almo st in curred 81% of total c ost foll owe d by interest and st aff cost .
CUSTOMER
OFFER
VALUE PROPOSITION: of fer petrol eum products like pet rol, high sp eed dies el, napht a & lubrica nt.
FI NANCE
CUSTOMER RELATIONSHIP; compan y ma intain lo ng t erm & co rdial rel ationsh ip w ith his c lient s DISTRIBUTION CHANNELS ; com pany has strong nation wid e di stribution netwo rk wi th 883 29 retail outlets.
REVENUE STREAMS; co mpany reve nue comes from w ide varie ty of pe trole um products and specia l pe trol eum prod ucts.
CUSTOMER SEGMENTS: fuels to mo st of t he sector i. e. automob ile av iat ion etc.
STRATEGIES TO FACE DOWNTURN
Entering into new business segment of city gas distribution Able to earn revenue through other business activity Planning to invest aggressively in petrochemical sector Initiating research in new frontiers (such as residue gasification coalto-liquid, gas-to-liquid, alternative fuels, synthetic lubes, nano-technology, etc.)
Planning to enter in retail business through opening retail outlets at prime location petrol pumps Investing in oil bonds to decrease debt level 180 new & cost effective product formulations developed Indalin+ technology for conversion of Naphtha to LPG/MS Creating Unique Selling Points in all customer segments Expanding the non-fuel business to improve cos. bottom line Marketing of alternate fuels and maintaining product differentation
PERFORMANCE ANALYSIS
REFINING: ANNUAL OPERATING HIGHLIGHTS
9 8 7 6
MMT
10
Gross Refining Margins $/bbl 9.02
6.2 5.3
4.6
5 $4
4.2
70 60 50 40 30 20 10 0
Refinery Throughput 62.3 47.4
FY08
FY09
3.37 Capacity Utilization
3 2
AprDec08
FY08
FY07
FY06
FY05
FY04
1 0
105 100 % 95 90 85
100
104
FY08
FY09
OPERATIONAL PERFORMANCE
•Due to increased crude prices and increasing under recovery, company has to reduce production
800 Rs bn
•Fall in sales due to decrease in domestic demand as well as export during Oct 08 to Mar 09
Sales & Sales Growth
600 400 200 0
JAS OND JFM AMJ JAS OND 07 07 08 08 08 08 Sales Sales Growth
200
•High cost of fund keeps pressure on operating profit •Non-revision of selling price also leads to fall in operating profit
Trend of PBDIT & OPM
25
100
20 15 % 10
50 0
-50 -100
35 30
150
Rs bn
•Lowest GRM in previous 5 yrs leads to decrease in OPM
60 50 40 30 % 20 10 0 -10
5 JAS OND JFM 07 07 08 PBDIT
AMJ JAS OND 08 08 08 OPM
0 -5 -10
Cost as a % of sales has increased due to high material cost because of high crude prices and increase in other expenses PAT has declined from the previous year due to heavy increase in under recovery during 1st half of FY09 and so it keeps pressure on NPM Continuous dividend payment policy taken by the company
60
Cost Structure as % of Sales
50 40 2007-08
30
2008-09
20 10 % 0 RM
Traded Goods
Staff
Depn
Interest
Other
Tax
PAT & NPM
60 Rs. (in bn)
FINANCIAL PERFORMANCE
6
40
4
20
2
0
-20
0 J AS07
OND07
J FM 08
AM J 08
J AS08
OND08
-40
-6 -8
-80
Trend of Dividend Payout
PAT(LHS)
0.95
NPM (RHS)
D/E Ratio
0.9 0.85 0.8 0.75 0.7
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
%
-4
-60
140 120 100 80 60 40 20 %0
-2
2005-06
` 2006-07
2007-08
-10
PROFITABILITY RATIOS FY05
FY06
FY07
FY08
FY09
OPM
5.32
4.46
4.97
4.56
-3.40
NPM
3.48
2.78
3.43
2.78
0.02
ROAvg.NW
18.47
14.49
15.71
14.83
0.13
ROAvg.CE
19.62
16.18
20.59
19.54
-13.94
CAPITAL MARKET PERFORMANCE
Under performed during half of FY09 because of high crude prices Sensex falls 40%, O&G falls by 33% whereas IOCL has fallen by 13%. Beta of stock is 0.60.
120
Relative Strength Index
100 80 60 40 20
Sensex
O&G
IOC L 27 March 2009
3 March 2009
6 February 2009
31 October 2008 25 November 2008 19 December 2008 14 January 2009
20 August 2008 12 September 2008 7 October 2008
28 July 2008
4 July 2008
12 June 2008
21 May 2008
25 April 2008
1 April 2008
0
WAY AHEAD
Governmental action in formulating a viable market related pricing policy
Rationalization of duties and taxes– move towards ‘GST’ regime
Planned set up off retail outlets to justify long term viability-planned township.
Evaluate options for retail outlets as receiving and storage points instead of only sales points—Warehousing facilities, Receipt points for NFRs etc.
Generate additional revenue and margin streams from Alternate Fuels– CNG, Auto-LPG and Bio-Fuel
Company’s revenue will grow after operation started at Panipat refinery
Company is diversifying its business through entering into city gas distribution segment
ISSUES AND CONCERNS
Volatility in crude oil prices.
Government controlled prices.
Rupee Fluctuation.
Lack of necessary infrastructure.
Depleting fuel resources.
Rising bad debts.
Delay in projects.
Cost of oil rigging is high.
CHALLENGES FOR COMPANY
Company is considering entering into other energy sub-sectors to compliment its own line of business.
Optimization of refining processes.
Logistics & supply chain management.
Timely execution and safe commissioning of project.
Consolidation of retail and direct consumer businesses through better offerings than competitors.
Retention of skilled manpower.
Enhancing profitability.
REFINERY BUSINESS: Set TO Deliver Strong Value Strategic Location, Proximity To Materials, Access to End Markets
India Emerging as a Global Refining Hub
Leverage Existing Project Execution Capabilities and Infrastructure
Refining Industry Outlook Remains Strong
Market Leader in Downstream Economies of scale Benefits
High Complexity, Cost Competitiveness, Product Flexibility and High GRM Potential
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