IOC is Sparkling bright

Sparkling bright



At a time when the government is actively considering a decision on deregulating fuel prices, investors should consider taking exposure to the industry. And what better stock to invest in than the industry leader, Indian Oil (IOC), particularly when it is attractively valued compared to its peers.

Business

IOC operates eight refineries across the country with a total refining capacity of nearly 50 million tonne per annum. The company controls nearly 55% market share in retail sales of petroleum products. It is also a leading producer of downstream petrochemicals such as linear alkyl benzene (LAB) and purified terephthalic acid (PTA) in India. The company recently commissioned 1.5 mtpa naphtha cracker and downstream units to produce polyethylene and polypropylene at Panipat. IOC controls a 52% stake in Chennai Petroleum, which has two refineries with a total capacity of 10.2 mt. It has also picked up stake in 12 domestic E&P blocks, which include 2 CBM blocks, apart from 9 blocks overseas. It has been losing heavily due to the government's policy to control retail prices petrol, diesel, kerosene and LPG despite rising crude oil prices.

Growth drivers

The government's intent to act upon Kirit Parikh committee report is the most important growth driver for the company, which will emerge the biggest beneficiary of deregulation. The Centre's recent decision to revise APM gas prices and its aim towards cutting the fiscal deficit are indications that it is serious about decontrolling the retail fuel prices - at least to a certain extent, if not fully - that can reduce the industry's under-recovery burden. While the government continues to dither on price revisions, IOC has been expanding its nonoil portfolio, which contributed an insignificant Rs 360 crore to its FY10 profits. Its naphtha cracker and petrochemicals complex can go a great way in augmenting this.(Courtesy: Economic Times, New Delhi, June 14, 2010)