CMP Rs 460.15

Sector Refineries

Face Value Rs.10

BSE Code 530965

52 Week H/L Rs 809.9/ 355

Market Cap Rs 54867 Cr

Investment Rationale

Indian Oil Corporation Ltd (IOC) reported a 16.7 per cent growth in net profit for the third quarter of the FY 08. As a result, IOC clocked a net profit of Rs2019 crore as compared to a profit of Rs 1,792 crore during the corresponding quarter in the previous year. The company has outlined a capex plan of Rs. 51030 crore for the period upto March 2012. Also, the company is planning transportation of crude through pipeline from the upcoming SPM at Paradip in Orissa to solve the age-old crude availability constraints in Assam, and expand capacities of Guwahati refinery and Bongai gaon Refinery and Petrochemical Ltd. IOC has signed gas agreements with Petronet LNG for supply of 1.5 MMTPA of gas plus additional 0.75 MMTPA regassified LNG by 2009-10. IOC has also sold 1.50 million tons re-gassified LNG, including captive consumption at Gujarat and Mathura refineries and spot LNG sold to fertilizer and power sectors. The major projects in line are Naphtha Cracker which is under implementation at Panipat with an estimated cost of Rs.14439 crore and expected to be commissioned by 2009 and Integrated refinery and petrochemicals complex at Paradip with an estimated cost of Rs.25646 crore and expected to be commissioned by 2011-12.

The company is planning to invest Rs 800 crore during the financial year 2009 to expand and modernize its petrol stations. The company’s petrol pump stations at the end of the financial year 2008 stand at 17,600 and it plans to add 1,195 new outlets in the financial year 2009. IOC’s expansion is taking place when oil marketing companies are grappling with an extremely difficult operating environment. IOC accounts for nearly half of the total petroleum products sales in the country, has seen a strong growth in sales of diesel and petrol for the 12 months ending March 2008. The company’s petrol sales were 4.3 million tonnes in the financial year 2008, a rise of nearly 12.5 per cent y-o-y. The company accounted for 42.5 per cent of the total petrol sales in the country in the financial year 2008.

IOC’s revenue increased by 15 per cent to 64058.50 crore from Rs 55647.2 crore in the same period last year. For the nine months ended December 2007, net profit was up 23 per cent to Rs 7,377 crore. The net under-recovery during the April-December period for the four subsidised products, Petrol, diesel, kerosene and LPG, was Rs 6,515 crore after taking credit for oil bonds worth Rs 11,461 issued during the period against Rs 3,770 crore in the same period last year.

At current market price of Rs 460.15, Indian Oil is quoting at a PER of 5.72x. On EV/Sales and on EV/ EBIDTA basis it is quoting at 0.36x and 4.37x of its FY08 earnings respectively.