REPORT: CASE STUDY ON INDIAN OIL CORPORATION LIMITED

About

Indian Oil began operations in 1958 as Indian Oil Company Ltd. The Indian Oil Corporation was formed in 1964, with the merger of Indian Refineries Ltd.

IOCL, is an Indian state-owned oil and gas corporation with its headquarters in New Delhi, India. IOCL is India's  largest company by  sales with a  turnover of   Rs. 4,57,553 crore and profit of Rs 7,019 crore for the year 2013-14.

It leads Indian companies in Fortune Global 500 list (Rank 96).The company is mainly controlled by Government of India which owns approx. 68.57% shares in the company. ONGC (13.77%), FII/MF/Insurance(6.61%), OIL(5%),Others (6.05%)

International presence Sri Lanka, Mauritius, Middle East, Sweden, USA and Netherlands. Various joint ventures

IndianOil (Mauritius) Ltd. Lanka IOC PLC – Group company for retail and storage operations in Sri Lanka. It is

listed in the Colombo Stock Exchange. It was locked into a bitter subsidy payment dispute with Sri Lanka's Government which has since been resolved.[citation needed]

IOC Middle East FZE Chennai Petroleum Corporation Limited

Green Gas Ltd. – a joint venture with Gas Authority of India Ltd. for city-wide gas distribution networks.

Indo Cat Pvt. Ltd., with Intercat, USA, for manufacturing 15,000 tonnes per annum of FCC (fluidised catalytic cracking) catalysts & additives in India.

IndianOil – CREDA Biofuels Ltd., a joint venture with Chhattisgarh government for production and marketing of Bio-fuels.

Numerous exploration and production ventures with Oil India Ltd., Oil and Natural Gas Corporation

India Synthetic Rubber Ltd - A joint venture between IOCL, Taiwan Synthetic Rubber Corporation(Taiwan) and Marubeni(Japan)

Petronas (Malaysia) Ltd

Vision and values

Values

IndianOil nurtures the core values of Care, Innovation, Passion & Trust across the organization in order to deliver value to its stakeholders.Care Stands for

Concern Empathy Understanding Co-operation Empowerment

Innovation Stands for Creativity Ability to learn Flexibility Change

Passion Stands for Commitment Dedication Pride Inspiration Ownership Zeal & Zest

Trust Stands for Delivered promises Reliability Dependability Integrity Truthfulness Transparency

Objectives

To serve the national interests in oil and related sectors in accordance and consistent with Government policies.

To ensure maintenance of continuous and smooth supplies of petroleum products by way of crude oil refining, transportation and marketing activities and to provide appropriate assistance to consumers to conserve and use petroleum products efficiently.

To enhance the country's self-sufficiency in crude oil refining and build expertise in laying of crude oil and petroleum product pipelines.

To further enhance marketing infrastructure and reseller network for providing assured service to customers throughout the country.

To create a strong research & development base in refinery processes, product formulations, pipeline transportation and alternative fuels with a view to minimizing/eliminating imports and to have next generation products.

To optimise utilisation of refining capacity and maximize distillate yield and gross

refining margin. To maximise utilisation of the existing facilities for improving efficiency and increasing

productivity. To minimise fuel consumption and hydrocarbon loss in refineries and stock loss in

marketing operations to effect energy conservation. To earn a reasonable rate of return on investment. To avail of all viable opportunities, both national and global, arising out of the

Government of India’s policy of liberalisation and reforms. To achieve higher growth through mergers, acquisitions, integration and diversification

by harnessing new business opportunities in oil exploration & production, petrochemicals, natural gas and downstream opportunities overseas.

To inculcate strong ‘core values’ among the employees and continuously update skill sets for full exploitation of the new business opportunities.

To develop operational synergies with subsidiaries and joint ventures and continuously engage across the hydrocarbon value chain for the benefit of society at large.

Obligations

Towards customers and dealers:- To provide prompt, courteous and efficient service and quality products at competitive prices.

Towards suppliers:- To ensure prompt dealings with integrity, impartiality and courtesy and help promote ancillary industries.

Towards employees:- To develop their capabilities and facilitate their advancement through appropriate training and career planning. To have fair dealings with recognised representatives of employees in pursuance of healthy industrial relations practices and sound personnel policies.

Towards community:- To develop techno-economically viable and environment-friendly products. To maintain the highest standards in respect of safety, environment protection and occupational health at all production units.

Towards Defence Services:- To maintain adequate supplies to Defence and other para-military services during normal as well as emergency situations.

How does company make money?

Products: Auto Gas, ATF/Jet fuel, Petrol/Gasoline, Diesel/Gas Oil, Indane Gas, Kerosene, Bitumen, Bulk/Industrial Fuel, Crude Oil, Marine Fuels and Lubricants, Petrochemicals, Special Products.

Services: Refining, Pipeline, R&D, Marketing, Oil And Gas Training Services

54%

26%

11% 9%

FY 2013-14

MarketingPipelinesPetchemRefining

Competitors

Indian Oil Corporation has two major domestic competitors, Bharat Petroleum and Hindustan Petroleum. Both are state-controlled, like Indian Oil Corporation. There are two private competitors: Reliance Industries and Essar Oil.

Total sales

(2011-12)

Rs (in crore)

Total sales

(2012-13)

Rs (in crore)

Total sales

(2013-14)

Rs (in crore)

IOCL 3,73,926 4,14,909 4,57,553

HPCL 1,78,335 2,06,731 2,23,271

BPCL 2,11,972 2,40,115 2,60,060

RIL 3,39,792 3,60,297 3,90,117

9%

31%

14%11%

28%

7%

Refining Shares (Industry Capacity 213.18 MMT)

EssarIOCLBPCLHPCLRILOthers

23%

27%

50%

Products Pipeline Share (Downstream Industry Ca-

pacity) HPCLBPCLIOCL

BPCL

HPCL

IOCL

RIL

Others

0 5 10 15 20 25 30 35 40 45 50

21

19

46

7

7

Petroleum Product Market Share

Company Performance

2011-12 2012-13 2013-14

Turnover (Rs in crore) (inclusive of Excise Duty)

3,73,926 4,14,909 4,57,553

Profit After Tax (Rs in crore)

3,955 5,005 7,019

Net Worth (Rs in crore)

57,877 61,124 65,992

Dividend (Rs in crore)

1,214 1,505 2,112

Earning per share (in Rs)

16.29 20.61 28.91

Market Capitalization Rs (in crore)

IOCL- 89,446BPCL- 53,382

HPCL- 18,489

Board Structure

Company Structure

The company structure is divisionalized.

The structure is divided on the basis of company’s function; comprising of pipelines, refineries, R&D, marketing, HR, finance and Planning and Business.

Chairman

DirectorPlanning

and Business Develop

mentExecutives

DirectorFinance

Executives

DirectorMarketi

ng

Executive Director

(Consumer Sales),

MarketingExecutive

Director I/C (Human

Resource), MarketingExecutive Director

(Corporate Communica

tion &Branding), Marketing

Products, Marketing

DirectorPipeline

s

Executive Director

(Operations), Pipelines

Executive Director I/C (Projects), PipelinesExecutive Director

(Construction), PipelinesExecutive

Director (Human

Resource), PipelinesExecutive Director Regional

DirectorRefineri

esExecutive Director

(Maintenance &

Inspection), RefineriesExecutive Director

(Operations), RefineriesExecutive

Director (Projects), RefineriesExecutive Director (Human

Resource), RefineriesExecutive Director

(Finance), RefineriesExecutive

Director (Maintenan

ce & Constructio

n),Refineries

Executive Director (Health, Safety &

Environment),

Refineries

DirectorHuman Resourc

es

Executives

DirectorResearch And

Development

Executive Director (Refining

Technology), R&D

Executive Director

(Finance), R&DExecutive

Director (Lube

Technology), R&D

Government

and Non executiv

e Indepen

dent Director

sExecutives

Chairman

7 whole-time functional directors

2 Part-time Non-executive nominee

directors from MoP&NG (Government)

10 Independent Directors

Each division is headed by a director with general managers and executives working under him.

Strength

1.India's largest commercial enterprise with a strong brand name3.Operates 10 refineries in India 4.Huge distribution network through retailing 5.Accounts for a 47% share in the petroleum products market, 34.8% share in refining capacity and 67% downstream sector pipelines capacity in India6.Has over 35,000 employees

Weakness

1.Legal issues2.Accidents3.Bureaucracy4.Volatility in the crude market & subsidy burden

Opportunity

1.Increasing natural gas market 2. More oil well discoveries3. Expand export market 4. Renewable energy

Wind Power : 21MW capacity plant in Kachchh (Gujarat); 48.3MW capacity plant in AP

Biofuels:

Chhattisgarh Project : Subsidiary with Chhattisgarh Renewable Development Authority for plantation of Jatropha in 30,000 hectare wasteland; Madhya Pradesh Project : IOC allotted 2,000 hectare wasteland for Jatropha plantation; UP Project : Formed LLP with Ruchi Soya Industries Limited with objective of Jatropha plantation on 50,000 hectare wasteland.

Solar Power: 5MW solar plant in Rajasthan.

Threats

1.Government regulations 2.High Competition

Supplier Power

Medium

In the oil industry the major power is held by the supplier of oil. Major supplier in world market is OPEC (Organisation of Petroleum Exporting Countries) fixes prices.

As IOC purchase from many suppliers and calls tender so low bidder gets contract. Hence bargaining power of supplier is medium.

Buyer Power

Medium

Indian oil is having competitors like BP, SHELL and RELIANCE in the diesel and petrol segment. Whereas, in the lubricants segment they face intense competition from: CASTROL, SHELL and VALVOLINE products. So the industrial customers who do bulk purchase is having good bargaining power as they order in huge quantity and on top of it they have good number of other suppliers too. No switching cost.

Competitive Rivalry

High

Gulf oil has full acquired the buses segment, servo’s share consists of Lorries and trucks. With regard to valvoline it has its market share from the drillers and other heavy equipment users. And finally Castrol has targeted bike segment and high end users. So, from the above scenario we can say that there is more rivalry among existing players in this oil industry.

Threat of Substitution

Medium

In near future there is no threat of substitution for petroleum products but in distant future the renewable sources of energy will dominate the market.

Threat of New Entry

Low

The threat appears to be low because to enter in to industry one should have the financial muscle and should have good distribution channels. Apart from all these this industry asks for so many environmental regulations to be followed which itself is a cumbersome process. It also requires high level of expertise in the areas of extraction and exploration and also the refining. There is more fixed cost involved in the upstream, downstream and also the other chemical products. All these factors make new entrant to think twice to enter this industry.

Government Policy

High

Government ownership and support includes:

Capital raising : Government approval

Board control : Members nominated to IOC Board

Pricing : Select petroleum products based on Govt. initiative

Functional Directors : Appointed by President of India

Equity control : 87% ( 69% directly and 13% through ONGC and 5% through OIL)

Performance : Annual MoU with Govt. for performance

Company’s Future & Suggestion

Future

IOCL have a Maharatna status. It represents

Future seems bright as it is investing in renewable resources of energy, Wind (Kachchh), Bio fuels (Chhattisgarh, MP, UP), Solar (Raj).

Acquisition of LNG Assets in British Columbia, Canada

Suggestion