IOC - Largest refiner in the country... will be self sufficient post commissioning of Paradeep refinery - IIFL

IOCL's market share is 55% in product sales with domestic sales volumes at 70mtpa. Its refining capacity is 65mtpa (IOC: 54mtpa, subsidiaries: 11mtpa) which represents 35% of the country total refining capacity. With 15mtpa Paradeep refinery set to be commissioned in November 2013, IOCL will become self sufficient in terms of its refining to market sales mix. With a complexity index of 13, the upcoming refinery is expected to be amongst the most complex refineries in the country.

Diversified OMC with large petrochemical and pipeline businesses

IOC has fairly diversified its business away from the marketing business into pipelines and petrochemicals. It has nearly 11,000kms of pipeline network with 87% of market share in crude oil pipelines and 49% of market share in petroleum product pipelines. Besides a dominant player in the pipeline business it has also forayed in the petrochemicals business. While the refining and marketing businesses contribute ~75% at the EBITDA level, the pipelines business contributes to the rest 25%. Meanwhile petrochemical business has been largely loss making but has turned around in FY13 posting profits at EBIT level. Going ahead as the Panipat cracker turns around we foresee the business to contribute ~10% of EBIT in FY14.

Better balance sheet, lesser prone to subsidy, factored in valuations

IOC has relatively better balance sheet amongst the OMC's with the least debt to equity ratio. Also, we note that its earnings are relatively less sensitive to subsidy burden owing to diversification of revenues and better marketing-to-refining mix. Nevertheless, no major upsides trigger as core P/BV of 1.1x is highest amongst OMCs (for comparison, we have adjusted BPCL P/BV for its upstream assets) and adequately factors the inherent positives.

Source : Equity Bulls

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