Corporate Overview

Print IndianOil is India's flagship national oil company with business interests straddling the entire hydrocarbon value chain from refining, pipeline transportation and marketing of petroleum products to exploration & production of crude oil & gas, marketing of natural gas and petrochemicals. It is the leading Indian corporate in the Fortune 'Global 500' listing, ranked at the 98th position in the year 2011. With over 34,000-strong workforce, IndianOil has been helping to meet Indias energy demands for over half a century. With a corporate vision to be the Energy of India, IndianOil closed the year 2010-11 with a sales turnover of Rs. 3,28,744 crore ($ 72,125 million) and profits of Rs. 7445 crore ($ 1,633 million). At IndianOil, operations are strategically structured along business verticals - Refineries, Pipelines, Marketing, R&D Centre and Business Development E&P, Petrochemicals and Natural Gas. To achieve the next level of growth, IndianOil is currently forging ahead on a well laid-out road map through vertical integration upstream into oil exploration & production (E&P) and downstream into petrochemicals and diversification into natural gas marketing and alternative energy, besides globalisation of its downstream operations. Having set up subsidiaries in Sri Lanka, Mauritius and the United Arab Emirates (UAE), IndianOil is simultaneously scouting for new business opportunities in the energy markets of Asia and Africa.

Reach and Network IndianOil and its subsidiary (CPCL) account for over 48% petroleum products market share, 34.8% national refining capacity and 71% downstream sector pipelines capacity in India.

The IndianOil Group of companies owns and operates 10 of India's 20 refineries with a combined refining capacity of 65.7 million metric tonnes per annum (MMTPA, .i.e. 1.30 million barrels per day approx.). IndianOil's cross-country network of crude oil and product pipelines spans 10,899 km with a capacity of 75.26 MMTPA of crude oil and petroleum products and 10 MMSCMD of gas. This network is the largest in the country and meets the vital energy needs of the consumers in an efficient, economical and environment-friendly manner. It has a portfolio of powerful and much-loved energy brands that includes Indane LPGas, SERVO lubricants, XtraPremium petrol, XtraMile diesel, PROPEL, petrochemicals, etc. Validating the trust of 56.8 million households, Indane has earned the coveted status of 'Superbrand' in the year 2009 and now has a customer base of 61.8 million. IndianOil has a keen customer focus and a formidable network of customer touch-points dotting the landscape across urban and rural India. It has 20,421 petrol and diesel stations, including 3517 Kisan Seva Kendras (KSKs) in the rural markets. With a countrywide network of 36,900 sales points, backed for supplies by 140 bulk storage terminals and depots, 3,960 SKO/LDO dealers (60% of the industry), 96 aviation fuel stations and 89 LPGas bottling plants, IndianOil services every nook and corner of the country. Indane is present in almost 2764 markets through a network of 5456 distributors (51.8% of the industry). About 7780 bulk consumer pumps are also in operation for the convenience of large consumers, ensuring products and inventory at their doorstep. IndianOil's ISO-9002 certified Aviation Service commands an enviable 63% market share in aviation fuel business, successfully servicing the demands of domestic and international flag carriers, private airlines and the Indian Defence Services. The Corporation also enjoys a 65% share of the bulk consumer, industrial, agricultural and marine sectors. With a steady aim of maintaining its position as a market leader and providing the best quality products and services, IndianOil is currently investing Rs. 47,000 crore in a host of projects for augmentation of refining and pipelines capacities, expansion of marketing infrastructure and product quality upgradation.

Innovation is key IndianOil has a sprawling world-class R&D Centre that is perhaps Asia's finest. It conducts pioneering work in lubricants formulation, refinery processes, pipeline transportation and alternative fuels, and is also the nodal agency

of the Indian hydrocarbon sector for ushering in Hydrogen fuel economy in the country. The Centre holds 212 active patents, with over 100 international patents. Some of the in-house technologies and catalysts developed by IndianOil include the DHDT technology, Light Naptha Isomerization technology, INDMAX technology (for maximizing LPGas yield), Oilivorous S bio-remediation technology(extended to marine applications too), Diesel Hydro DeSulphurisation(DHDS) catalyst, a special Indicat catalyst for Bharat Stage IV compliant Diesel, IndVi catalyst for improved distillate and FCC throughput, and adsorbent based deep sulphurisation process for gasoline and diesel streams.

Redefining the horizon In Petrochemicals, IndianOil offers a full slate of products including Linear Alkyl Benzene (LAB), Purified Terephthallic Acid (PTA) and an extensive range of polymers. IndianOil holds a significant market share of LAB in India and exports to 19 countries. It is the largest suppliers of Mono-Ethylene Glycol (MEG) in the domestic market. Execution of a state-of-the-art 120,000 tonnes per annum Styrene Butadiene Rubber (SBR) unit is underway at Panipat. The SBR unit is expected to further strengthen IndianOils presence in the speciality petrochemicals sector. In Exploration & Production, IndianOil's domestic portfolio includes 11 oil and gas blocks and 2 CBM blocks in India including 2 blocks as part of a consortium under NELP-VIII (blocks GK-OSN-2009/1 and GK-OSN-2009/2). The overseas portfolio includes ten blocks spread across Libya, Iran, Gabon, Nigeria, Timor-Leste and Yemen. Exploration activities are at various stages of progress. In addition, as part of consortium, IndianOil has been awarded Project -1 in the Carabobo heavy oil region of Venezuela. To boost E&P activities, IndianOil has incorporated Ind-OIL Overseas Ltd. a special purpose vehicle for acquisition of overseas E&P assets in partnership with Oil India Ltd. Natural Gas marketing is another thrust area for IndianOil with special focus on City Gas Distribution (CGD) business. The Corporation has entered into franchise agreements with several CGD players to market Compressed Natural Gas through its retail outlets. During 2010-11, gas sales grew by an impressive 20.7% to 2.3 million tones from 1.91 million tones in the previous year. IndianOil is also setting up a 5 MMTPA LNG import, storage and regassification terminal at Ennore (outskirts of Chennai). This LNG terminal would be the first of its kind on the East Coast of India. IndianOil's joint venture with GAIL India Ltd. - Green Gas Ltd. is authorised to take up city gas distribution in Agra. A long term gas supply agreement has been signed with NTPC. Furthermore, in consortium with GSPC, HPCL and BPCL, IndianOil has won gas pipeline bids for Mallavaram to Bhilwara and Vijaypur via Bhopal, Mehsana to Bhatinda and Bhatinda to Jammu and Srinagar.

Venturing into alternative fuels IndianOiI has forayed into alternative energy options such as wind, solar, bio-fuels and nuclear power. A 21 MW wind power project is operational in the Kutch district of Gujarat. The solar power initiative is being spearheaded on a pilot basis in Orissa, Karnataka and the Northeast and a pan-India phased roll-out is underway. Solar products such as solar lanterns and torches are being sold through the Retail Outlets in rural and urban areas. With a view to investing in the nuclear energy sector in the country, IndianOil has entered into an agreement with the Nuclear Power Corporation of India Ltd. IndianOil has the largest captive plantation over 1,000 hectares for bio-fuel production in India which is underway in the States of Chattisgarh and Madhya Pradesh, generating rural employment. To straddle the complete bio-fuel value chain, IndianOil has formed a joint venture with the Chhattisgarh Renewable Development Authority. IndianOil CREDA Biofuels Ltd. has been formed to carry out farming, cultivating, manufacturing, production and sale of biomass, bio-fuels and allied products and services in Chattisarh. In Uttar Pradesh, IndianOil is establishing a model value chain for the production of bio-diesel. A MoU for collaborating on commercial production of bio-diesel from algae has also been signed with PA LLC

IndianOil. The Energy of India

With facilities at multiple locations and ever-expanding market opportunities, IndianOil is poised to become an integrated energy company. As the flagship public sector enterprise of India, IndianOil has also successfully combined its corporate social responsibility agenda with its business offerings, meeting the energy needs of millions of people every day, across the country.

Indian Oil Corporation (IOC): Business model analysis

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After covering a host of standalone refineries, we now shift our focus towards the refining and marketing (R&M) aspect of the energy value-chain. We start with this segment by analyzing the biggest player on the block, IOC. About the company IOC, the largest oil refining and marketing company, is India's largest company in India in terms of sales (over US $ 36 bn in FY06). IOC, along with its subsidiaries, Chennai Petroleum Corporation Limited (CPCL) and Bongaigaon Refinery and Petrochemicals Limited (BRPL), owns 10 out of the 18 refineries in the country (43% of the refining capacity in the India). IOC and its subsidiaries account for 45% of the petroleum products market share among public sector oil companies, and 69% of the downstream pipeline throughput capacity. Segmental analysis Refining division The refining capacity of IOC has registered a CAGR of 1.6% over the period under consideration (FY01 to FY06). The reason for the lower growth for the period under consideration is the expansion in refining capacity from FY99 to FY01. However, the growth in the refining capacity over the period FY98 to FY06, is 6.1% CAGR for IOC as compared to nearly 10% for the industry. The company has lined up ambitious expansion plans to increase its refining capacity and to foray into the export of refined products. The capacity utilisation has increased from 87% in FY01 to 93% in FY06, backed by increased demand for petroleum products during the period. IOC has ensured debottlenecking and low-cost expansion of its existing refineries, in addition to new grass root refining capacity build-up. Also, the crude assay (the ability to process different types of crude) for the refineries is broadened over the years. Refining capacity utilisation
(in MMTPA) FY01 FY02 FY03 FY04 FY05 FY06
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Refinery throughput Refinery capacity Capacity utilisation

33.22 38.15

33.76 38.15

35.29 39.95

37.66 41.35

36.63 41.35

38.52 41.35 93.2%

87.1% 88.5% 88.3% 91.1% 88.6%

Marketing division The sales volumes from FY01 to FY06 have registered a meager growth of 0.3% CAGR, as compared to the overall growth in consumption of petroleum products by 2.2% CAGR in the corresponding period. The reason for the slower growth rate of IOC vis--vis consumption growth is deregulation of the sector, which brought in faster growth of other public and private sector companies in the country. Sales Volume analysis
(in MMTPA) Domestic Export Total FY01 FY02 FY03 FY04 FY05 47.80 47.17 46.46 46.80 48.86 1.02 0.90 1.10 1.81 1.96 FY06 47.52 2.09 49.61

48.82 48.07 47.56 48.61 50.82

The sales-to-refining throughput for IOC has decreased over the period, due to faster growth in refining capacity compared to growth in sales volumes over the period. This has improved the business mix of the company over the period, as the external dependence is reduced from 48% (FY01) in terms of the volumes to 29% (FY06). However, increased competition on the part of PSU marketing companies in addition to the increasing presence of private marketing companies in form of Reliance and Essar, has posed a challenge for IOC. Reducing external dependence over the years
(in MMTPA) Sales Refinery Thruput FY01 48.82 33.22 FY02 48.07 33.76 FY03 47.56 35.29 FY04 48.61 37.66 FY05 50.82 36.63 FY06 49.61 38.52 128.8%

Sales/Refinery Thruput 147.0% 142.4% 134.8% 129.1% 138.7%

Pipeline network IOC has a widespread network of pipelines for transportation of crude and petroleum products. The pipeline throughput for IOC has increased from 39.4 million metric tonnes per annum (MMTPA) in FY01 to 45.4 MMTPA in FY06, thus registering a CAGR of 3% over the period. The major benefits perpetuating from the 9,000 kms of its widespread pipeline network have been in the form of lower transportation costs for the company. The vision IOC has set its sights to reach US$ 60 bn in revenues by the year FY11 from the current level of US$ 36 bn earned in FY06. The road map to attain this milestone has been laid through vertical

integration - forward integration into petrochemicals and backward integration into exploration and production (E&P), besides diversifying into natural gas and globalisation of its marketing division. Conclusion In this write-up, we have explained the business segments of the company and their performance over the past few years. IOC is the biggest refining company in the country and has an equal presence in the refining and marketing segment. The fine blended presence of the company in both segments leads to lower segmental business risk and lower fluctuations in its earnings. IOC is the only refining company having a presence in North India (one of the major consumption centres). Refining capacity in the country is skewed, with western India contributing 47% of the total installed capacity, whereas the demand for petroleum products spread evenly across the country. Thus, transportation of petroleum products from the surplus refining regions to the deficit regions involves a cost, which to an extent, is not the case with IOC, as its has a well-spread refining capacity over the country, with the north contributing to the extent of 33% of the total refining capacity of the company. IOC has recently tied up with a US firm for improving its product quality for its Koyali refinery in Gujarat, which we believe is a step taken to increase exports. The company is also building an export-oriented refinery at Paradeep (capacity 15 MMTPA) to foray into the export markets of South East Asian countries. Further, as we mentioned above, in order to secure its crude oil requirements and diversify across the value chain, the company is moving into backward and forward integration. During FY06, the company bagged two oil blocks in Libya in addition to 11 blocks domestically. IOC is also diversifying into the petrochemicals business. It has earmarked a sum of Rs 300 bn for investment by FY12 for this purpose. However, a key risk to IOC's plans is the fact that venturing into businesses like petrochemicals and oil and gas E&P involves a significant level of risk. Such businesses require high levels of technical expertise, involve significant capex outlays and are generally highly regulated sectors globally. Therefore, IOC will not only have to spend large amounts of money on capex, it will also need to build skills to effectively compete in these businesses. To that extent, there is a risk to the company's future plans, although they may be in the right direction in terms of becoming an integrated transnational energy major, like its global peers such as Exxon Mobil, Shell and BP.