25 August 2015
Update | Sector: Oil & Gas
IOC
BSE Sensex
26,032
S&P CNX
7,881
CMP: INR395
TP: INR570 (+44%)
Buy
Largest OMC; diversification offers earnings stability
Marketing margins and Paradip to drive earnings; valuations attractive
with 4% dividend yield
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap.(INR b)/(USD b)
AvgVal(INRm)/Vol ‘000
Free float (%)
IOCL IN
2,428.0
465/307
-6/31/12
962.3/14.7
503/1357
31.4
Ongoing sector reforms reduced IOCL’s debt and we expect marketing margins to
improve over the next 12-18 months owing to pricing freedom.
We believe IOCL’s large asset base in refining and marketing is non-replicable and
its well-diversified earnings provide stability to earnings.
While refining margins would be governed by global demand-supply; likely higher
marketing margins provide predictability to its earnings and should lead to re-
rating, in our view.
The stock trades at 7.2x FY17E EPS of INR55. Our SOTP-based fair value stands at
INR570, implying 44% upside. Valuations attractive with 4% dividend yield. Buy.
Financial Snapshot (INR Billion)
Y/E Mar
2015 2016E 2017E
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
4,483 3,057 3,374
93.4 253.0 264.9
32.4 126.5 133.8
13.4
52.1
55.1
5.8
16.1
15.5
7.2
1.1
5.3
4.3
-39.2 289.9
4.7
6.4
29.7
1.4
15.8
1.7
17.2
16.4
7.6
1.2
5.8
4.0
Reforms beneficiary; debt reduced, now on to marketing margins
283.5 323.8 359.0
Indian oil sector witnessed unprecedented reforms (such as auto fuel de-
regulation) in the last two years, leading to more than 80% reduction in
under-recoveries.
IOCL’s debt reduced ~45% and the company is expected to benefit from
higher marketing margins owing to pricing power. We model marketing
margins at INR1.6/2.0/liter in FY16/FY17 v/s regulated margins of
INR1.4/liter in auto fuels.
Of the three OMCs, IOCL’s earnings are the most diversified—share of
refining at ~40%, marketing at ~30%, pipeline at 24% and petchem at 6%.
We believe IOCL’s asset base in non-replicable, with control over 11 of
India’s 22 refineries (35% capacity share), 71% of downstream pipelines and
46% (24,400) of retail outlets.
IOCL’s 15mmt (INR350b capex, 12.2 Nelson complexity) Paradip refinery is
nearing commissioning, with all units expected to start in 2HFY16.
We expect the refinery to stabilize by 2HFY17 and estimate break-even
GRM of USD7-8/bbl, with distillate yield of 81%. 700KTA planned
downstream propylene will boost refinery complexity and project IRR.
The medium-term refinery capacity additions will be brownfield (hence cost
effective) in nature and include expansion at Gujarat (13.7 to 18mmt),
Mathura (8 to 11mmt) and Panipat (15 to 20mmt).
Key risks include crude price (inventory losses) and INR/USD volatility and
any delay in the commissioning of Paradip refinery.
We value IOCL at 5.5x for refining/petchem and 8x for marketing to arrive
at a fair value of INR570, implying a 44% upside. The stock trades at 7.2x
(lowest among the three OMCs) FY17E EPS of INR55 and 1.1x FY17E BV.Buy.
Diversified earnings give stability; large non-replicable asset base
Shareholding pattern (%)
Jun-15 Mar-15
Promoter 68.6 68.6
DII
FII
Others
4.7
2.4
24.3
4.6
2.6
24.2
Jun-14
68.6
4.6
2.4
24.4
Paradip refinery nearing commissioning, full benefit in 2HFY17
Notes: FII includes depository receipts
Stock Performance (1-year)
500
450
400
350
300
IOCL
Sensex - Rebased
Valuation and view
Harshad Borawake
(HarshadBorawake@MotilalOswal.com); +91 22 3982 5432
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

IOC
Pricing reforms lead to significant debt reduction
Expect marketing margins to move up
Indian oil sector witnessed unprecedented reforms (such as auto fuel de-regulation) in
the last two years, leading more than 80% reduction of in under-recoveries.
IOCL’s debt reduced ~45% and the company is expected to benefit from higher
marketing margins owing to pricing power. We model marketing margins at
INR1.6/2.0/liter in FY16/FY17 v/s regulated margins of INR1.4/liter in auto fuels.
Oil sectors reforms in the final leg
Background:
Indian oil sector has historically been heavily regulated, led by
controlled pricing in auto (diesel, gasoline) and domestic fuels (LPG, kerosene).
Consequently, retail prices continued to be lower than the required pricing; this
resulted in under-recoveries, which in turn were to be shared by the
government, upstream and downstream companies. As a result, the
government and oil companies faced financial stress—leading to high debt, and
lower profitability and shareholder returns.
What has changed?
Having suffered from the above approach, the government
decided to commence policy reforms in June 2010 with gasoline de-regulation—
as this was the easiest reform, given the lower volume and gasoline being
largely considered as urban fuel. In FY12 and FY13, owing to rising under-
recoveries (peaked at INR1.6t in FY13) and adverse remarks from global rating
agencies, the government finally began reforms in the diesel and LPG segment.
The government initiated monthly diesel price hike of INR0.5/liter in Jan-13
and finally de-regulated it completely in Oct-14.
Also, in Jan-13, the government de-regulated diesel for bulk consumers.
On the LPG front, the government initially limited the subsidized cylinders to
12 per household per year and recently transferred the LPG subsidy
disbursal through direct cash transfer with a view to curtail the practice of
having multiple connections and ensure that only true beneficiary receives
the subsidy.
What is the impact?
Policy reforms reduced under-recoveries and debt levels of
oil marketing companies, leading to improvement in profitability.
What’s the current status?
While gasoline and diesel are fully de-regulated, LPG
subsidy is now disbursed through direct cash transfer; kerosene is expected to
follow LPG and we expect kerosene direct cash transfer pilot projects to be
launched soon.
Subsidy sharing:
On the subsidy sharing front, OMCs were sharing ~3% for the
last few years; but with LPG subsidy now being given by the government
through budget (INR18/kg) and kerosene subsidy at INR12/liter and rest to be
borne by upstream, we do not model any subsidy sharing for OMCs.
25 August 2015
2

IOC
Exhibit 1: Gross under-recoveries have reduced >85% from the peak in FY13; LPG now part of the government budget
Petrol
Diesel
Kerosene
LPG
Total
1,610
1,385
1,033
773
400
201
FY05
LPG
Kerosene
Diesel
Petrol
Total
84
95
22
2
201
FY06
102
144
126
27
400
FY07
107
179
188
20
494
FY08
156
191
353
73
773
FY09
176
282
523
52
1,033
FY10
143
174
93
52
461
FY11
205
200
348
27
780
FY12
284
278
819
0
1,385
FY13
399
296
915
0
1,610
FY14
465
306
628
0
1,399
FY15
366
248
109
0
723
494
461
165
FY16E
0
165
0
0
165
780
723
1,399
Source: PPAC, MoPNG, MOSL
Exhibit 2: We model nil subsidy sharing for OMCs from FY16
(INR b)
FY05
FY06
FY07
Fx Rate (INR/USD)
44.9
44.3
45.2
Brent (USD/bbl)
42
58
64
Product-wise gross under-recoveries (INR b)
Petrol
2
27
20
Diesel
22
126
188
Kerosene
95
144
179
LPG
84
102
107
Total
201
400
494
Sharing of gross under-recoveries (INR b)
Government
0
115
241
Upstream
59
140
205
OMC's
142
138
48
Total
201
400
494
Sharing of gross under-recoveries (%)
Government
0
29
49
Upstream
30
35
42
OMC's
70
35
10
Total
100
100
100
FY08
40.3
82
73
353
191
156
773
353
257
163
773
46
33
21
100
FY09
46.0
85
52
523
282
176
1,033
713
329
(9)
1033
69
32
(1)
100
FY10
47.5
70
52
93
174
143
461
260
145
56
461
56
31
12
100
FY11
45.6
86
27
348
200
205
780
410
303
67
780
53
39
9
100
FY12
47.9
114
0
819
278
284
1,385
829
552
0
1,385
60
40
0
100
FY13
54.5
111
0
915
296
399
1,610
1,000
600
10
1,610
62
37
1
100
FY14
60.6
108
0
628
306
465
1,399
707
671
21
1,399
51
48
2
100
FY15
61.1
86
0
109
248
366
723
273
428
22
723
38
59
3
100
FY16E
64.0
60
0
0
165
0
165
102
63
0
165
62
38
0
100
FY17E
65.0
65
0
0
174
0
174
95
79
0
174
55
45
0
100
Source: PPAC, MoPNG, MOSL
IOCL’s debt reduced meaningfully, balance sheet strengthened
During the controlled price regime, OMCs (HPCL, BPCL and IOCL) had to bear the
losses in case of rising international prices till the time government
compensated through subsidy (which was typically delayed by 3-5 months).
Delayed government support led OMCs to use debt to fund working capital
requirement, thus straining their balance sheets and income statements.
Interest on under-recovery-related debt was not compensated by the
government.
However, diesel de-regulation and lowering of crude prices have reduced OMCs’
debt significantly and thereby interest outgo.
3
25 August 2015

IOC
Combined net debt of all the three OMCs reduced ~45%, with similar decline
seen in all.
Exhibit 3: OMCs’ net debt reduced ~45%, led by policy reforms and lower oil price (INRb)
HPCL
1,500
1,100
687
700
300
-100
187
176
443
486
914
949
1,056
825
808
717
BPCL
IOC
Total
1,376
1,479 1,476
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
Source: Company, MOSL
*BPCL and IOCL on consolidated basis
Exhibit 4: IOCL debt profile: Meaningful reduction seen in FY15
INR Billion
Long term debt
Forex
Domestic
Sub-total
% Forex
Short term debt
Forex
Domestic
Sub-total
% Forex
Total debt
Forex
Domestic
Total
% Forex
FY11
52
149
201
26%
154
223
377
41%
206
372
578
55%
FY12
55
182
237
23%
224
339
563
40%
279
521
800
35%
FY13
140
129
269
52%
324
296
620
52%
464
425
889
52%
FY14
262
157
418
63%
316
215
531
60%
FY15
288
82
370
78%
98
116
214
46%
578
386
372
198
949
584
61%
66%
Source: Company, MOSL
Marketing margins improvement to drive next earnings growth
Post the interest cost reduction, the next meaningful earnings growth is
expected from improvement in the marketing margins on auto fuels, pricing for
which is now market determined.
IOCL’s (OMCs’) auto fuel marketing margins were fixed in November 2006 at
INR1.4/liter and, in later years, were not increased in line with the actual costs
or global trends.
Global comparison shows that the controlled marketing margin of INR1.4/liter is
~60% below the global average.
Also, private competitors’ operating costs will be higher than OMCs that have
well-entrenched logistics network and would require higher profitability to
make decent returns.
25 August 2015
4

IOC
In the de-regulated scenario, we expect OMCs’ marketing division profitability to
increase meaningfully. However, we do not expect this increase to happen
suddenly but gradually over the next 12-18 months.
We model marketing margins at INR1.6/2.0/liter in FY16/FY17 v/s regulated
margins of INR1.4/liter in auto fuels.
Exhibit 5: Global diesel marketing margins well above India’s regulated margins level
(INR/liter)
4.80
3.00
1.40
1.50
1.60
3.01
4.50
2.83
1.77
3.49
3.40
Source: Industry, MOSL
25 August 2015
5

IOC
Diversified earnings give stability
Large un-replicable asset base a big advantage
Of the three OMCs, IOCL’s earnings are the most diversified—share of refining at
~40%, marketing at ~30%, pipeline at 24% and petchem at 6%.
We believe IOCL’s asset base in non-replicable, with control over 11 of India’s 22
refineries (35% capacity share), 71% of downsteam pipelines and 46% (24,400) of retail
outlets.
IOCL has well-diversified earnings
IOCL has the most diversified earnings profile among the three OMCs, with
meaningful contribution (apart from refining and marketing) from pipeline and
petrochemicals.
While HPCL is the most levered to increase in marketing margins, IOCL’s
diversification provides earnings support in times of crude price and exchange
rate volatility. Its large pipeline network provide annuity like earnings (~24% of
total) and ongoing capex on new pipelines would further increase these stable
earnings.
Exhibit 6: EBITDA break-up in %: IOCL is the most diversified among the three OMCs
57
57
41
6
Marketing
Petchem
Pipelines
Refining
-
17
26
HPCL
-
7
37
24
29
IOCL
BPCL
*Average of FY11-FY15 EBITDA, FY11-FY14 for IOCL to normalize refining share which was impacted by
huge inventory loss in FY15
Source: Company, MOSL
Huge unreplicable asset base
IOCL will be the largest refiner in India post the commissioning of Paradip
refinery, with control over 35% of the refining capacity with its 11 refineries.
The company has a pipeline (crude + product) network of 11,000+km, with
overall capacity of 80.5mmtpa.
In the petroleum market, IOCL it ~47% market share in volume terms and
~43,000 touch points (include 24,400 auto fuel retail outlets).
IOCL has diversified crude sourcing avenues, with majority of the imports
coming from Middle East (~64%) and Africa (~28%).
25 August 2015
6

IOC
Exhibit 7: IOCL is the largest refining and marketing company in India
*Includes Paradip in IOCL refining capacity
Source: Company, MOSL
Exhibit 8: IOCL refinery locations are well diversified, giving it a logistical advantage
Source: Company, MOSL
25 August 2015
7

IOC
Exhibit 9: IOCL’s pipeline network covers 11,000km, with overall capacity of ~80mmtpa
Source: Company, MOSL
Exhibit 10: Retail petroleum stations: IOCL has ~24,400 retail fuel stations, giving it a dominant share of 46%
Retail outlets ('000)
49
50
HPCL
52
51
47
BPCL
47
IOCL
48
Private
48
Total
47
IOCL outlet share (%)
47
46
46
49
3
21
10
11
FY12
3
22
12
12
FY13
46
52
3
24
13
13
FY14
46
53
3
24
13
13
FY15
18
-
9
5
5
FY02
19
-
9
5
5
FY03
22
-
11
5
5
FY04
26
0
13
6
6
FY05
31
2
15
7
7
FY06
35
3
16
8
8
FY07
37
3
18
8
8
FY08
38
3
18
8
8
FY09
39
3
19
9
9
FY10
42
3
19
9
10
FY11
45
Source: Company, MOSL
25 August 2015
8

IOC
Paradip refinery to fully commission in 2HFY16
Full benefit expected in 2HFY17
IOCL is in the midst of commissioning its 15mmt (INR350b capex, Nelson complexity at
12.2) greenfield Paradip refinery with expected start of all units in 2HFY16.
We expect refinery to stabilize by 2HFY17 and estimate break-even GRM of
USD7-8/bbl with distillate yield of 81%. 700KTA planned downstream propylene will
further boost its complexity and project IRR.
Its medium-long term refinery capacity additions will be brownfield (hence cost
effective) in nature and include expansion at Gujarat (13.7 to 18mmt), Mathura (8 to
11mmt) and Panipat (15 to 20mmt).
Paradip refinery complexity
will be highest – comparable
with RIL’s Jamnagar refinery
complex
Refinery
Index
Digboi
11.0
Panipat
10.5
Haldia
10.4
Gujarat
10.0
Mathura
8.4
Bogaigaon
8.2
Barauni
7.8
Guwahati
6.7
Current avg
9.6
Paradip
12.2
Paradip refinery to fully commission in 2HFY16
IOCL’s first port-based 15mmtpa (largest on India’s east coast) refinery at
Paradip is nearing commissioning.
It will be the most complex refinery, with Nelson Complexity index of 12.2,
distillate yield of 81% and an estimated capex of INR330b.
While the recent greenfield refineries of HPCL (Bhatinda – 9mmtpa) and BPCL
(Bina – 6mmtpa) witnessed teething issues in stabilization, we believe IOCL’s
refinery has an advantage of lower capex which minimizes the asking rate for
break-even GRM. We estimate a break-even GRM of USD7-8/bbl and expect it
to stabilize by 2HFY17.
Addition of the INR36b downstream 700KTA polypropylene unit will boost
overall complex IRR.
We expect Paradip refinery to be a medium-term earnings driver for IOCL.
Assuming a GRM of USD10/bbl and opex of USD2/bbl, it could add INR6/sh to
IOCL’s earnings on a normalized basis (i.e. from FY18).
Exhibit 11: Paradip refinery to boost IOCL group refinery capacity by 23%
Digboi
100
75
50
25
0
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Medium-term
60.2
61.7
65.7
65.7
65.7
65.7
65.7
Guwahati
Koyali
Barauni
Haldia
Mathura
Panipat
Bongaigaon
CPCL
Paradip
80.7
Total
93.0
Source: Company, MOSL
New capex plans diversified, but focused on core business
IOCL’s medium- to long-term capex plans include brownfield refinery capacity
additions, new pipelines and LNG terminal at Ennore.
9
25 August 2015

IOC
Refinery capacity expansion projects include expansion at Gujarat (13.7 to
18mmt), Mathura (8 to 11mmt) and Panipat (15 to 20mmt).
While we believe the brownfield expansions and pipeline projects will go ahead,
Ennore LNG terminal could get delayed due to LNG economics and new pipeline
issues (as witnessed in Petronet LNG’s Kochi-Mangalore-Bangalore pipeline
connectivity).
On the E&P front, IOCL has stakes in 17 blocks—of which 10 are overseas. The
company’s recent investment was USD1.1b for 10% stake purchase in Canada-
based Progress Energy for its proposed LNG export facility. Going forward, IOCL
expects to invest additional USD3b for development.
As against the capex of USD2.3b in FY15, IOCL expects a capex of USD1.7b in
FY16; this includes USD660m for refining, USD200m for pipeline, USD508m for
marketing and the rest toward Petchem, E&P and others.
Exhibit 12: Paradip refinery project is nearing completion
Project / description
15mmtpa Paradip Refinery
Pipelines
Paradip–Raipur–Ranchi
Paradip–Haldia–Durgapur LPG
Other key capex
Polypropylene unit at Paradip
Distillate Yield Improvement at Haldia
Ennore LNG Terminal
Total
Capex (USDm)
5,528
287
146
504
492
824
7,781
Completion date
Oct-15
Mar-15
Jun-15
Sep-15
Sep-15
4Q - 2018
Source: Company, MOSL
25 August 2015
10

IOC
Valuation and view
Please refer our recent detailed
update on OMCs
We believe the ongoing reforms have the potential to transform OMCs into a
structural investment play, led by (a) higher earnings predictability and (b)
increase in profitability leading to higher RoE’s.
OMCs profitability is set to improve owing to pricing freedom post the diesel de-
regulation, led by (a) lower interest cost—diesel de-regulation and lower oil
prices to reduce working capital loans; (b) higher auto fuel marketing margins—
parity with international peers and relatively high cost for private marketers
provide ample room for improvement.
We believe OMCs’ economic moat is widening, led by (1) scope for meaningful
increase in marketing margin and, hence, profitability; (2) slower ramp-up by
private marketers; (3) high volume growth aided by expected GDP boost; (4)
improving balance sheet with increasing cash flow.
Likely increase in diesel marketing margins:
The next big earnings jump for
OMCs’ would come from likely higher marketing margins in diesel. We believe
OMCs will earn additional marketing margins of at least INR0.5-1/liter; even if
private players take market share as high as 15%, on OMCs will benefit on a net
basis. An INR0.5/liter increase in diesel marketing margins raises IOCL’s EPS by
~12%. We model gross per liter diesel margins of INR1.6/2.0 in FY16/FY17.
We value IOCL at 5.5x for refining/petchem and 8x for marketing to arrive at a
fair value of INR570, implying a 44% upside. The stock trades at 7.2x FY17E EPS
of INR55 and 1.1x FY17E BV. Maintain
Buy.
Exhibit 13: IOCL – Key Assumptions
Exchange Rate (INR/USD)
Brent Crude (USD/bbl)
Market Sales Volume (MMT)
GRM (USD/bbl)
FY09
45.8
84.8
66.8
3.7
5.8
(2.1)
49.7
103%
51.4
586
(0)
0%
FY10
47.5
69.6
69.8
4.5
3.6
0.9
51.2
99%
50.7
259
32
12%
FY11
45.7
86.5
72.9
5.9
5.2
0.8
54.2
98%
53.0
431
38
9%
FY12
47.9
114.5
75.7
3.6
8.2
(4.5)
54.2
103%
55.6
755
0
0%
FY13
54.5
110.0
76.2
2.2
7.6
(5.4)
54.2
101%
54.7
858
5
1%
FY14
60.6
107.8
75.5
4.2
5.6
(1.4)
54.2
98%
53.1
729
11
1%
FY15
61.1
86.0
76.5
0.3
6.4
(6.1)
54.2
99%
53.6
398
12
3%
FY16E
64.0
60.0
77.9
5.8
6.7
(0.9)
66.2
82%
54.4
105
-
3%
FY17E
65.0
65.0
79.7
5.5
7.0
(1.5)
66.2
100%
63.5
111
-
0%
FY18E
65.0
70.0
81.7
5.7
7.0
(1.3)
69.0
95%
65.6
113
-
0%
IOCL GRM (USD/bbl)
Reuters Singapore GRM
Prem/(disc)
Refining capacity
Refining capacity utilization (%)
Refinery throughput (mmt)
Under recoveries Sharing (INRb)
Gross under recoveries
Net sharing
Net sharing (%)
Source: Company, MOSL
Exhibit 14: OMCs: Comparative valuations
M Cap
(INR)
Var.
EPS (INR)
P/E (x)
USDb CMP TP TP (%) FY15 FY16E FY17E
FY15 FY16E FY17E
HPCL
4.3 824 1,190
44 81
98
106
10.2
8.4
7.7
BPCL*
9.5 865 1,198
38 66
84
89
11.3
8.9
8.4
IOCL
14.7 396
576
44 13
52
55
29.7
7.6
7.2
*P/B, P/E adj. for E&P valueof INR115/sh; Dividend yield on FY16E basis
P/B (x)
FY15 FY16E
1.7
1.5
2.1
1.8
1.4
1.2
FY17E
1.3
1.6
1.1
RoE (%)
FY15 FY16E
17.6 19.3
23.0 24.9
4.7 17.2
FY17E
18.4
22.9
16.1
Dvd
Yld %
3.6
3.1
4.0
25 August 2015
11

IOC
Exhibit 15: We value IOCL at INR570/sh
EV/EBITDA Valuation
FY17
EBITDA
103
76
33
39
Multiple
(x)
5.5
8.0
6.0
8.0
INRb
564
605
199
310
1,677
479
1,198
186
1,385
INR/sh
Investment valuation
Investments
CPCL
Gail (India)
ONGC
Petronet LNG
Oil India
Treasury Shares
Treasury Sh (BRPL)
Treasury Sh (IBP)
Total
INRb
10
7
128
13
10
10
8
186
INR/sh
4
3
53
5
4
4
3
77
Refining
Marketing & others
Petchem
Pipeline
EV
Less: Net Debt
Equity Value
Investment value
Fair value
CMP
% upside/(downside)
232
249
82
128
691
197
494
77
570
395
44%
Post 25% discount
Post 25% discount
Post 25% discount
Post 25% discount
Post 25% discount
Post 25% discount
Post 25% discount
Source: Company, MOSL
Exhibit 16: IOCL: Fair value sensitivity to GRM (USD/bbl) and marketing margins (INR/KL)
570.3
3.0
4.0
5.0
6.0
7.0
8.0
1,400
308
377
445
513
582
650
Marketing Margins (INR/KL)
1,900
2,400
2,900
3,400
3,900
384
460
536
612
688
453
529
604
680
756
521
597
673
749
825
589
665
741
817
893
658
733
809
885
961
726
802
878
954
1,029
Source: Company, MOSL
Exhibit 17: IOCL: FY17E PES Sensitivity to GRM (USD/bbl) and marketing margins on diesel
55.1
3.0
4.0
5.0
6.0
7.0
8.0
1,400
26
35
43
52
60
69
Marketing Margins (INR/KL)
1,900
2,400
2,900
3,400
3,900
33
39
46
52
58
41
48
54
61
67
50
56
63
69
75
58
65
71
77
84
67
73
79
86
92
75
81
88
94
101
Source: Company, MOSL
Please refer to our recent 1QFY16 result updates for OMCs
BPCL: 14 August 2015
HPCL: 11 August 2015
IOC: 13 August 2015
25 August 2015
12

IOC
Exhibit 18: OMCs: One-year relative performance—IOC has underperformed partly due to
OFS overhang
240
200
160
120
80
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
HPCL
BPCL
IOC
Source: Bloomberg, MOSL
Exhibit 19: Government holding in OMCs (%)
BPCL
HPCL
IOCL
82.0 82.0 82.0 82.0 82.0 82.0 80.4 80.4
78.9 78.9 78.9 78.9
66.2 66.2 66.2 66.2 66.2 64.3 64.3 64.3
68.6 68.6
54.9 54.9 54.9 54.9 54.9 54.9
58.6
54.9
51.0 51.0 51.0 51.0 51.0 51.0 51.1 51.1 51.1 51.1 51.1 51.1 51.1 51.1 51.1
*Post 10% stake sale by the Government
Source: Company, MOSL
Exhibit 20: FII holding in OMCs (%)
FII as a % of total
32
24
16
8
0
BPCL
HPCL
IOCL
Exhibit 21: FII holding in OMCs as a % of free float (%)
FII as a % of free
float
60
45
30
15
0
BPCL
HPCL
IOCL
Source: Company, MOSL
Source: Company, MOSL
25 August 2015
13

IOC
Story in charts
Exhibit 23: Marketing sales grew at a 3% CAGR, whereas
Exhibit 22: IOCL’s GRM is hovering at a discount to Singapore refinery throughput at a CAGR of 2% in the last six years
GRM since FY12 (USD/bbl)
(FY08-14)
Prem/(Disc) to Singapore
Singapore GRM
5.8
3.7
2
4.5
3.6
1
5.9
5.2
1
5
5
8.2
3.6
2.2
7.6
IOCL GRM
6.4
6.7
5.8
0.3
6
1
7.0
5.3
51
2
51
53
56
55
53
54
54
Marketing Sales (mmt)
67
70
73
76
76
Refinery Throughput (mmt)
76
77
78
80
5.6
4.2
1
64
Source: Company, MOSL
Source: Company, MOSL
Exhibit 24: Diesel de-regulation to reduce working capital,
leading to lower interest costs
Total Debt (INRb)
56
40
27
15
450
446
527
754
783
806
497
64
51
34
24
552
30
552
Interest Cost (INRb)
Exhibit 25: Expect D/E to decline as earnings increase (x)
D/E Ratio
1.3
1.0
0.9
1.0
0.7
0.7
1.3
1.2
0.6
Source: Company, MOSL
Source: Company, MOSL
Exhibit 26: Expect return ratios to improve in coming years
(%)
Exhibit 27: IOCL: One-year forward P/E chart
RoE (%)
16
14
13
11
7
8
9
8
5
6
20
RoCE (%)
17
16
28
21
P/E (x)
15 Yrs Avg(x)
22
6
8
15
16
14
7
0
8.9
11.5
10.5
8.4
Source: Company, MOSL
Source: Company, MOSL
25 August 2015
14

IOC
Financials and valuations
Income Statement (Consolidated)
(INR Million)
Y/E March
2010
2011
2012
2013
2014
2015
2016E
2017E
2018E
Net Sales
2,501,053 3,081,315 4,072,314 4,607,497 4,872,595 4,483,152
3,057,185 3,373,577 3,744,213
Change (%)
-12.6
23.2
32.2
13.1
5.8
-8.0
-31.8
10.3
11.0
Finished Gds Pur.
1,007,775 1,275,911 1,572,508 1,555,286 1,560,457 1,408,174
1,224,966 1,045,748 1,148,493
Raw Materials Cons
1,158,063 1,445,071 2,041,610 2,590,820 2,767,619 2,583,039
1,255,663 1,745,272 2,089,025
Other Operating Costs
206,462
235,028
277,923
334,015
384,808
398,514
323,602
317,692
207,842
EBITDA
128,753
125,305
180,273
127,377
159,711
93,424
252,955
264,864
298,853
% of Net Sales
5.1
4.1
4.4
2.8
3.3
2.1
8.3
7.9
8.0
Depreciation
35,552
49,326
53,093
56,915
63,600
52,190
51,897
63,730
74,222
Interest
17,262
29,803
58,947
70,835
59,079
41,746
29,880
36,584
32,984
Other Income
74,547
54,964
48,797
45,416
45,278
53,975
32,487
37,676
40,501
Excep/Prior period items
0
0
-77,078
0
17,468
16,681
16,725
0
0
PBT
150,486
101,140
39,953
45,042
99,778
70,143
220,391
202,226
232,149
Tax
40,499
20,284
-2,700
8,770
30,113
21,426
76,163
67,511
77,148
Rate (%)
26.9
20.1
-6.8
19.5
30.2
30.5
34.6
33.4
33.2
PAT
109,987
80,856
42,653
36,273
69,666
48,718
144,228
134,715
155,001
Minority interest
-2,855
-2,549
-393
8,217
1,190
402
-1,022
-892
-848
Group net profit
107,132
78,307
42,260
44,490
70,856
49,120
143,206
133,823
154,153
Adj. net profit
107,132
78,307
119,338
44,490
53,388
32,439
126,480
133,823
154,153
Change (%)
312.1
-26.9
52.4
-62.7
20.0
-39.2
289.9
5.8
15.2
532,911
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority interest
Loans
Deferred Tax
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Goodwill
Cash & Bank Balance
Inventory
Debtors
Loans & Advances
Other assets
Curr. Assets, L & Adv.
Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2010
2011
2012
2013
2014
2015
2016E
24,280
24,280
24,280
24,280
24,280
24,280
24,280
24,280
24,280
500,344
551,473
579,454
606,092
654,851
664,043
761,798
847,329
947,509
524,623
575,752
603,734
630,372
679,130
688,323
786,077
871,609
971,789
18,330
19,930
19,437
12,618
11,706
10,733
11,755
12,647
13,494
494,726
578,376
800,153
867,894
889,325
581,541
601,551
601,551
529,071
54,170
70,282
59,696
63,323
64,228
68,356
100,825
102,798
105,064
1,091,849 1,244,341 1,483,020 1,574,207 1,644,389 1,348,952
1,500,209 1,588,606 1,619,419
788,886 1,008,694 1,076,256 1,151,002 1,269,522 1,375,223
1,478,123 1,911,023 2,003,923
334,111
382,229
430,447
484,133
544,856
608,119
660,015
723,745
797,967
454,775
626,465
645,809
666,869
724,666
767,104
818,107 1,187,277 1,205,956
227,678
142,842
154,496
272,400
380,609
403,781
403,781
73,781
73,781
214,298
224
15,984
410,765
56,062
152,070
15,264
186,469
235
15,374
549,171
76,546
233,573
15,060
175,879
244
8,220
638,510
115,518
436,202
23,387
173,508
870
12,198
666,043
125,021
456,188
44,148
158,950
878
37,045
723,394
125,517
470,905
44,484
160,687
705
12,211
499,174
76,448
385,358
31,487
160,687
705
80,012
463,147
79,988
363,996
31,802
160,687
705
134,336
505,269
86,852
364,062
32,120
160,687
705
156,053
548,754
94,197
364,128
32,441
(INR Million)
2017E
2018E
351,658
532,103
561,218
619,702
751,018
707,229
623,426
677,893
738,693
103,612
69,291
154,028
223,335
271,040
280,773
278,590
278,590
278,590
194,874
288,330
506,591
460,560
379,287
16,676
116,929
166,156
178,291
1,091,849 1,244,341 1,483,020 1,574,207 1,644,389 1,348,952
1,500,209 1,588,606 1,619,419
25 August 2015
15

IOC
Financials and valuations
Ratios
Y/E March
Basic (INR)
Adj. EPS
Reported EPS
Cash EPS
Book Value
Dividend
Payout (incl. Div. Tax.)
Valuation (x)
P/E
Cash P/E
EV / EBITDA
EV / Sales
Price / Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (No. of Days)
Asset Turnover (x)
Leverage Ratio
Debt / Equity (x)
Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Interest Paid
Direct Taxes Paid
(Inc)/Dec in WC
Other op activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free Cash Flow
(Pur)/Sale of Investments
CF from Inv. Activity
Inc / (Dec) in Debt
Dividends Paid
Interest Paid
CF from Fin. Activity
Inc / ( Dec) in Cash
Add: Opening Balance
Closing Balance
E: MOSL Estimates
2010
44.1
44.1
58.8
216.1
13.0
36.1
2011
32.3
32.3
52.6
237.1
9.5
38.4
2012
49.2
17.4
71.0
248.7
5.0
12.2
2013
18.3
18.3
41.8
259.6
6.2
35.2
2014
22.0
29.2
48.2
279.7
8.7
35.2
18.0
8.2
10.9
0.4
1.4
2.2
2015
13.4
20.2
34.9
283.5
6.6
52.0
29.7
11.4
15.8
0.3
1.4
1.7
2016E
52.1
59.0
73.5
323.8
16.0
36.7
7.6
5.4
5.8
0.5
1.2
4.0
2017E
55.1
55.1
81.4
359.0
17.0
36.8
7.2
4.9
5.3
0.4
1.1
4.3
2018E
63.5
63.5
94.1
400.3
19.0
35.7
6.2
4.2
4.4
0.4
1.0
4.8
21.9
16.0
14.2
11.2
20.2
12.9
7.2
7.6
8.2
8.8
4.7
6.4
17.2
16.4
16.1
15.5
16.7
16.5
7.6
3.4
7.9
3.4
8.6
3.9
9.5
4.1
9.4
4.0
8.2
3.4
9.3
2.1
9.0
2.0
8.8
1.9
0.9
1.0
1.3
1.4
1.3
0.8
0.8
0.7
0.5
2010
150,486
35,677
17,263
-27,296
-182,446
-9,774
-16,090
-138,236
-154,325
174,184
35,948
21,257
-10,907
-24,276
-13,925
5,933
10,052
15,985
2011
101,140
49,529
29,832
-40,032
-50,193
-19,684
70,592
-137,164
-66,572
53,856
-83,308
83,652
-38,124
-33,418
12,110
-606
15,985
15,379
2012
39,953
49,839
59,016
-4,066
-132,204
-20,192
-7,654
-170,184
-177,838
39,652
-130,532
222,728
-28,057
-63,643
131,028
-7,158
15,379
8,221
2013
45,042
57,103
71,184
-11,690
-44,530
-23,715
93,395
-127,995
-34,600
1,153
-92,936
96,681
-14,922
-78,240
3,519
3,978
8,221
12,199
2014
99,779
63,691
59,101
-18,956
54,506
-16,081
242,040
-218,243
23,797
-1,889
-185,944
55,975
-18,501
-68,722
-31,248
24,847
12,199
37,046
2015
70,144
51,904
41,746
-23,442
348,952
-29,542
459,762
-131,590
328,172
-1,918
-101,770
-304,857
-26,090
-51,879
-382,827
-24,835
37,046
12,212
2016E
220,391
51,897
29,880
-43,694
-32,452
0
226,021
-102,900
123,121
0
-102,900
20,010
-45,451
-29,880
-55,321
67,801
12,212
80,012
(INR Million)
2017E
2018E
202,226
232,149
63,730
74,222
36,584
32,984
-65,538
-74,882
5,098
9,582
0
0
242,100
274,054
-102,900
139,200
0
-102,900
0
-48,292
-36,584
-84,876
54,324
80,012
134,337
-92,900
181,154
0
-92,900
-72,480
-53,973
-32,984
-159,437
21,717
134,337
156,054
25 August 2015
16

IOC
NOTES
25 August 2015
17

This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies) and/sector(s), if any, covered in the report and may be distributed
IOC
by it and/or its affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not
constitute an offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for
public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal
recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider
whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as
up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a
some companies covered by our Research Department. Our research professionals may provide input into our investment banking and other business selection processes. Investors should assume that MOSt and/or
its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this
material may educate investors on investments in such business. The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other
parties for the purpose of gathering, applying and interpreting information. Our research professionals are paid on the profitability of MOSt which may include earnings from investment banking and other business.
MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders,
and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary
trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing
among other things, may give rise to real or potential conflicts of interest. MOSt and its affiliated company(ies), their directors and employees and their relatives may; (a) from time to time, have a long or short position
in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation
or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with
respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations
made by the analyst(s) are completely independent of the views of the affiliates of MOSt even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report
Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as
such, may not match with a report on a company's fundamental analysis. In addition MOST has different business segments / Divisions with independent research separated by Chinese walls catering to different set
of customers having various objectives, risk profiles, investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or
employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of
its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is
based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the data, information and/or opinions
provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or
summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to
update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way
responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time,
any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on
this report or for any necessary explanation of its contents.
Most and it’s associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant banking or brokerage services, may have received any
compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months.
Most and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report.
Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the date of publication of the research in the securities
mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the
report.
Motilal Oswal Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. SEBI Reg. No. INH000000412
There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be
directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation
of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues
Disclosure of Interest Statement
Analyst ownership of the stock
Served as an officer, director or employee
IOCL
No
No
Disclosures
A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes
Regional Disclosures (outside India)
For U.S.
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law,
regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In
addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the
United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or
intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the
"Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning
agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this
chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL,
and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors
Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to
accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Kadambari Balachandran
Email : kadambari.balachandran@motilaloswal.com
Contact : (+65) 68189233 / 65249115
Office Address : 21 (Suite 31),16 Collyer Quay,Singapore 04931
For Singapore
Motilal Oswal Securities Ltd
25 August 2015
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
18