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IOCL- A Strategic Analysis

STM Project Report - Xavier Institute of Management


Guided By : Prof. Brajaraj Mohanty

Group 10 Section
B
UM15069- Apratim Chandra
UM15073- Ayush Garg
UM15103-Rashmi Gupta
UM15105- Saif Hasan Rizvi

UM15106- Sandeep Kumar


Panigrahi

Contents
1

Executive Summary........................................................................................................................................................... 5

Industry Overview.............................................................................................................................................................. 6
2.1

Nature and Size of the Industry................................................................................................................................ 6

2.2

Key Growth drivers for the Industry......................................................................................................................... 7

2.3

Identification of Critical Success Factors (CSF)...................................................................................................... 8

2.4

Market Analysis based on CSFs................................................................................................................................. 9

2.5

Industry Benchmarks................................................................................................................................................ 10

2.6

PESTEL Analysis......................................................................................................................................................... 14

2.7

Porters Five Forces Analysis................................................................................................................................... 17

2.8

Strategic Group Mapping.......................................................................................................................................... 19

2.9

Competitive Landscape............................................................................................................................................. 20

2.10 Market Segmentation................................................................................................................................................ 21


2.11 Buying Criteria Analysis of the Industry................................................................................................................ 22
2.12 Key trends and future developments..................................................................................................................... 23
Ensure strategic liquidity........................................................................................................................................................... 23
Develop a more robust supply chain management capability......................................................................................................... 23
Align the asset and investment portfolio with future sources of value.............................................................................................. 23

Capture the value of technology................................................................................................................................................ 23


Ensure strategic liquidity....................................................................................................................................................... 23
Make sustainable improvements to cost structure.................................................................................................................. 24
Develop a more robust supply chain management capability................................................................................................... 24
Invest in human capital.......................................................................................................................................................... 24
Capture the value of technology............................................................................................................................................. 24
Align the asset and investment portfolio with future sources of value...................................................................................... 24
3

Company Overview.......................................................................................................................................................... 25
3.1

Company background................................................................................................................................................ 25

3.2

Timeline with key milestones and their strategic impact................................................................................... 27

3.3

Vision, Mission, Goals, and Strategic Themes...................................................................................................... 28

Vision................................................................................................................................................................................... 28
Mission................................................................................................................................................................................. 28
Values................................................................................................................................................................................... 28
3.4

BUSINESS MODEL OF IOCL:....................................................................................................................................... 29

3.5

PRODUCTS OFFERED BY IOC..................................................................................................................................... 30

3.6

Core Competency of IOCL......................................................................................................................................... 31

3.7

3rd Generation Balanced Scorecard (Amalgamation of 1st Generation BSC and Activity System Map)....34

3.8

SWOT Analysis............................................................................................................................................................ 34

3.9

Competitor Analysis (identify competitors).......................................................................................................... 34

Based on Critical Success factors.................................................................................................................................. 35

Based on Financial indicators........................................................................................................................................ 35


4

Future Growth Strategy for the organization.............................................................................................................. 36


4.1

Portfolio Analysis....................................................................................................................................................... 36

4.2

Companys Strategic Roadmap for future............................................................................................................. 37

1 Executive Summary
Industry Overview: - The oil and gas sector consists of three segments upstream, midstream and downstream. The upstream segment primarily
comprises companies that are engaged in exploration and production activities, while the midstream segment comprises of players in storage and
transportation, and the downstream segment comprises of players that are engaged in refining, processing and marketing of petroleum products.
Major players in this segment are upstream: -ONGC, reliance; midstream: - IOC, Reliance; Downstream: - IOC, ESSAR, Reliance, BPC. The
value of the Indian oil and gas sector is forecasted to grow from US$ 117,562.9 million in 2012 (estimated) to US$ 139,814.7 million by 2015.
IOC is a market leader in terms of capacity and ranks 2 nd in oil refineries in the country. It also has the largest pipeline distribution network in the
country. It is Indias flagship national oil company meeting countrys energy demand from last half a century. With a corporate vision to be 'The
Energy of India' and to become 'A globally admired company,' its business interests capture the whole hydrocarbon value-chain e.g. refining,
pipeline transportation, marketing of petroleum products, exploration & production of crude oil & gas, marketing of natural gas and
petrochemicals, besides forays into alternative energy and globalisation of downstream operations. IOC is moving towards a transnational model
and has set up subsidiaries in Sri Lanka, Mauritius and the UAE. It is simultaneously scouting for new business prospects in the energy markets
of Asia and Africa. It has also formed about 20 joint ventures with reputed business partners from India and abroad to pursue diverse business
interests.
Our Analysis shows that increase in drilling activity & underserved demand along with technological advancements are the key growth factors in
the Industry. The critical success factors (CSF) are access to key markets, logistics and demand, manufacturing excellence and feedstock.
Government policies and regulations play a significant role in this industry, even the prices are regulated by government. Increase in consumption
fuelled by aviation and automobile industry will result in strong oil and gas demand in the coming years. Indian oil and gas sector companies are
investing heavily in R&D and are equipped with state of the art technology. Further, government is also promoting investment in research to boost
oil and gas production and develop new formulations of lubricating oils to cater to defence, public utilities, railways and transportation.
In the recent years, government has taken several steps to liberalize the sector. Though a welcome step, it has also created threat to big
companies as there are higher chances that smaller firms may import oil at lesser price and reach out to customers at lower price. Further,
government is promoting alternate sources of energy like solar energy, wind energy and bio-fuels. This can also create stiff competition for the
sector in coming years.
Our SWOT analysis shows that IOC needs to work on legal issues, employee management, bureaucracy, feedstock prices. Along with these, it
also needs to focus on the opportunities like Increasing market share (by extending their operations in eastern India), expansion in export
markets, and investment in R&D facilities for future development.

To further fuel its growth, it has planned several strategic initiatives. It is trying to develop a petrochemical hub at PARADIP which will help to
accelerate growth in Eastern India. With its constant focus on R&D, It has developed technology to utilize petrochemical by-products for producing
chemicals that can be used downstream to cater to other industries like automobile, railways, manufacturing etc. Further, it has also venture in
producing speciality products which are currently imported in India. This will help in increasing revenue and diversifying its product portfolio.

2 Industry Overview
2.1 Nature and Size of the Industry
The oil and gas sector is among the 6 core industries in India and it plays a very major role in influencing decision making for all other important
sections of the economy.

In 199798, the New Exploration Licensing Policy (NELP) was visualized to fill the increasing gap between Indias gas demand and supply.
Recent reports suggest that the Indian oil and gas industry is anticipated to be worth more than US$ 139.8 billion by the year 2015. Indias
economic growth is closely related to energy demand; therefore the need for oil and gas is projected to grow more, thereby making the sector
quite conducive for investment.

The Government of India has taken up several policies to fulfil this increasing demand. The government has allowed 100 per cent foreign direct
investment (FDI) in many segments of the sector, including natural gas, petroleum products, and refineries, among others. Today, it attracts
both domestic and foreign investment, as attested by the presence of Reliance Industries Ltd (RIL) and Cairn India.

Market Size
Supported by new oil fields, domestic oil output is anticipated to increase to 1 MBPD by FY16. With India developing gas-fired power stations,
consumption is up more than 160% since 1995. Gas consumption is likely to grow at a CAGR of 21% during FY0817. Presently, domestic
production accounts for more than three-quarters of the countrys total gas consumption.
India increasingly relies on imported LNG; the country was the 5th LNG importer in 2013, accounting for 5.5% of global imports. Indias LNG
imports are forecasted to increase at a CAGR of 33% during 201217. However, net imports of Natural Gas fell from 13.14 BCM in 2012-13 to
13.03 BCM in 2013-14.
State-owned Oil and Natural Gas Corporation (ONGC) constitutes majority of the upstream segment (exploration and production), accounting
for approximately 68% of the countrys total oil output (FY14).
Indian Oil Corporation Limited (IOCL) operates 11,214 km network of crude, gas and product pipelines, with a capacity of 1.6 MBPD of oil and
10 million metric standard cubic metre per day (MMSCMD) of gas. This is around 30 per cent of the nations total pipeline network. IOCL is the
largest company, operating 10 out of 22 Indian refineries, with a combined capacity of 1.3 MBPD.

2.2 Key Growth drivers for the Industry


Key Growth drivers
Increase in Oil and Gas drilling activity and
relatively underserved market of India
Rapid Technological advancements
Strong Support from Government

Due to higher oil and gas demand and exhausting hydrocarbon resources, focus is shifted to
unexplored reservoirs fuelling the growth. Further, technological advancement has empowered this
growth significantly.
Indian government unveiled plans to add another 91 Million barrels to its crude oil capacity to
protect India from supply disruptions by 2017

.
Indian government unveiled plans to add another 91 Million barrels to its crude oil capacity to
protect India from supply disruptions by 2017.

2.3 Identification of Critical Success Factors (CSF)


Critical Success Factor identified

Rationale

Logistics and Distribution

Crude and product pipeline plays a significant role in distribution to markets.


Manufacturing Excellence & Scale

In house state of the art R&D facilities, high refining capacity, advance crude oil process units goes
a long way in improving the operating margins of the unit.

Integration

Increasing investment in value chain business such as exploration and production will create
integrated projects.

Feedstock

Long term contracts to hedge against crude oil prices.

Access to key markets

Growth is propelled by access to key markets in various geographic locations.

2.4 Market Analysis based on CSFs


Region

CSF 1

CSF 2

CSF 3

CSF 4

11,211 km Pipeline

80.7 million metric


tonnes of oil and 10
MMTPA of Gas.

56,200 crores
invested in
exploration. 1.75
trillion investment to
expand output by
54%.

0.7 Million tonnes


LNG per year to be
bought from US from
2018. (Long Term).

North

1563 km Pipeline

23 MMTPA

South

911 km Pipeline

11.5 MMTPA

East

1710 km Pipeline

32.5 MMTPA

West

1151 km Pipeline

13.7 MMTPA

North-East

1713 km Pipeline

Central

345 km Pipeline

Global

India

2.5 Industry Benchmarks


Size of industry:

Category

Industry Level
(National)

Activity Ratios

Indicator

Industry Average of Top 5 Firms or


players serving 75-80% of the
market

Market Leader

201112

201213

201314

2014-15
(till Q3)

201112

2012-13

201314

2014-15
(till Q3)

38,39,0
49

36,38,5
24

35,68,4
76

44,52,64
9

26,50,447

23,87,220

25,04,938

28,54,000

Inventory
turnover

9.388

10.722

10.504

14.444

9.45

8.69

9.35

9.32

Receivables
turnover

35.462

35.776

40.236

45.146

18.4

23.78

34.61

42.95

Payables
turnover

9.16

10.722

10.504

14.444

9.45

8.69

9.35

9.32

Asset turnover

4.178

4.186

4.206

1.5

1.57

1.51

1.12

Current ratio

0.942

0.93

0.916

0.778

1.46

1.43

1.11

0.89

Quick ratio

0.74

0.766

0.706

0.5

1.19

1.12

1.03

0.63

Cash ratio

0.206

0.212

0.176

0.059

0.586

0.593

0.419

0.098

Debt-to-assets

0.539

0.555

0.579

0.521

0.332

0.330

0.402

0.403

Market Size

Liquidity Ratios

Category

Indicator

Industry Average of Top 5 Firms or


players serving 75-80% of the
market

Market Leader

201112

201213

201314

2014-15
(till Q3)

201112

2012-13

201314

2014-15
(till Q3)

Debt-to-capital
ratio

0.539

0.555

0.579

0.521

0.332

0.330

0.402

0.403

Debt-to-equity
ratio

1.178

1.288

1.212

0.84

0.36

0.3

0.43

0.41

Interest
coverage ratio

4.93

3.166

4.524

6.5

10.66

9.66

9.68

13.45

Gross profit
margin

2.858

2.038

2.352

1.602

6.73

5.91

5.66

7.02

Operating
profit margin

4.304

3.332

3.612

2.904

10.19

8.54

7.91

9.6

Net profit
margin

1.972

1.462

2.054

1.716

6.07

5.82

5.63

6.9

Return on
assets (ROA)

315.568

295.652

326.868

352.428

498.21

554.22

609.78

668.05

Return on
equity (ROE)

4.1

5.2

6.9

8.05

6.9

6.7

6.1

5.3

ratio
Solvency Ratios

Profitability
Ratios

Category

Valuation Ratios or
Price Ratios

Indicator

Industry Average of Top 5 Firms or


players serving 75-80% of the
market

Market Leader

201112

201213

201314

2014-15
(till Q3)

201112

2012-13

201314

2014-15
(till Q3)

Price to
Earnings (P/E)

31.6

16.8

9.13

13.2

13.4

11.4

11.1

12.1

Price to Cash
Flow

7.1

6.233

4.667

6.733

8.3

7.4

7.4

8.1

Price to Book
(P/B)

1.2

1.1

0.933

1.233

1.6

1.3

1.3

1.3

Price to Sales

.333

.300

.233

.367

0.7

0.6

0.6

0.8

Dividend Yield

1.733

1.9

3.633

2.7

1.1

1.1

Dividend Payout Ratio

24.898

26.12

25.8325

26.4175

12.62

12.51

12.7

12.95

Enterprise
value (EV)

4.175

6.021

4.086

8.246

9.63

9.30

11.40

11.09

Staff Cost/
Salary as % of
sales

1.17%

1.43%

1.34%

1.68%

1.10%

1.30%

1.28%

1.67%

Op-Expenses
as percent of

24.43

25.442

25.612

21.796

60.16

63.3

66.99

63.63

Category

Indicator

Industry Average of Top 5 Firms or


players serving 75-80% of the
market

Market Leader

201112

201213

201314

2014-15
(till Q3)

201112

2012-13

201314

2014-15
(till Q3)

Depreciation
as percentage
of Sales

2.74%

2.30%

2.15%

2.44%

3.46%

2.83%

2.58%

3.08%

Fixed Assets
to Sales
Revenue

36.54%

36.96%

42.57%

57.48%

45.10%

45.35%

52.62%

83.42%

Sales

2.6 PESTEL Analysis


Category

Description

Key factors for analysis

Rationale

Political

In India there isnt any


policy for oil consumption
despite energy policy being
present.

The government can take


good initiatives by introducing
policies
to
reduce
the
demand for the petrol and
diesel consumption to prevent
the people of India from
getting addicted to petrol. The
government can also impose
high duty on automobiles.

The Labor unions of India will be unhappy if the


public transportation systems are privatized
because they can no longer enjoy their influence to
monetize their personal wealth.

Sometimes the government


has to deliberately raise the
prices of gasoline and oil in
order to reduce the countrys
deficit. And at times the
forecasts of the inflation rate
made by the government
exceed due to the rise in fuel
prices. The inflation has a
significant impact on the oil
industry.

The unemployment rate in India is 10.8%. Study

The political party also


determines the change in
price.

Economic

The major developments in


the areas of automobile
industry
and
aviation
industry
have
got
a
multiplier effect and this will
eventually increase the
consumption of Oil industry
which in turn will lead to an
increase in Gross National
Product (GNP) of India.

has shown that the unemployment rate is inter


connected with the fuel prices. If there is more
employment then people buy more cars and bikes
and this impacts the fuel prices.
When there is a rise in inflation then there is an
impact even the countrys interest rates. The
Reserve Bank of India recently reduced the interest
rates due to high inflation. So the fuel price inflation
and interest rate are interconnected.

Social

India has a population of


about 1.1 billion. There is a
significant growth in the

India after its independence


has experienced complete
transformation. The major

Today many foreign companies are coming to India


and this has impacted the employment rate. This
has helped in creating more jobs and the income

Technological

consumption of oil every


year. As of 2014, it is
estimated that the oil
consumption is about 2.68
million barrels/ day.

areas of transformation are distribution has increased. There is a also a


Aviation industry, IT industry, significant rise in the disposable income which has
Infrastructural
industry, increased the consumption of oil.
Telecommunication industry,
Steel industry, Oil Industry
and Automobile industry. The
change in the lifestyle and the
influence of more western
culture has made India buy
more and more bikes and
Cars. This has resulted in the
increased consumption of oil.

India

The R&D centres are fully


operational
to
provide
mechanical
support
to
operating
parameters,
development
of
fresh
processes, and evaluation of
feedbacks and catalysts and
licensors system know-how.

is

amounts

spending
of

huge

money

in

Research & Development.


The

R&D

centre

is

equipped with state of the


art technology which has
helped

producing

than

thousands

more
of

formulations of lubricating
oils.
These help to cater to
different fields of Indian oil
industry such as Public
utilities, Defense, Railways
and Transportation.

The

R&D

centres

refinery

machinery

and

installations is an extremely dedicated service to oil


companies.
The refineries in India are equipped with the best
technology for the refining process. Government
has allocated more than Rs 32000 crore for the up
gradation of the machinery in the refineries in order
to produce good quality of petrol. In Indian we now
use Euro-IV type petrol all over the country.

India has also won many


awards for the success in
focused research in the
sections

of

lubricants,

refining process, additives,


grease
biotechnology,
studies,

formulations,
emission
pipeline

transportations and engine


evaluations.

Environmental

Today
environmental
factors are one of the most
important factors in the oil
industry.
The
environmental analysis has
to focus more on critical
issues inbuilt in clean ups
programs as they affect the
refining process in todays
oil
industry.
The
environmental monitoring
also affects the transport
systems, storage, recovery
options and utilization.

The government is very strict

The

in a check list which includes:

ecosystems and damages it. Oil spills in sea is

gaseous

more damaging when compared to the oil spills on

emissions,

solid

waste and liquid effluents.

oil

spills

from

the

tankers

affects

the

land. It destroys the marine life and to control these


oil spills the government is taking initiatives. The
control of oil spills is quite difficult because it
requires complicated methods and a very large
amount of manpower.
Many environmental engineers and environmental
scientists are working together by the use of
productive

methods

for

the

improvement

of

environmental effects, waste disposal and waste

management.
Legal

Since the year 2000 India


has passed a law for every
vehicle to carry out an
emission test every 6
months. This was followed
mostly in the European
countries.

Emission tests are necessary


to maintain a level of pollution
in the country.

It is done to check the fitness of the vehicle and to


check the amount of emissions released.

2.7 Porters Five Forces Analysis


Power of suppliers:
The major supplier is ONGC which supplies approximately 40% of the total oil produce all over the world. Amongst the top oil importing
countries India stands at 9th position with a requirement of 1.5 million barrels from OPEC. So, looking at the dependence we can say that the
supplier in this industry enjoys more power and also it is having more power with regard to even fixing prices. But comparatively the bargaining
power these days is becoming low as the purchase is happening from many suppliers. For ex. Indian oil has a method of purchasing. It calls
tenders and who so ever bids lower price would be given the deal. For the month of October it bought a millions of barrels from Tunisian
Zarzaitine crude base. After that it even bought from 4 mn barrels from Nigeria and also from the fields of bonga. So, as and when demand is
there Indian oil is purchasing from different suppliers. So, from the above analysis we can say that top Indian companies like Indian have given
very less scope for suppliers to hold power as they purchase from various suppliers through tenders.

Power of buyers:
For the oil industry there are two types of buyers

Industrial buyer.
Individual buyer.
They both together constitute downstream buyers. These buyers get supplies from the upstream buyer for ex. Indian oil. They do have
an incentive to limit supply so they keep prices as high as possible due to shrinking downstream margins. This is done for other
competitors. Say for example: Indian oil is having competitors like BP, SHELL and RELIANCE in the diesel and petrol segment. In the
lubricants segment they face fierce competition from: CASTROL, SHELL and VALVOLINE products. So the industrial customers who do
bulk purchase have good bargaining power as they order huge quantity and on top of that they have good number of other suppliers.
And for the individual consumers they have got wide variety of choices. So they can switch to some other brand as there is no switching
cost involved. So, we can say that buyers are having considerable bargaining power in the oil industry.

Threat from existing players:


Trading of commodities leads to higher competition. Competition even comes from the other industries also, who supply chemicals and other
fuel which acts as substitute for the oil industry products. There is an estimation that the industry would grow at approximately 4%. Being a
commodity market it gets competitive advantage by giving products to consumers at lower cost. This is done by achieving efficiency in the
productions and operations. Gulf oil has fully acquired the buses segment, servos share consists of trucks & lorries. Valvoline 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 from substitutes:
Substitute for oil industry are many. The other energy generating fuels such as coal, solar energy, nuclear power pose a threat as a substitute
for oil industry. With countries getting more and more liberalized there are higher chances for smaller firms to import oil at less price and reach
out to customers at lower price. Customers are mainly focused on price factor. So by this the market share for the larger companies like Indian
oil, and shell will reduce. And also in the oil industry some refine the used oil and sell it as the normal ones, because of this refining, the price of
the oil would be lower and customer may opt for it. This also slightly poses as a threat to the regular oil companies. Solar energy also poses a
threat. Recently many are going green so as to reduce the carbon emission. So by that extent their consumption of oil will reduce. Thus, this
finally poses as a threat to oil industry.

Threat of new entrants:


This is also one of the factors to look into while analysing the oil industry attractiveness. The threat appears to be low because to enter in the oil
industry one should have the financial power and should have good distribution channels. Also, this industry asks for so many environmental
regulations to be followed which in itself is a tiring process. It also requires high level of expertise in some areas such as extraction and
exploration and also the refining. There is more fixed cost involved in chemical products. All these factors make new entrant to think twice.
From the above porters analysis we can say that the oil industry is very luring. The threat from the new entrants to the industry is low and so is
the bargaining power of buyers. Whereas bargaining power of the supplier is high. This wont affect much because sometimes big players
would be handling suppliers segment as well as the buyer segment. But the attractiveness is slightly reduced by the internal rivalry between
existing players which is high in the oil industry.

2.8 Strategic Group Mapping

2.9 Competitive Landscape

Main differentiator of IOC from its competition is the large distribution network which is approximately double in size from its nearest
competitor.

10,329 KM of pipeline owned by IOC helps in establishing its niche over other competing refineries.

2.10 Market Segmentation


Key Products and/or
Services

Regions

-Petroleum

-Lot of potential in northern and


eastern Indian markets.

( Fuel and Gas )


-Petrochemicals
(Solvent, Lubricants etc )
-Monomers

-Develop neighbouring
markets:
Pakistan, Bangladesh and Nepal.

-Plastic Resins

-Diversified range of core sector


customers:
Railways,
Aviation,
Transport, Fertilizers etc.

( Nylon Acrylic )

-Focus the north Indian trading zone.

( Ethylene, Propylene etc )

-Synthetic Rubber
-Paints
-Synthetic Fibres
-Plastic Products
( Packaging, Electrical, Auto)

-Borders and trade opening up via


roadways and railways.
-Exporting products to the global
markets.

2.11 Buying Criteria Analysis of the Industry


Parameter

Details

End-user Segments

Significance Attached
(Low, Medium, High)

Blend
(Crude Oil)

API gravity of crude. It is used to


compare densities of petroleum
liquids.

Refineries B2B.

High

Price of Petroleum Products

Different petroleum products are


priced differently.

Individual customers

High

Brand Preference while buying


Petro-Chemical products.

People buy the specific brands


like Servo, Castrol etc.

Individual Customers

Medium

Impact of buying criteria on consumer choices


Listing of key buying criteria for different consumer segments

The impact of the buying criteria is graded on the basis of the intensity and duration of their impact on the current market landscape. The
magnitude of the impact has been categorized as described below:
Low - Negligible or no impact on the market landscape
Medium - Medium-level impact on the market
High - Very high impact with radical influence on the growth of the market

2.12 Key trends and future developments

Key Trend

Impact on Industry (Low, Medium, High)

Certainty of Impact (Low probability,


medium probability, high probability)

Ensure strategic liquidity.

High

High Probability

Develop a more robust supply chain


management capability

High

High Probability

Align the asset and investment portfolio with


future sources of value

Medium

Medium Probability

Capture the value of technology

High

High Probability

Oil & gas industry players are addressing many near-term threats to financial returns. Yet the long-term outlook, based on demand and supply
fundamentals, remains quite optimistic. To resolve the conflict between near-future pressures and long-term potential, oil and gas companies
should be executing a strategic response to the economic crisis that triggers near-term risks and increases long-term capabilities. The key
trends and developments in this industry can be broadly defined under 6 categories
Ensure strategic liquidity
Though most of the companies have avoided or already looked into immediate financial crisis challenges, many still face refinancing, expiring
hedges, and cash flow not sufficient to sustain debt service, along with on-going investment in operations. Looking into some of the below
mentioned points could help in ensuring strategic liquidity

Build or buy strategic liquidity

Implement a real strategic risk management program

Manage the corporate portfolio for value

Make sustainable improvements to cost structure


Cost containment should not necessarily be complex or slow to pay off. A simple diagnosis is often all that is required to identify potential
opportunities. Companies can then setup a structured program of interventions to gain quick wins while longer-term solutions are put into effect
elsewhere.
Develop a more robust supply chain management capability
Upstream input costs (including equipment, materials, and services) represent as much as 80% of total operating costs and have not fallen as
rapidly as prices of commodity. Fully capturing the deflation dividend requires elevating supply chain management effortsincluding updating
category strategies, streamlining logistics and supplier interfaces, and reaching new fair pricing models with suppliers.
Invest in human capital
Despite tighter cash flows, the need to build capability remains of utmost importance. This requires putting in place a sustainable strategy
clearly aligned with your business strategy and informed by a company-wide capability risk assessment. A comprehensive response should
include innovative workforce management strategies combined with a focus on improving organizational effectiveness.
Capture the value of technology
The oil and gas industry has effectively advanced its own technology or leveraged that of its services suppliers to meet the worlds increasing
hydrocarbon demand. However, the industry has been less successful in combining operations with knowledge-focused technology to drive
improved returns and efficiencies even further. To truly capture the value of technology, oil and gas companies must create a disciplined
approach to technology application, process management, and organizational alignment.
Align the asset and investment portfolio with future sources of value
As some players brace for upcoming turbulent times, others are positioning themselves to seize emerging strategic opportunities. The M&A
window is beginning to open. The long-term picture remains to be seen. But one certainty is clearly visible: Were on the verge of seismic
structural changes that will reshape the oil and gas landscape. Savvy alignment of the asset and investment portfolio may be crucial to survival.
Industry cycles have been ever-present in the energy sector. The six actions prescribed above build on hard experiences. Future cycles will be
driven more by robust demand growth in the post-recovery economy, increasing environmental concerns and carbon regulation, and energy
security issues.

3 Company Overview
3.1 Company background
Indian Oil Corporation (Indian Oil) is India's largest commercial enterprise, with a sales turnover of Rs. 4,50,756 crore (US$ 73.7 billion) and
profits of Rs. 5,273 crore for the year 2014-15. Indian Oil is ranked 119 th among the world's largest corporates (and first among Indian
enterprises) in the prestigious Fortune Global 500 listing for the year 2015.
As India's flagship national oil company, with a 33,000-strong work-force currently, Indian Oil has been meeting Indias energy demands for
over half a century. With a corporate vision to be 'The Energy of India' and to become 'A globally admired company,' Indian Oil's business
interests straddle 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, besides forays into alternative energy and
globalisation of downstream operations.

Having set up subsidiaries in Sri Lanka, Mauritius and the UAE, the Corporation is simultaneously scouting for new business opportunities in
the energy markets of Asia and Africa. It has also formed about 20 joint ventures with reputed business partners from India and abroad to
pursue diverse business interests.
Indian Oil's network of over 43,000 customer touch-points reaches petroleum products to every nook and corner of the country. These include
close to 25,000 petrol & diesel stations, including 6,200 Kisan Seva Kendra outlets (KSKs) in the rural markets. The Corporation has a 65%
share of the bulk consumer business, and almost 6,400 dedicated pumps are in operation for the convenience of large-volume consumers like
the defence services, railways and state transport undertakings, ensuring products and inventory at their doorstep. They are backed for
supplies by 136 bulk storage terminals and depots, 98 aviation fuel stations and 91 LPG bottling plants.

Indian Oil has ambitious plans to broaden its energy basket with alternative energy options such as wind, solar, bio-fuels and nuclear power,
Wind power systems to the tune of 69.3 MW have been installed in the States of Gujarat and Andhra Pradesh. A 5-MW grid-connected solar
power plant at Rawra, Rajasthan, is operational since 2012. Solar power systems of about 900 kW have also been installed at various Indian

Oil installations and offices across the country. Steps are underway to set up an additional 200 MW of wind power and 60 MW of solar power
systems.
As a major initiative in reducing carbon emissions, the Corporation has so far converted over 2,600 fuel stations to operate on solar energy. The
cumulative capacity of 8.6 MW from these solar photo-voltaic power systems, with an annual generation capacity of 103 lakh units, has carbon
emission reduction potential of 8,500 tonnes per year. Indian Oil's extensive retail network in rural areas was leveraged to sell over 1.4 lakh
rechargeable solar lanterns to help replace the traditional kerosene wick lamps in rural households which are not yet connected to grid power.
Indian Oil has the largest captive plantation covering 8,000 hectares for bio-fuel production in India in the States of Chhattisgarh, Madhya
Pradesh and Uttar Pradesh. To straddle the complete bio-fuel value chain, Indian Oil has formed two joint ventures, Indian Oil CREDA Biofuels
Ltd. and Indian Oil Ruchi Biofuels LLP. Currently, ethanol production from lignocellulosic sources such as rice straw, cotton stalk, bamboo, etc.,
is also being actively explored.

3.2 Timeline with key milestones and their strategic impact

3.3 Vision, Mission, Goals, and Strategic Themes


Vision
A major, diversified, transnational, integrated energy company, with national leadership and a strong environment conscience, playing a
national role in oil security & public distribution

Mission

To achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through
value of products and services, and cost reduction
To maximise creation of wealth, value and satisfaction for the stakeholders
To attain leadership in developing, adopting and assimilating stateof-the-art technology for competitive advantage
To provide technology and services through sustained Research and Development
To foster a culture of participation and innovation for employee growth and contribution
To cultivate high standards of business ethics and Total Quality Management for a strong corporate identity and brand equity
To help enrich the quality of life of the community and preserve ecological balance and heritage through a strong environment conscience.

Values
Care Innovation Passion Trust

3.4 BUSINESS MODEL OF IOCL:

IOCL has its presence in all spheres of downstream operations.

3.5 PRODUCTS OFFERED BY IOC


Indian Oil for Motorists

Petrol/Gasoline- Automotive gasoline and gasoline-oxygenate blends are used in internal combustion spark-ignition engines. These
spark ignition engine fuels are primarily used for passenger cars. They are also used in off-highway utility vans, farm machinery and in
other spark ignition engines employed in a variety of service applications.

Diesel/Gasoil-Petroleum derived diesel (called as petrodiesel) is a mixture of straight run product (150 C and 350 C) with varying
amount of selected cracked distillates and is composed of saturated hydrocarbons (primarily paraffins including n , iso , and
cycloparaffins),
and
aromatic
hydrocarbons
(including
napthalenes
and
alkylbenzenes).
Diesel is used in diesel engines, a type of internal combustion engine. The Indian Standard governing the properties of diesel fuels is IS
1460:2005 (5th Rev). Important characteristics are ignition characteristics, handling at low temperature, flash point.

Servo Lubes and Greases-SERVO brand, from Indian Oil, is the brand leader among lubricants and greases in India and has been
conferred the Consumer Superbrand status by the Superbrands Council of India.

AutoGas- (LPG) is a clean, high octane, abundant and eco-friendly fuel. It is obtained from natural gas through fractionation and from
crude oil through refining. It is a mixture of petroleum gases like propane and butane. The higher energy content in this fuel results in a
10% reduction of CO2 emission as compared to MS.

Indian Oil for Households


1

Indane Cooking Gas - Indane is today one of the largest packed-LPG brands in the world and has been conferred the coveted
Consumer Superbrand status by the Superbrands Council of India.

Kerosene- Kerosene are distillate fractions of crude oil in the boiling range of 150-250C. They are treated mainly for reducing aromatic
content to increase their smoke point (height of a smokeless flame) and hydrofining to reduce sulphur content and to improve odour,
colour & burning qualities (char value).

Indian Oil for Business


1

Bulk Industrial Fuels - In the large volume consumer segment, IndianOil's provides complete Fuel Management Solutions to customers
who require fuels in bulk and have dedicated facilities for storage and handling

Aviation Fuel Indian Oil Aviation Service is a leading aviation fuel solution provider in India and the most-preferred supplier of jet fuel
to major international and domestic airlines

Marine Fuels Indian Oil caters to all types of bunker fuels and lubricants required by various types of vessels operating throughout the
world in the shipping industry.

Bitumen - Bitumen is a common binder used in road construction. Indian Standard Institution defines Bitumen as a black or dark brown
non-crystalline soil or viscous material having adhesive properties derived from petroleum crude either by natural or by refinery
processes

3.6 Core Competency of IOCL

It has the highest Refining Share with 31% of the Industry Capacity of 213.18MMTPA

Downstream Industry Capacity of Pipelines is 70.35 MMTPA with IOCL its 50%

Largest Petroleum Products Market Share at 46% of 147.99 MMTPA

IOCL has the highest number of Retail Outlets in the Country

Key
Partners

Key
Activities

Key Partners - LPG Distributors, SKO


Dealers, RO KSK Dealers.
Key suppliers Nigeria Crude Oil, US
Crude Oil.
Key resources- Liquid shale assets
acquired in Niobrara basin, Colarado US.
33% acquired in IBP, IBPs strong retail
network can serve as a distribution
network for IOC lubricants and other
products.
Partners serve as distribution channels.
Making the commodities available to
remote areas and generating profits for
IOC.
Refining oil to make petroleum and related
petrochemical products and make them

Motivations for partnerships


Brand image and well established company with
increasing profits.
Very high profile R & D promoting innovation and
diversification into different sectors.
Increasing need for availability of petroleum and
related products in the markets.
Mutual benefit of forming integrated supply chain
with distributors and suppliers.

Categories
Production: Plants and refineries to process crude

Value
Propositio
ns

Customer
Segments

Key
Resources

available to consumers.
Retail Outlets, Servicing Centres,
Distributors
No direct relationship with customers but
indirect relation through wholesalers and
retailers.
Sale of petroleum related products.
Need for domestic use of petrol for
automobiles.
Fuel, Petrochemicals, Plastic Resins,
Synthetic Rubber.
Oil is a very important commodity needed
for daily usage like transportation, cooking
etc.

Consumers and Industries availing out


products.
Aviation Industry, Consumer Pumps,
Bulk/Industrial fuels, Indane gas for nondomestic use.
Crude oil supply Long term relationships
with suppliers.
Integrated distribution and retail channels
which can build relations with customers.

Channels

Retail outlets relying on the distribution

oil.
Problem Solving: Decisions about innovation and
new product lines.
Platform/Network: Direct B2B and B2C through
marketing channels.

Characteristics
Diversifying into new products like plastic and
paraffin wax.
High Brand Equity of IOC.
Low cost leadership of IOC promotes its products.
Innovative measures to reduce cost of production.
Increasing Profits suggest that IOC is less risky for its
stakeholders.
Strong distribution network making the products
accessible across remote locations
Mass Market
Diversified

Types of resources
Physical- Plant and locations for refineries.
Intellectual (brand patents, copyrights, data)- For
new products and refining processes.
Human- Shop floor workers to use their expertise in
plants.
Financial-Huge working capital for establishing new
plants and meeting operating expenses of R & D.
Channel phases
1. Awareness

Cost
Structure

Revenue
Streams

network of dealers.
LPG distributors work best.
Online retail if implemented can be cost
efficient.

Geographical location land, Exploration


equipment, Refinery Plants are costly.
Exploration, R & D for new products come
under higher cost activity bracket.

Products and commodities- Petrol, Diesel,


Synthetic products. Payment through
market channels directly at outlets by
cash and cards.

Advertisements about the products like servo oil and


others.
2. Evaluation
Depending on performance of the products- for eg
(lubricants) if used in automobile parts.
3. After sales
Online grievance redressal system to cater to customers
problems.
Cost driven- there is too much competition in the market
based on prices.
Sample characteristics
Fixed Costs Refinery plant machines, Salary,
Variable costs- Procurement costs, Operating costs.
Economies of scale- Mass production of petrol and related
products so IOC enjoys economy of scale.
Economies of scope- Diversified product portfolio
complementing each other so it also enjoys economy of
scope.
Types
Asset sale
Lending/Renting/Leasing
Licensing
Sale of products
Fixed pricing
List Price
Product feature dependent
Customer segment
dependent
Volume dependent
Dynamic pricing
Less negotiation as pricing goes with the market.

Real-time-Market : Very volatile.

3.7 3rd Generation Balanced Scorecard (Amalgamation of 1st Generation BSC and Activity
System Map)
3.8 SWOT Analysis
Strengths

Weakness

1. India's largest commercial enterprise with a strong brand name


2. Has around 50% petroleum products
3. Operates 10 refineries in India
4. Huge distribution network through retailing.
5. 47% share in the petroleum products market, 34.8% share in
refining capacity and 67% downstream sector pipelines capacity
in India
6. > 35,000 employees.
7. Loyalty programs like XTRAPOWER Fleet Card Program is
aimed at Large Fleet Operators

1. Legal issues
2. Employee management
3. Bureaucracy
4. Volatility in the crude market & subsidy burden

Threats

Opportunities

1. Government regulations
2. High Competition

1. Increasing fuel/oil prices


2. Increasing natural gas market
3. More oil well discoveries
4. Expand export market

3.9 Competitor Analysis (identify competitors)

The main competitors of IOC are Reliance, BPCL, HPCL and MRPL. We have analyzed IOC with respect to its competitors
in the following section.

Based on Critical Success factors

Company
Reliance

Distribution
Network

Capacity (mmta)

Investment

1386 km

34

1,12,573.00

11211 km

80.70

23,899.49

BPCL

6.00

12,391.14

HPCL

2514 km

14.80

11,241.48

MRPL

362.77 km

15.00

IOC

1,349.67

Capacity (mmta)
100
80

Capacity (mmta)

60
40
20
0

Market capitalization of Reliance is highest followed by IOC.

IOC is the market leader in terms of capacity. Its capacity is approximately nine times of its nearest competitor Reliance.

Based on Financial indicators

Compa
ny
Relianc
e

Last
Price

Market
Capitalizat
ion

966.65

3,13,205.67

IOC

367.65

89,263.67

BPCL

769.25

55,623.26

HPCL

687.95

23,295.86

MRPL

57.6

10,094.97

Sales
turnover

Net
Profit

Total
Assets

3,29,076.0
0
4,37,526.1
3
2,38,086.9
0
2,06,626.1
9

22,719.0
0

3,05,317.00

5,273.03

1,17,680.54

5,084.51

34,244.76

2,733.26

33,077.73

57,477.07

-1,712.23

13,180.49

350000
300000
250000
200000

Last Price

150000

Market
Capitalization

100000
50000
0
Reliance IOC BPCL HPCL MRPL

In terms of sales Turnover, IOC is the market leader. However, net profit of Reliance refinery is highest and approximately four times of
IOC. This shows that Reliance is highly profitable as compared to other competitors.

4 Future Growth Strategy for the organization

4.1 Portfolio Analysis

The above chart shows Petrochemical capacity growth of IOC. It is the second largest petrochemical player in the country.
Capacity Share: - Glycols: - 25%, Polymers: - 18%, PTA: - 14%, LAB: - 24%

4.2 Companys Strategic Roadmap for future


IOC has planned several strategic initiatives to fuel future growth.

Investment at PARADIP to develop a petrochemical hub.


It will help in accelerated development of downstream petrochemical industry for polymer processing. Further, it will help in
developing petrochemical market in eastern India where its consumption is lowest.

Near Term (<- 2 years)

Mid Term (2-5 years)

Long Term (5-10 years)

Growth Areas

Utilization of petrochemical by
products for producing chemicals

Downstream
petrochemical
industry for polymer processing.

High Level Tasks

Revamp
of
the
existing
processing unit for PetCoke
gasification.
Produce light distillates from
crude oil which hold higher value
in market. E.g. Synthetic ethanol,
Acetic Acid etc.
Increase in revenue

Development of
hub at PARADIP

Development of Eastern India


market
where
petrochemical
consumption is lowest.
Development of petrochemical
hub at PARADIP

Advanced and state of the art


R&D facilities.

Potential Benefits to be achieved

Rewards
Key Success Factors

petrochemical

Ability to produce speciality


products which are currently
imported in the country

Access to untapped market and


increase in market capitalization.

Diversification in product portfolio

Increase in market share

R&D facilities along with decades


of experience in petrochemical
products.

Largest distribution and pipelines


network