We hosted B Ashok, chairman, Indian Oil (IOCL), at our Edelweiss India Conference 2016 to get his views on the opportunities and challenges in India’s downstream refining and retailing segment.
Ashok believes GDP and population expansion coupled with India’s low per capita energy consumption will drive massive fuel growth. Oil will continue to feature prominently in India’s energy mix even in 2040, despite rapid growth in renewable sources.
IOCL is bullish on its latest high complexity refinery at Paradip, which will significantly improve India’s and IOCL’s refining competitiveness.
Lastly, Ashok foresees a paradigm shift in retailing as competition shifts to the thriving rural hinterlands. IOCL, with high rural presence, will enjoy first mover advantage. We remain positive on IOCL’s long term prospects. Maintain ‘buy’ with a target price of Rs 442.
In FY15, IOCL suffered substantial Rs 156 billion crude inventory loss (suppressing GRM by $6.5/bbl) and product inventory loss of Rs 22 billion. An expected reversal in FY17 will enhance margins. At CMP, the stock trades at 8x FY17E PE.