How The Three Majors Stack Up

An comparative infrastructural strength of the three oil majors is shown in the table 'comparative analysis. The sheer size of IOC is eminent from the chart. The company has the largest number of refineries ""14, at six different locations. It has the largest distribution network and leads in all the four different segments i.e. market share, refining capacity, pipelines capacity and port facility. But how efficient is IOC?.

The company has some of the oldest refineries in the country (the latest refinery was commissioned way back in 1982) which have continuously been revamped over the years. Still the company has the lowest crude throughput of 105 per cent among the oil majors.

Though the company has the smallest and oldest refinery in the industry at Digboi with a capacity of 0.5 mtpa, the throughput of this refinery was at 112 per cent. Though the plants are operating at a high throughput, they are not as efficient as the bigger ones.

However, IOC setting up smaller refinery is to some extent justified as at the time of their commissioning, refineries were generally designed to refine a limited number of crude oils. For example, the Digboi refinery was essentially designed to process Assam crude and has largely to depend on the outputs of these oilfields.

As the new refineries are being designed for a variety of crudes, like BPCL refinery is designed to process as many as 45 different variety of crudes, a larger capacity plant is feasible.

The new refineries to be set up by IOC are of larger capacities (grassroot refinery at Panipat and Deogarh of 6 mtpa, expansion of Gujarat refinery by 3 mtpa and of Barauni refinery to 6 mtpa) which will have the facility of processing various crudes.

Also, IOC manufactures around 24 per cent of heavy ends which is the highest among the oil majors. Realisation is low in manufacturing heavy ends, furthermore this group has the slowest expected demand growth rate.

Since almost all petro products are in short supply in the country, a company with the largest marketing network is bound to benefit the most. IOC thus has an advantage as compared to other companies. Also, margins from marketing and trading activities is likely to be higher than the refining activity.

IOC on the basis of its marketing network will make it one of the fancied oil companies.

Financially speaking

Based purely on accounting ratios, HPCL is the best of the three oil majors. We believe that value addition by itself is not a criteria. The best indicator to judge operational efficiency of the company is PBIDT. However, PBIDT/VA method is superior to PBIDT/ Sales measure. This is because the former indicates that despite high value addition, is the company facing problems because of high overheads. Value Addition is the fund from which all expenses are to be provided for after accounting for raw material consumption and external purchases.

Any company must be able to generate fresh funds for replacement/modernisation of existing assets. This is precisely the reason for which we cdonsider OCF/Fixed Assets. This ratio not only measures the return generated on assets but it also deals with the ability of the company to finance acquisition/modernisation of assets through internal accruals and debt. Here, there is hardly anything to choose from.

The prime reason why HPCL emerges leader is the excellent utilisation of assets. It is the only company which has shown a growth in PBIDT/GFA. HPCL has 45 per cent of the total lube base stock production capacity in country. For the second successive year, HPCL recorded the highest lubes growth among the oil majors in the country. Against the industry growth of 9.6 per cent in 1995-96, HPCL managed a growth rate of 14 per cent.