Indian Oil said on Sunday that it secured nearly 33 per cent of the potential demand in the recently concluded round of the city gas distribution (CGD) bidding by the Petroleum & Natural Gas Regulatory Board (PNGRB). The energy major bagged nine out of the 15 high potential geographical areas (GA). Indian Oil plans to invest over Rs 70 billion in these new CGD projects, over and above the Rs 200 billion already marked for the vertical, it stated.
The recently acquired GAs include major districts such as Jammu, Pathankot, Sikar, Jalgaon, Guntur (Amravati), Tuticorin, Tirunelveli, Kanyakumari, Madurai, Dharmapuri and Haldia (East Mednipore) that contain high demand customers for piped natural gas (PNG) and compressed natural gas (CNG).
The oil major said that during the bidding the nearest competing bidder was left with less than 20 per cent of the demand potential in the bidding round. With the win, Indian Oil and its associates will service almost 28 per cent of the combined CGD potential in the three rounds so far – substantially ahead of the next major player.
“IndianOil has a proud legacy of always aligning its growth agenda with the national priorities. And our concerted efforts to expand the Gas business across the length and breadth of the country reflects our commitment to realise the Government’s vision of raising the share of Natural Gas to 15%. Gas will play a significant role in India’s march towards a low carbon future as part of its Panchamrit pledge during COP-26 summit to reduce total carbon emissions by one billion tonnes from now till 2030,” said Chairman IndianOil Mr Shrikant Madhav Vaidya.
The energy major said that after the latest round, Indian Oil along with its 2 JV companies is now present in 49 GAs and 105 districts across 21 states and UTs. When it comes to a standalone basis, Indian Oil will now be present in 26 GAs and 68 districts across 11 states and UTs covering nearly 20 per cent of the total CGD market potential.
(Source: Business Today)
IOC’s expansion in city gas distribution a positive; strong refining, marketing outlook add to prospects
January 18, 2022: Indian Oil Corp. Ltd. (IOCL) plans to expand its city gas distribution (CGD) business, looking to invest ₹70 billion over and above the ₹200 billion already planned for the vertical. In the recent round auctions by the Petroleum and Natural Gas Board, the company bagged 9 of the 15 high potential GAs (Geographical Areas).
Analysts say that these investments can create value and will be earnings accretive, but the gains will accrue only over time. The pipeline infrastructure and expansions will take some time to complete while the bidding has been aggressive. There may be more upfront investments in terms of capex. All these are key factors to look out for, as per analysts. Also, since the geographical areas are relatively large, the company’s earnings can see upside of 4-5% but only over a period of time, said analysts.
Since benefits will accrue over time, the stock reaction has been relatively muted following the announcement on investments. IOCL’s shares had risen by up to 1.46% in morning deals, but gave up most gains to trade 0.3% higher by noon.
The stock, nevertheless, has been on an uptrend of late. From closing lows of ₹108.75 seen on the 20 December, it has risen more than 13%. The outlook on the company’s refining and marketing business is improving. Refining margins which significantly corrected post the first wave of pandemic have continued to do well.
The benchmark Singapore Gross Refining Margins (GRM’s) averaged at $6.0/barrel during the December quarter, up $2.2 a barrel sequentially, primarily led by improvement in diesel and ATF cracks. The near-term outlook for petrochemicals realisations is also firm. The closure of facilities and thus lower supplies from the US in the harsh winter season is likely to support petchem realisations.
Meanwhile, demand for auto fuels has continued to rise. While the Omicron spread may trigger some challenges in the current quarter, overall volume outlook remains strong. Crude oil prices, too, have come off peak while companies have been continuously passing on higher crude costs to consumers, keeping intact their margins.
With state elections in sight, though, investors have become cautious on the ability of state-run oil marketing companies (OMCs) to pass on higher crude prices to consumers. Analysts at HSBC Securities and Capital Markets (India) Pvt. Ltd. in their note said, “we believe OMCs will surprise on its ability to retain higher marketing margins despite election interventions”.
Also, analysts at Antique Stock Broking said that “historically OMCs have subsequently recovered any margin squeeze during elections and in the current case, cushion already exists as marketing margins have had a strong run since November’21 averaging closer to ₹8/liter and ₹5.1/litre, much higher than the ₹3.6/litre and ₹4.1/litre over the last two years.”