IOC sees possible setback due to GST despite 5-6% growth

CHENNAI: With GST resulting in a 10% decline in MRP prices for lubricants, Indian Oil Corp might see its lubricant division post $1.1 billion in revenues, almost the same that it earned in 2016-17. While demand continues to climb from auto OEMs, the PSU faced a slump from construction, cement and steel sectors. “But since August, we have been seeing demand go up as infrastructure growth is spurred on the back of the PM’s affordable housing programme,” says K L Murthy, ED, Lubes.
Of the company’s total revenue of $70 billion, the lubes contributes about 1.6%-2%, which is expected to grow at 5-6% this year. “We have been facing stiff competition from both foreign players like Shell, Castrol and domestic entities like Hindustan Petroleum. In the face of this, we have managed to increase our share in the market to 26%. If, we look at only our institutional clients like Indian Cements, Ramco, Tata Motors, Maruti Suzuki, then our marketshare would be as high as 37%. On the retail side, our share is about 16%,” said Murthy.
When it comes to contribution to company revenues, both institutional and retail clients contribute 50%. In terms of volumes, the company sees 65% volumes sold to institutional buyers, compared to 35% to retail. “On the retail end, there is no bargaining or pricing power. So lube products are sold at higher value -which is why despite the lower volumes sold, they contribute higher in terms of revenue,” he said.
Indian Oil has fared better than expected, on GST, he said. “When it came to infrastructure spending, overall there was a slowdown in the economy because of demonetisation. But this hasn’t necessarily impacted us, because just like there will always be need for petrol on our roads, there will always be need for lubes. There has been a 10% decline in MRP price, post-GST, which will impact revenues,” he said.
Adding that, because the Southern region is highly industrialised with presence in cement, sugarcane, fertilizer, textiles and auto industry, the region contributes about 35% to Indian Oil’s revenues.