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An assessment of the “Commercial Feasibility of IOCL’s Aviation Fuel Station at Durgapur”
 

An assessment of the “Commercial Feasibility of IOCL’s Aviation Fuel Station at Durgapur”

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An assessment of the “Commercial Feasibility of IOCL’s Aviation Fuel Station at Durgapur”

An assessment of the “Commercial Feasibility of IOCL’s Aviation Fuel Station at Durgapur”

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    An assessment of the “Commercial Feasibility of IOCL’s Aviation Fuel Station at Durgapur” An assessment of the “Commercial Feasibility of IOCL’s Aviation Fuel Station at Durgapur” Presentation Transcript

    • Presented by Sourav Debnath Sec: WT2 Roll No: 56 Under guidance of M.r. Amit Phillips ( Deputy Manager, Indianoil Aviation, Eastern Region) & Dr. Surajit Ghosh Dastidar Faculty, EIILM
    • Company profile  Company profile: Indian Oil Corporation Limited  Ticker: IOCL  Exchanges: (BSE: 530965, NSE: IOC)  Major industry: Oil, Gas, Coal & Related service  Sub industry: Oil Refineries & Distribution  Indian oil products: Indane Gas, Auto Gas, Natural Gas, Motor spirit/ Gasoline, Diesel/Gasoil, lubricants and greases, Marine Fuels, Kerosene, Petrochemicals, ATF/Jet fuel.
    • Introduction WBIDC has entered into a Joint Venture with Bengal Aerotropolis Projects Ltd. (BAPL) to set up Durgapur Airport in DURGAPUR- ASANSOL region.  Bengal Aerotropolis Projects Limited (BAPL) has approached IOCL for construction of an Aviation Fuel Station at Durgapur airport  Now IOCL want to study the feasibility, profitability and the risk analysis of setting up a new AFS. The project aims at making a logical decision about establishing an AFS in Durgapur.
    • Methodology of the project  The assessment was carried out based on the information as provided by IOCL.  Then on the basis of the information collected and assistance provided by the company, the analysis is done. Break-Even Analysis and tools of Capital Budgeting are used for the analysis of the financial data.  After that a brief study of Risk analysis is done.
    • Objectives of the Project  To find out the economic viability of establishing AFS in Durgapur.
    • Requirement to set up an AFS:  After studying the aviation manual of Indian oil and visiting their AFS in Dumdum airport, I have listed the requirements to set up a new AFS:  Logistic:  Storage:  Receipt of Product:  Administrative Building:  Water:  Electricity:  Communication:  Lighting:  Safety & Security:  Laboratory:
    • Calculation of cost of the project:  After listing all the requirement I have calculated the cost of the project with the help of my external guide and the In charge of Dumdum AFS:  TOTAL FIXED IN RUPEES: Total Variable cost in Rupees: Cost on man power 3300000 Rent for land & Administrative building 1000000 Cost on Laboratory 500000 Cost of refueler set up 500000 TOTAL FIXED COST Rs 5300000 COSTS (for 750 KL) Rs. Input energy Cost 500000 Transportation/Communi cation Cost 200000 Maintenance Cost 100000 Administrative Cost 100000 Welfare Cost 50000 Miscellaneous expenses 50000 TOTAL COST Rs 550000
    • ESTIMATION OF REQUIREMENT OF ATF (Data source: Air traffic map of India, Indigo Airlines, indianoil official)  Yearly oil requirement for the schedule flights will be 696 KL.  Requirement for the un-scheduled or private planes and helicopters 54 KL. per year.  So the total yearly requirement of ATF will be around 750 KL. DESTINATION DISTANCE (BY AIR) IN K.M. FLIGHT TIME ATF REQUIRED/ FLY PER WEEK PER MONTH KOLKATA 166 25 MIN 0.42 KL 3 12 DELHI 1160 1HR. 30 MIN 1.5 KL 4.5 18 MUMBAI 1985 2HR 45 MIN 2.5 KL 2.5 10 CHENNAI 1575 2 HR 2 KL 2 8 BANGALURU 1940 2.30 HR 2.5KL 2.5 10
    • ESTIMATION OF YEARLY SALE & PROFIT Year Total Requirement of ATF in Durgapur Estimated yearly sale of IOCL (70% Of total requirement) Profit per K.L. Total profit (in Rs.) 2013 750 525 2500 1312500 2014 787 551 2500 1377500 2015 826 578 2500 1445000 2016 868 607 2500 1517500 2017 911 638 2500 1595000 2018 957 670 2500 1675000 2019 1005 703 2500 1757500 2020 1055 738 2500 1845000 2021 1108 776 2500 1940000 2022 1163 814 2500 2035000
    • Investment Appraisal Criteria A number of investment appraisal criteria or capital budgeting techniques are in use of practice. They may be grouped in the following two categories: Discounted cash flow criteria • Net present value (NPV) • Internal rate of return (IRR) • Profitability index (PI)  Non discounted cash flow criteria • Payback period • Accounting rate of return
    • Net Present Value (NPV) Method:  Net present value should be found out by subtracting present value of cash outflows from present value of cash inflows.  Estimated life of Project =10 Year  initial investment =Rs. 5850000.  cost of capital=12%(as per company regulation).  NPV=[1312500/(1+0.12) + 1377500/(1+0.12)^2 + 1445000/(1+0.12)^3+1517500/(1+0.12)^4 + 1595000/(1+0.12)^5 + 1675000/(1+0.12)^6 +1757500/(1+0.12)^7 +1845000/(1+0.12)^8 + 1940000/(1+0.12)^9 + 2035000/(1+0.12)^10] - 5850000 =5740172  Here we have calculated the Net present Value of the project, and it is coming positive (NPV > 0) and creating positive cash inflow. So in this parameter we can accept the project.
    • PROFITABILITY INDEX  Profitability Index is the ratio of the present value of cash inflows, at the required rate of return, to the initial cash outflow the investment. This is nothing but the benefit to cost ratio. PI = PV of Cash inflows/Initial Cash Outlay In this project, PV of cash inflows= 8227742 Initial Cash Outlay=5850000 PI=8227742/5850000=1.40  Here in this project, we are getting PI = 1.40 i.e. greater than 1. So we will accept the project
    • INTERNAL RATE OF RETURN (IRR):  We already have the cash inflows, and the k=12%, from this we can calculate the IRR:  IRR= [1312500/(1+.12) + 1377500/(1+.12)^2 + 1445000/(1+.12)^3 + +1517500/(1+0.12)^4 + 1595000/(1+0.12)^5 + 1675000/(1+0.12)^6 +1757500/(1+0.12)^7 +1845000/(1+0.12)^8 + 1940000/(1+0.12)^9 + 2035000/(1+0.12)^10]  IRR = 23% Here in this project The IRR is coming 23%, which is well above the benchmark of the company which is 12%. Thus we can say the IRR (23%) is fulfilling the selection criteria. So on that basis the project is feasible, so we should accept the project.
    • PAYBACK METHOD: Payback is the number of years required to recover the original cash outlay invested in a project.  payback period = 4 year 48 days.  Therefore in 4 year 48 days the project cost will be recovered.
    • Risk Analysis of the Project  What is Risk Analysis?  Types of risk  Risk involved in this project.