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

1. 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

2. 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.

3. 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.

4. 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.

5. Objectives of the Project
 To find out the economic viability of establishing
AFS in Durgapur.

6. 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:

7. 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

8. 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

9. 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

10. 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

11. 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.

12. 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

13. 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.

14. 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.

15. Risk Analysis of the Project
 What is Risk Analysis?
 Types of risk
 Risk involved in this project.