A-16

Directors’ Report

ToThe IndianOil Family of Shareowners

Dear Members

On behalf of the Board of Directors, I have greatpleasure in presenting to you the 46th Annual Reporton the working of the Corporation for the financialyear ended 31st March, 2005 along with the AuditedStatement of Accounts, Auditors’ Report and theReview of Accounts by the Comptroller & AuditorGeneral of India.

CORPORATE HIGHLIGHTS

� Your Corporation continued its dominance inthe Indian corporate sector and retained itsleadership position in the Fortune ‘Global 500’listing released this year. From a ranking of226 in the year 2002, IndianOil had moved upto 191 in 2003, 189 in 2004, and now 170 in2005 based on its performance in 2004-05. Ithas also moved one step up among the largestpetroleum companies of the world, and is nowplaced at the 18th position.

� In the Forbes’ ‘Global 2000’ list of the world’sbiggest public companies in 2005, IndianOil isplaced at 279 based on composite ranking forsales, profits, assets and market value.

� Your Corporation has been consistently ratedAAA by ICRA, indicating the highest creditquality. While Standard & Poor’s have ratedIndianOil as BB+, Moody’s have assigned arating of Baa3, equivalent to the sovereignrating of the country.

� For the second consecutive year, yourCorporation was adjudged # 1 in petroleumtrading among the National Oil Companies inthe Asia-Pacific region for the year 2004 in the

annual survey conducted by Applied TradingSystems, Singapore.

� Your Corporation was recently honoured withthe coveted ‘Superbrand’ status by theBusiness SuperBrands Council, anindependent branding authority.

� It also topped the list of “India’s Most ValuableBrands 2004", featuring the top 500 largestcompanies listed on the Bombay StockExchange by market value and released byThe Hindu Businessline.

� Your Corporation also emerged as the ‘MostTrusted Petrol Pump’ brand in the country in asurvey conducted by AC Nielson-ORG Margfor The Economic Times.

� For the second consecutive year in 2004, yourCorporation retained its ranking among the top10 ‘Best Employers in India’ in a HewittAssociates study. IndianOil was also ranked4th among the most respected companies inthe TNS India poll featured in Business Todaymagazine.

� Your Corporation became the first Indiancorporate to breach the Rs. 150,000 croremark in sales turnover in the year 2004-05 andposted major milestones in the downstreamsegment with its product sales crossing 50million tonnes and its countrywide network ofpetrol and diesel stations (retail outlets)expanding beyond 10,000 during the year.

� Your Corporation also broke new groundduring the year by grossing its first US$ 1 billionin revenues through initiatives in newbusinesses, viz., overseas ventures, gasmarketing and petrochemicals.

04-05

AnnualReport

A-17

Product Pipelines Length - Industry Share (%)

Petronet10.7%HPC

8.7%

BPC10.4% IOC

70.1%

Total length of product pipelines in India : 7,013 km

Product Sales - Industry Share (PSUs)(Sales in Million Metric Tonnes)

HPC(19.3) IOC

(48.17)

BPC(21.5) Other PSUs

(0.9)IOC Subsidiaries

(5.1)

Total Product Sales by PSUs during 2004-05 : 95.0 MMT

� The year 2004-05 marked your Corporation’sbig-ticket entry into petrochemicals with thecommissioning of the country’s largest LinearAlkyl Benzene (LAB) plant at Gujarat Refinery.It is also the largest grassroots single trainKerosene-to-LAB unit in the world.

� Your Corporation became the first Indian andthe sixth global company to develop marineoils, having obtained global approvals forshipboard applications in the entire family ofvessels of MAN B&W, Denmark, and Wartsila,Finland.

� As part of your Corporation’s ambitious ProjectManthan IT re-engineering project, over 450IndianOil locations are now conducting unifiedtransactions on the leading SAP R/3 EnterpriseResource Planning software, making it thelargest such project in the Asia-Pacific region.

� Following the decision to merge the marketingsubsidiary, IBP Co. Ltd., with IndianOil, theBoard of IndianOil has recently accorded ‘in-principle’ approval for the merger of the refining

Refining Capacity - Industry Share

RIL(33 MMTPA)

25.9%

IOC(41.35 MMTPA)

32.5%

ONGC(9.71 MMTPA)

7.7%HPC

(13 MMTPA)10.2%

BPC(17.4 MMTPA)

13.7%

IOC Subsidiaries(12.85 MMTPA)

10%

Total Refining Capacity : 127.37 MMTPA(MMTPA = Million Metric Tonnes Per Annum)

subsidiary, Bongaigaon Refinery &Petrochemicals Ltd., with IndianOil, subject tothe approval of the Government of India.Meanwhile, the Government of India hasaccorded its approval for the merger of IndianOil Blending Ltd. (a wholly-owned subsidiary)with IndianOil and the process of merger isnow in progress. Approval of the Governmentof India is, however, awaited for the proposedmerger of IBP Co. Ltd. with IndianOil.

All IndianOil refineries commenced production of BS-II quality petrol and diesel during the year.

A-18

CORPORATE REVIEW

FINANCIAL

2004-05 2003-04US $ Million Rs. in Crore US $ Million Rs. in Crore

Turnover (inclusive of Excise Duty) 34440 150,677 29795 130,203

Profit

Profit Before Interest, Depreciation and Tax 1993 8,722 2749 12,013

Interest Payment 133 583 103 453

Depreciation 499 2,184 428 1,869

Profit Before Tax 1361 5,955 2218 9,691

Tax Provision - Current 235 1,030 521 2,275

Tax Provision - Deferred 8 34 94 411

Profit After Tax 1118 4,891 1603 7,005

Appropriations

Interim Dividend 120 526 133 584

Proposed Dividend 267 1,168 428 1,869

Corporate Dividend Tax 54 237 72 314

Insurance Reserve 2 10 2 10

Bond Redemption Reserve (134) (586) 9 38

General Reserve 809 3,536 959 4,190

PHYSICAL

(Million Tonnes)

2004-05 2003-04

Product Sales

- Domestic 48.17 46.80

- Export 1.96 1.81

- Total 50.13 48.61

Refineries Throughput 36.63 37.66

Pipelines Throughput 43.03 45.17

SHARE VALUE

2004-05 2003-04US $ Rupees US $ Rupees

Cash Earning Per Share 1.38 60.57 1.74 75.97

Earning Per Share 0.96 41.88 1.37 59.97

Book Value Per Share 5.09 222.47 4.52 197.32

Notes:(1) Exchange rate used:

1 US $ = Rs.43.75 as on 31.03.20051 US $ = Rs.43.70 as on 31.03.2004

(2) Figures for the previous year have been regrouped, wherever necessary.

04-05

AnnualReport

A-19

CONSOLIDATED FINANCIALSTATEMENTSIn accordance with Accounting Standard-21“Consolidated Financial Statements” andAccounting Standard-27 “Financial Reporting ofInterest in Joint Ventures” issued by the Institute ofChartered Accountants of India, your Corporationhas prepared the Consolidated FinancialStatements consolidating all its subsidiaries andjoint venture entities. The Consolidated FinancialResults are as under:

(Rs. in Crore)

2004-05

Turnover (inclusive of Excise Duty) 148406

Profit Before Tax 7536

Profit for the Group (After Tax) 5469

MANAGEMENT’S DISCUSSION &ANALYSIS REPORT

Management’s Discussion & Analysis Report forthe year under review, as stipulated under Clause49 of the Listing Agreement with the Stock Ex-changes, is incorporated in a separate section form-ing part of the Annual Report.

MOU PERFORMANCE

IndianOil has been consistently earning ‘Excellent’rating for its performance in its Memorandum ofUnderstanding (MoU) with the Government of Indiafor the past 15 years. As per the performance datasubmitted for the year 2004-05, your Corporationis expected to achieve ‘Excellent’ rating once againfor the 16th consecutive year.

OPERATIONS

REFINERIES

IndianOil’s seven refineries together registered athroughput of 36.63 million tonnes during the year,which is marginally lower than that of the previousyear, primarily on account of extended shutdownmaintenance at Mathura Refinery and closure ofthe Fluidised Catalytic Cracking Unit at GujaratRefinery. However, Guwahati, Barauni, Haldia andPanipat refineries individually achieved their highestever crude oil throughput during the year. IndianOilrefineries also achieved an overall distillate yieldof 71.5% wt., besides record production of aviation

turbine fuel and Group-II lube oil base stock. All ofthem commenced production of BS-II quality petroland diesel during the year. Production of Euro-IIIpetrol was also commenced subsequently atMathura and Panipat refineries, and Euro-III dieselat Gujarat, Mathura, Panipat and Haldia refineries.

The Government of India has allowed yourCorporation to charter ocean vessels on its ownfor oil imports, instead of going through Transchart,the chartering wing of the Ministry of Shipping &Transport. This landmark decision will helpIndianOil reduce freight cost and further streamlineits business processes – from crude procurementto processing.

PIPELINES

Your Corporation owns and operates the largestnetwork of crude oil and product pipelines in India.With the commissioning of the new Panipat-Rewariproduct pipeline, this network was expanded to7,730 km during the year. The overall pipelinesthroughput during the year was 43.03 milliontonnes. The marginal reduction in throughput

Inauguration of DieselHydrotreating plant atMathura Refinery.

A-20

* Light Diesel Oil

compared to the previous year was on account ofreduced throughput at our Mathura and Gujaratrefineries.

MARKETING

IndianOil’s Marketing Division continued to play acrucial role in maintaining our dominant status inthe Indian downstream sector. Its strong, customer-centric approach helped maintain marketleadership despite increased competition fromestablished and new players. The year 2004-05was observed as ‘Customer Care Year’ by theDivision.

Your Corporation sold 50.13 million tonnes ofpetroleum products, including exports, during theyear 2004-05 as against 48.61 million tonnes inthe previous year, registering an increase of 3.1%.Domestic sales were up by 2.9% to 48.17 milliontonnes while exports soared by almost 8% to 1.96million tonnes. The retail network was expandedwith the commissioning of 1,112 retail outlets and34 kerosene/LDO* dealerships, raising their totalnumber to 10,228 and 3,555 respectively.

Your Corporation’s retail forays gained momentumduring the year with a slew of value-added ‘XTRA’initiatives, including branded fuels and services.The retail business was demarcated into threebroad segments – urban, highway and rural – toclearly identify and cater to the requirements ofvarious types of customers.

About 460 branded XTRACARE retail outlets wereunveiled during the year, primarily in urban markets.These outlets are a culmination of careful planningin retail design, product and service upgradation,capability building, automation, loyaltyprogrammes, retail site management techniques,all benchmarked to global standards. Moreover,product quality & quantity, housekeeping,maintenance and customer service at these outletsare certified by the globally renowned agency -M/s Bureau Veritas.

Sixty-six large-format Swagat brand retail outletswith added facilities were set up for highwaymotorists. Besides state-of-the-art fuelling facilitiesdispensing normal and premium brand fuels, these

Inauguration of IndianOil's 10,000th petrol station at Tirupati inAndhra Pradesh.

04-05

AnnualReport

A-21

outlets have multiple amenities like dhabas, shopsfor tyres and other vehicle accessories, generalstore, rest rooms and dormitories, telephone andinternet facilities, clinics, toilets and parking facilitiesfor night halts.

As a new growth area in retail business, yourCorporation unveiled small-format ‘Kisan SewaKendras’ for rural markets during the year. About20 such kendras with tailor-made offerings andservices were set up during 2004-05 and more willbe rolled out during the current fiscal. IndianOil hasjoined hands with ICICI Bank in this initiative tomake available at the farmer’s doorstep fuels andfinancial products & services, besides otheressential farm inputs. The Kendras will primarilymarket petroleum fuels, SERVO lubricants, ICICIBank’s rural financial products, and agro inputs likeseeds, fertilisers, pesticides, farming equipment,vegetables, stationery and other items. Besidesserving the farming community through a basketof products, services and facilities, this new initiativeis also expected to create employment avenues inrural India, which is fast emerging as one of thelargest consumer bases, thereby providingattractive returns to the operators.

Availability of branded fuels XTRAPREMIUM petroland XTRAMILE diesel was extended to 1,562 and3,617 IndianOil retail outlets respectively during theyear, besides sale through IBP outlets. IndianOil’sXTRAPOWER fleet card is the fastest growing fleetmanagement & rewards programme in the countrywith nearly 4 lakh cards. These cards account formonthly purchases of about Rs. 200 crore.

Your Corporation constituted Platinum and GoldCard Circle dealers’ platforms to recognise andpromote best customer service practices at its retailoutlets. These elite IndianOil dealers have emerged

Brands that make a difference

A-22

as peer leaders and are an integral part of theXTRACARE dealer ‘sensitisation’ strategy.

AIDS health clinics were organised at retail outletsfor creating mass awareness.

To further consolidate its leadership position in thebulk consumer segment, your Corporationcommissioned 310 dedicated consumer pumps forbulk users during the year. To protect productvolumes, long-term tie-ups were entered into withdiesel customers in the organised sector for periodsranging from one to three years. The single-windowservice for high-value customers was extended to30 more customers during the year, taking thenumber of key accounts to 84.

Despite reduced earnings from LPG business,IndianOil enrolled 35.3 lakh new Indane cookinggas customers during the year to enhancecustomer convenience and as part of ourcommitment towards environment protection byway of preventing felling of trees for use asfirewood. With this, Indane now reaches 410.50lakh homes across the country. Compact 5 kg LPGcylinders continued to be marketed in select ruraland hilly markets.

Your Corporation commissioned 361 new Indanedistributorships during the year, raising their total

number to 4,699. About 220 existing distributorshipswere categorisd as Star Distributors to recogniseand promote excellence in customer service. Withcapacity augmentation of 140 thousand tonnes perannum during the year, the Corporation’s LPGbottling capacity now stands at 3,778 thousandtonnes per annum.

IndianOil’s Marketing Network

3,555Kerosene/LDO

Dealers

*Others: Includes bulk storage depots/terminals, Aviation Fuel Stations (AFS),Indane (LPG) bottling plants, etc.

247SERVOStockists

340Others*

10,228Retail

Outlets

5,956Bulk Consumer Outlets

4,699Indane (LPG) Distributors

Your Corporation continues to lead the aviation fuelsupply business with a market share of 65%,meeting the fuel needs of Indian Airlines, Air India,scheduled private airlines, international airlines andthe Defence Services. New business of about83,700 kl per annum was gained during the year.

IndianOil's SERVO brand lubricants continued their dominance in India even as they gained wider acceptance in foreign markets.

04-05

AnnualReport

A-23

Foreign exchange earnings from ATF (AviationTurbine Fuel) sales to international airlines wereRs. 1,179 crore. During the year, IndianOil’s 95th

aviation fuel station was commissioned at Purneain Bihar.

In the wake of the tsunami that struck severalcoastal areas of the country, your Corporation’saviation fuel stations at Port Blair, Car Nicobar andChennai worked round-the-clock to refuel IndianAir Force and other civil aircraft engaged in reliefand rescue operations.

IndianOil’s SERVO brand of lubricants, being thefirst and only one in its category in India to beaccorded ‘Superbrand’ status, continued itsdominance in the lubricants business in India evenas it gained wider acceptance in foreign marketslike UAE, Nepal, Bangladesh, Sri Lanka, etc. Themarket share in finished lubes increased by 2.2%and in total lubes by 3% during the year.

ASSAM OIL DIVISION

The Digboi Refinery of Assam OilDivision (AOD) processed 0.65 milliontonnes of crude oil during the year. The

Division sold 1.04 million tonnes of products andretained its position as market leader in theNortheast region. AOD’s marketing networkcomprises 351 retail outlets, 399 Kerosene/LDOdealerships, and 263 Indane (LPG) distributors.AOD supplies Indane gas to 13.57 lakh householdsin 183 towns in the Northeast region.

RESEARCH & DEVELOPMENTThe year 2004-05 marked the consolidation ofIndianOil’s role as a technology provider. IndianOilTechnologies Ltd., your Corporation’s wholly-ownedsubsidiary for translating its intellectual property intofinancial gains, accrued business worth Rs. 2 crorein its first complete year of operation.

During the year 2004-05, IndianOil’s R&D Centredeveloped 85 lubricant formulations besidesupgrading 93 existing ones. Approvals wereobtained from original equipment manufacturers(OEM) and user industry for 41 products; of these,19 products were approved by internationalagencies such as API-USA, Wartsila-Finland andMAN B&W-Germany.

A process for naphtha hydrocracking to LPG wasdeveloped in association with Zeolyst International.The R&D Centre also earned four Indian and 12international patents during the year, taking theircombined number to 140.

As the nodal agency of the hydrocarbon sector forimplementation of the Hydrogen energyprogrammes in the country, the R&D Centre hasmade good progress during the year. The Centreis collaborating with Mahindra & Mahindra and theTata group, among others, for conducting jointresearch leading to the rollout of India’s firstHydrogen engine in the next two years. A corpusfund of Rs. 100 crore is being set up withcontributions from public sector petroleumcompanies and the Oil Industry Development Boardfor taking up Hydrogen research projects.

The Centre has already taken the lead in thedevelopment and commercialisation of biodiesel.

PROJECTS

Your Corporation nurtures the vision of growingfrom a US $ 35 billion turnover company today to

IndianOil’s X Plan (2002-2007) Outlayfor Investments - Rs. 24,399 Crore

Petrochemicals(Rs. 10,852 crore)

45%

Other Diversification(Rs. 548 crore)

2%

Refinery Capacityaddition/YieldImprovement

(Rs. 6,149 crore)25%

Refinery QualityImprovement

(Rs. 3,043 crore)12%

Pipelines(Rs. 2,826 crore)

12%

Marketing(Rs. 764 crore)

3%

R&D(Rs. 217 crore)

1%

IndianOil's R&D Centre has developed over 2,100 lubricantformulations for virtually all applications.

A-24

� Lab facility for catalyst evaluation forHydrogen Generation Unit at R&D Centre,Faridabad

� New depots at Peddapalli, Along and NOIDA

Ongoing Projects

� Panipat Refinery expansion from 6 to 12 milliontonnes per annum

� Paraxylene/Purified Terephthalic Acid (PX/PTA) unit at Panipat Refinery

� MS quality improvement projects at Haldia andGujarat refineries

� Paradip Refinery project

� Mundra-Kandla crude oil pipeline andconversion of Kandla-Panipat section ofKandla-Bhatinda pipeline to crude oil service

� Paradip-Haldia crude oil pipeline

� Crude oil blending facilities at Mundra

� Chennai-Trichy-Madurai product pipeline

� Koyali-Dahej product pipeline

� Koyali-Ratlam product pipeline

� Tap-off points at Trichy, Chittorgarh, Ratlamand Jasidih

� Bottling Plants at Ilayangudi, Raipur and Vasai

New Projects

� Panipat Refinery expansion from 12 to 15million tonnes per annum

� Naphtha Cracker and downstream polymerunits at Panipat

� Residue upgradation and diesel/petrol qualityimprovement project at Gujarat Refinery

� Improvement of distillate yield and dieselquality at Haldia Refinery

� Dadri-Panipat pipeline for re-gassified LNG

� Panipat-Jalandhar LPG pipeline

� Chennai-Bangalore product pipeline

� Raxaul-Amlekhganj product export pipeline

� New depots at Mandir Hasud (MP) andLalkuan (Uttaranchal)

� LPG bottling plant at Mathura

US $ 60 billion by the year 2011-12 with well-coordinated strategic plans, including clearblueprints for US$ 15.5 billion (Rs. 70,000 crore)investments.

During the X Plan period (2002-07), IndianOil isinvesting Rs. 24,400 crore in developing capitalassets. For the year 2004-05, the Corporation’scapital expenditure at Rs. 6,460 crore was 63%more than that of the previous year. Ten majorprojects, together costing Rs. 12,664 crore, arebeing completed in the current fiscal.

The list of various projects is as follows:

Completed Projects

� LAB plant at Gujarat Refinery

� Diesel hydrotreating plant at MathuraRefinery

� MS quality improvement project at MathuraRefinery

� Panipat-Rewari product pipeline

� Sidhpur-Sanganer product pipeline (PanipatRefinery expansion-linked pipeline project)

IndianOil accords highest priority to project execution.

04-05

AnnualReport

A-25