PROJCT RPORT INDIAN OIL CORPORATION LIMITD (IOCL), PIPLIN HAD OFFIC (PLHO), NOIDA

A Rport on Financial Analysis of IOCL and DFR on Proposal for Invstmnt Approval of Branch Piplin from BKPL to Motihari and Baitalpur

Submittd by: Arpit Vrma A1802012113 MBA-IB(2012-14) AIBS, Amity Univrsity, Noida.

Undr th Guidanc of: Ms. Navln Kaur Assist. Profssor Amity Univrsity Noida.

Rport on Financial Analysis of Indian Oil Corporation Limitd and DFR on Proposal for Invstmnt Approval Of Branch Piplin From Barauni-Kanpur Piplin to Motihari and Baitalpur for lvraging th transportation tariff

Submittd By: Arpit Vrma

nrollmnt No. : A1802012113 Faculty Guid: Ms. Navln Kaur Company Guid: CA Gaurav Gupta A rport submittd in partial fulfillmnt of th rquirmnts of MBA-IB Program of Amity Univrsity, Noida

Authorization
Th making of this rport has bn authorizd by CA Gaurav Gupta, Snior Accounts Officr at Piplins Division Had offic, Noida (Indian Oil Corporation Limitd). I hrby dclar that all th work shown in my projct is tru to my knowldg and has bn compltd at IOCLs offic. Th rsarch study was conductd ovr a span of 45 days from Jun 2013 to July 2013. This projct is mant for a partial fulfillmnt of th MBA-IB program at Amity Intrnational Businss School, Amity Univrsity, Noida.

Acknowldgmnts
I tak this opportunity to xprss my hartflt thanks to CA Gaurav Gupta, Snior Accounts Officr at Piplins Division, Had Offic, Noida (IOCL). H has bn th guiding light in th organization right from first day of my joining. H has always had trust in my abilitis and has apprciatd th sam. Th projct would not hav bn complt without his immns guidanc and support. I would also lik to thank Ms Navln Kaur, Assistant Profssor, AIBS, Amity Univrsity , Noida, who has bn availabl at all tim to hlp and support m whnvr I ndd during th cours of my intrnship. I am xtrmly indbtd to Ms. Dpti Gol , Snior Accounts Officrs at Piplins Division, Had Offic, Noida (IOCL) and th Tchnical Dpartmnt for providing m with valuabl inputs that hlpd m in my study.

TABL OF CONTNTS Authorization3 Acknowldgmnts..4

xcutiv Summry..5 CHAPTR 1 (Introduction)....9

Introduction about Oil and Gas sctor...10

Company Ovrviw12 Cor Oprations..16 SWOT Analysis of IOCL....23 Piplin - An Introduction..29 Introduction to th Rport...41 CHAPTR 2 (Rsarch Mthodology)...45 Objctiv of th study.46 Scop of study.....47

Mthodology (Rsarch Dsign and Sourcs of Data collction)...47

Limitations..48 CHAPTR 3 (Litratur Rviw)49 CHAPTR 4 (Findings and Analysis)....54 Projct Proposal...55 Brif dscription of th proposal..55 Financial (Ratio) Analysis of IOCL.57 Cas Study90 CHAPTR 5 (Limitations)....97 CHAPTR 6 (Conclusion and Rcommndations)99 Conclusions...100 Rcommndations..101 5

Larning from SIP......102 CHAPTR 7 (Rfrncs and Appndix)103 Appndix103 Rfrncs (Print matrials, lctronic, Scondary).....108

xcutiv Summary
Th projct proposd is to study th financial ratio analysis of IOCL for last fiv to six yars and making a comparativ study for it and also studying th financial fasibility of a major capital intnsiv projct in th Piplins Division of Indian Oil Corporation Limitd. With an aim to optimiz th transportation tariff, actions hav bn initiatd to put up a branch piplin from Barauni-Kanpur Piplin to Motihari and Baitalpur, which is dvlopd indignously by th Companys Rsarch & Dvlopmnt dpartmnt. Th projct involvd larning th functioning of th Financ dpartmnt in th piplins in analyzing th financial viability of such proposals by th Tchnical dpartmnt. Th projct is thn aimd towards dvloping an undrstanding th various guidlins that th company follows to dtrmin th fasibility of Capital Budgting dcisions and analyzing th financial ratios. Ths undrstanding formd th basis for conducting th futur study ncssary to go ahad with th projct. Th first stp in xrcis was to hav a brif ida about th background and procss dscription of th tchnology, rviwing th nd and justification stablishd by th tchnical dpartmnt and th consquncs if th projct is not implmntd. Th analysis of availabl altrnativs to fulfill th sam nd is also vry important. Th currnt throughput of th 3 products i.. Motor Spirit (MS), Suprior Krosn Oil (SKO) and High Spirit Disl (HSD) wr compard with thir futur throughputs and dmands. Th nxt part of th projct involvd idntifying and bifurcating th dtails and basis of th projct cost, compar th cost with similar projcts and dtrmin th phasing of xpnditurs. Finally, th financial analysis of th proposd projct was don to dtrmin its viability and profitability. This analysis is basically rquird in th piplins to analyz th financial aspcts of any capital invstmnt projct along with its tchnical fasibility and ratio analysis. It is vry important for capital intnsiv companis to dtrmin th rturn for vry projct bcaus an unprofitabl vntur might prov disastrous for th growth and survival of th company.

Along with th abov mntiond on sit projct, th rport compriss of industry and company analysis. It focusd on building on an undrstanding of th oil and gas sctor in India, in trms of siz of th markt, production consumption and othr rlvant information. This is followd by an introduction to IOCL, its history and progrss, rvnus and profitability analysis and financial ratio analysis.

CHAPTR 1

INTRODUCTION

Introduction about Oil & Gas sctor

Th nrgy sctor in India is on of th important conomic drivrs in India. Fulfilling th nd for nrgy for both domstic and commrcial consumption, th sctor has mrgd as th 4th largst nrgy consumr in th world, aftr th Unitd Stats, China and Japan. As pr th Ministry of Ptrolum and natural Gas, oil in India accounts for clos to 30% of th total nrgy consumd. To satisfy dmand, Indian upstram oil companis hav acquird staks in ovrsas assts. xisting domstic oil rsrvs and production is insufficint to mt th dmand in India. Mor than 80% of Indias crud oil dmand was mt through imports as of FY12.conomic growth witnssd by India, has ld to mor conomic activity across stats thus rsulting in high dmand for oil and gass to continuous ful th growth furthr. mploying mor than 1.3 lakhs individuals and with a favorabl policy nvironmnt th sctor has mrgd as on of th ky cor sctors driving th conomy. Th sctor is primarily dominatd by stat ownd firms lik ONGC and IOCL. Th sctor also acts as a major sourc of tax rvnu gnration for Indias cntral and stat govrnmnts. Prics of many oil, natural gas and ptrolum products ar controlld by th cntral govrnmnt. This somtims forcs downstram companis to sll finishd products at unprofitabl prics. Govrnmnt subsidis partially covr th shortfall, but this puts a strain on cntral govrnmnt financs and bloats th fiscal dficit. In FY13, th govrnmnt institutd a slw of rforms gard toward rducing th subsidis, such as limiting th numbr of subsidizd cylindrs and incrmntal dcontrol of disl prics. Ths movs ar xpctd to improv th arnings of industry oprators in coming quartrs. As pr th BP statistics rport publishd in 2013, India has provd oil rsrvs of about 9.0 billion barrls, with an avrag production of about 826,000 barrls/day. Indian Oil & Gas sctor has two lvls of activitis.

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Upstream

Major activity is exploration and extraction of crude Major Players are ONGC, OIL and GAIL ONGC accounts for close to 75% of the total oil output, making it the biggest upstream player

Downstream

Major activity is transportation, refinining and marketing of oil Major Players are IOCL, BPCL,HPCL and Essar Oil IOCL operates a total of more than 10 refineries across states IOCL has approx 12,163 km of Pipeline network

1. Upstram Sgmnt: This primarily dals with xploration of crud oil from rsrvs across rgions. Oil and Natural Gas Corporation (ONGC) is th lading playr in this sctor, oprating with clos to 75% of th markt shar in trms of crud oil output. 2. Downstram Sgmnt: This sgmnt dals with transportation, rfining and markting of crud oil. Indian Oil Corporation (IOCL) has mastrd this activity. Oprating ovr 12,163 Km of piplin for crud transportation with a capacity of 1.4 million barrls pr day, th firm oprats with clos to 75% of th total markt shar in trms of piplins.
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Company Ovrviw
Indian Oil is Indias biggst commrcial ntrpris and flagship national oil company with businss intrst comprising th ntir hydrocarbon valu chain. It is a lading Indian Corporat in fortun Global 500 listing, rank at th 83rd position by th sals turnovr for th yar 2013. Indian Oil and its subsidiaris hav a dominant shar in th ptrolum products markt, national rfining capacity and downstram piplin capacity. It has bn hlping mt Indias nrgy dmands ovr fiv dcads now with businss vrticals sprad ovr Rfinris, Piplins, Markting, Rsarch & Dvlopmnt and Businss Dvlopmnt- &P, Ptrochmicals and Natural Gas. It is controlling Indias 10 out of 22 rfinris with a group rfining capacity of 65.7 MMTPA and a cross country ntwork of crud oil, product and gas piplins arching ovr 11,600 km with a capacity of 77 MMTPA as wll as maintains a markting ntwork with 37000 touch points (52%). With an aim of maintaining its markt ladrship and providing bst quality product and srvics, Indian Oil is invsting ovr Rs. 47,000 crors in a host of projcts for amplification of rfining and piplin capacity, product quality up gradation, xpansion of markting infrastructur tc. Indian Oil srvics vry nook and cornr of th country, vry hour of th day with customr sals points supplying by bulk storag in trminals and dpots, aviation ful stations and LPG bottling plants.

12

13

14

IOCLs dominanc in downstram Oil sctor:

IndianOil has th largst rfining capacity in India comprising of almost 31% of th markt shar. It has th highst Ptrolum products markt shar of 46%. 87% downstram markt shar in crud oil piplins. Largst providr of piplins for ptrolum products of 50% approximatly. 89% markt shar of bulk consumr pumps. 52% markt shar in LPG dalrship. 54% of total consumr touch points.

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Cor Oprations
Rfining : Indian Oil controls 10 rfinris sprad across th country in Barauni(6.0 MMT), Guwahati(1 MMT), Digboi(0.65 MMT), Bongaigaon(2.35 MMT), Haldia(7.5 MMT), Panipat(15 MMT), Mathura(8 MMT), Koyali(13.7 MMT) along with two subsidiaris in Narimanan(1 MMT) and Chnnai(10.6 MMT). A nw rfinry of IOCL is still undr construction in Paradip (15 MMT). Th rfinris in th north astrn part of th company bnfits from xcis duty concssion and has th ability to supply in th North Indian markt at low cost by lvraging piplin ntwork. Th total rfining industry capacity is 215.066 MMTPA and IndianOil with a capacity of 65.7 MMTPA and holds 31% of th ntir markt. IOCLs shar among th PSUs stands at 49%. It is th only oil company to hav prsnc in high consumption North Indian rgion comprising of Uttar Pradsh, Punjab, Haryana, Rajasthan, Himachal Pradsh, Uttaranchal and Jammu & Kashmir. Th Corporation has bn consistntly maintain a capacity utilization of 100% and abov in th wak of plannd rvamp shutdowns for implmntation of quality upgradation projcts in all th rfinris.

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Oprating Highlights Stratgic inland rfinry locations with most ffctiv supply and vacuation systm through piplins Highst vr throughput of 55.6 MMT Lowst vr spcific nrgy consumption at 57 MBN against 59 MBN in FY 2010-11 Highst vr distillat yild of 77.8% All rfinris ar uro III/IV compliant

Piplins: IndianOil owns and oprats Indias largst ntwork of crud and product piplins gtting closr to th clints with incrasing lngth. With th commissioning of nw piplins th total ntwork of product, crud and gas is oprating at 10,777 km during th yar. With a lngth of 4,376 km and a capacity of 40.40 MMTPA compriss of 73% downstram markt shar and product piplins with a lngth of 6401 km and capacity of 35.36 MMTPA compriss of 50% of downstram markt shar. It provids low cost crud transportation to all th companys rfinris. Th highst vr throughput of 75.5 MMT was achivd by IOCLs piplins in FY 12. Also, it achivd th highst vr capacity utilization of 118% for crud oil piplins.

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Th rcntly compltd product piplins ar: 290 km long Chnnai Bangalor product piplin. 265 km long Koyali Ratlam product piplin. 275 km long Panipat Jalandar LPG piplin. 36 km long ATF piplin conncting IOCLs Dvanagonthi trminal to Bngaluru Intrnational Airport. 95 km long piplin conncting CPCLs Manali rfinry to Mnabakkam AFS.

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Markting- Sals: IOCL has a shar of 52% in th Markting infrastructur with 4 Rgional offics, 16 Stat offics, 100 Divisional offics (66 rtail and 34 consumrs) and 45 Indan Ara Offics.Th organization is continuing to lvrag its distributors to maintain ladrship.

Rural Pntration through Markting FY 2012 mad an imprssiv rcord by commissioning of 731 KSKs during th yar. Also, 9.2% of total IOCs sals (MS & HSD) was rcord which was th highst sinc 4 yars.

Rsarch and Dvlopmnt: Th R&D dpartmnt of IndianOil was stablishd in 1972 and currntly has 438 scintist and support staff. Th major focus of th dpartmnt mainly now is to rduc th carbon footprints of IOCLs procss, products and tchnologis; ndavor to rduc company.
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 Commrcialisation of Tchnologis INDMAX : For maximisation of LPG & light distillats from rfinry rsidu Marin Oils : On of six companis to hav dvlopd Original quipmnt Manufacturr Approvd Marin Tchnology quipmnt Ndl Cok : On of thr companis in th world that posssss tchnology to mak high valu ndl cok

Lubricants 154 product formulations dvlopd, 108 commrcialisd, 56 approvals obtaind from usr industris/OMs In a first ovrsas businss gain, Mauritius Shipping Corporation adoptd indignously dvlopd Srvo marin grads Patnts Six patnts grantd during th yar

Active Patents by Geography

Others 23% USA 22% India 55%

Active Patents by division

Lubes 20% Refinery 47%

Others 33%

Widning horizons Nw ptrochmical and polymr labs fully functional MOU with th dpartmnt of Bio-Tchnology to st up Advancd Bio-nrgy rsarch cntr Divrsifid Customr Bas and Product Suit
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Th various divrsification initiativs towards clan nrgy ar: Wind powr projct: Commissiond in Kachchh, Gujrat in January 2009 has a capacity of 21 MW( 14 WG of 1.5 MW ach) Considring furthr invstmnt in Wind powr projcts.

Solar Powr Plant: IOCL won bid to st up 5 MW Solar PV Powr Plant at Barmr, Rajasthan undr Jawaharlal Nhru National Solar Mission. Mor than 3000 solar lantrns sold from rtail outlts, LPG distributors for lighting rural homs and shops. Thr solar charging stations installd for poorr villags at pilot basis to cntrally charg lantrns for rnting to customrs.

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Nuclar Powr: JV Company incorporatd to st up Nuclar Powr Plants in India. quity participation (26%) in Rawatbhata, Rajasthan.

Biofuls: nrgy Crop Plantation Captiv plantation for Jatropha in India. In Uttar Pradsh plantation undr MNRGS fundd Public- Privat- Panchayat partnrship modl: 10 ha compltd Furthr proposd to xtnd plantation to 5000 ha.

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SWOT Analysis of IOCL

STRENGTHS WEAKNESS 1. India's largest commercial enterprise with a strong brand name 2. Operates 20 refineries in India 3. Bureaucracy 3. Huge distrubtion network through retailing 4. Has over 35,000 employees 5. Loyalty programs like XTRAPOWER Fleet Card Program is aimed at Large Fleet Operators OPPORTUNITIES 1 . Increasing Preference for Pipelines 2. Widening Horizon 3. Energy Efficient Mode 4. Cost-Effective & Competitive Projects 5. Expanding Gas Market 4. Volatility in the crude market & subsidy burden 1. Legal issues 2. Employee management

THREAT 1. Diverse Culture 2. Difficult Terrain 3. Harsh Climate 4. High Competition

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SWOT Analysis With Rspct To Markting Division

Strngths: Indias highst rankd Fortun 500 Company and a markt ladr with 50% shar of Ptrolum products.

Possss th largst Piplin Ntwork; and thus has a vital comptitiv dg in transportation costs and thus hlps to accss in dficit markts. IOC controls 10 rfinris, by virtu of which it has a total shar of around 34% of Indias ovrall rfining capacity. Thr ar mor than 35600 sal points all ovr India which is 55% of industry. Thr ar about 5096 distributors of Indan Cooking gas for catring 56 million housholds. Raching th doors of bulk customrs: Bulk Consumr Pumps 7,593 (89%). Strong Brand nam for its products (For xampl, SRVO which covrs 42% markt shars, with mor than 450 grads). xcllnt crdibility and intrnational corporat imag for raising funds. IOC also acquird managmnt control of th markting company IBP, thrby strngthning its position in ths activitis. Thr ar around 229 activ Patnts which includs 125 intrnational patnts. Th company has alrady ntrd ovrsas markts such as Sri Lanka, Maldivs, and Oman and is prsntly considring ntring Turky through a JV. Th company is in
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talks with Caliak of Turky to st up an I0 million TPA grassroots rfinry with an invstmnt of $2 billion and stablish rtail businss. IOC is also wighing th possibility of ntring Indonsia. IOC has also startd xploring th ovrsas markts for incrasing its scop of oprations. Its intrsts includ downstram activitis in Sri Lanka, Maldivs, Oman, and Npal; intrst in th lubs businss in Maldivs, Dubai, Bangladsh, Sri Lanka, tc; among othrs. Waknsss: Th functioning of IOC is gratly influncd by th govrnmnt policy and rgulation. Th govrnmnt has 82% stak in th company, thus gaining th control of th company. Thr is always a risk of its proposals bing rjctd as thr is uncrtain political nvironmnt prvailing in th country. Th Advrtismnt stratgy of IOCL is not xtrmly ffctiv. For xampl, Xtra Prmium is th bst ptrol availabl in th markt, but du to lack of ffctiv advrtismnt, th sal of th product is not in th dsird lvl, whr as Castrol is known for its clbrity advrtismnt. vn though IOC controls most rtail outlts it has markt shar of only 33.8% in th ptrol and 39.6% in disl rgistring an incras of 0.5% and 0.3% rspctivly ovr th last yar. This is comparativly vry small as compard to its siz, rach and production. This is bcaus of th fact that its rtail outlts ar concntratd mor in smi-urban ara and rural ara. Opportunitis: nhancmnt of th distribution ntwork must b mad spcially in th dficit rgions. Distribution / sal of altrnativ products through xisting rtail ntwork can b chalkd out. With gas mrging as an attractiv altrnativ ful du to th twin bnfits of low pollution and bttr conomics, IOCL has plannd to quickly stablish itslf in th gas markt also. Th LNG and Hydrogn businss offrs an attractiv nvironmnt for its futur businss. Gas is stadily growing into th most prfrrd ful among utility providrs such as powr, frtilizrs and transportation. IOC plans to st up a nationwid
25

gas distribution ntwork for srving major Indian citis to markt CNG for automobils and to import LNG. IOC signd a MOU with th National Iranian Oil Company (NIOC) for importing 2.5 MMTPA LNG and also for taking part in th LNG midstram projcts in Iran. Th initial fforts turnd succssful with IOC alrady bcoming th lad supplir of LNG to ssar Stl and Gujarat Stat Ptrolum Corp. IOC has procurd xxon Mobils rgas from Qatar for a priod of twnty fiv yars from April 2004 to mt rising dmand. All ths fforts would stimulat th growth and profitability of th company in th nar trm. Improvmnt of customr managmnt srvics at th rtail nd (a customr satisfaction has shown only 65% customr satisfaction lvl). Thrats: In th post APM scnario, IOC will fac comptition in th ara of crud / product import. Consquntly it has affctd th margin of Rs.5000cror which it arns from trading oprations. Incras in numbr of playrs, spcialization in lub markting (such as HPCL, BPCL, and Rlianc). Introduction of LNG / CNG in som mtro citis (.g., Dlhi) can rduc th dmand of ptrol or disl in nar futur. Consumption of marin ful procurd by som major public sctor shipping companis is showing a dcrasing trnd. Drgulation of Indian Ptrolum sctor: Th drgulation of th ptrolum sctor in India during 2002 abolishd th monopoly staks of IOC. Th company is now facing stiff comptition from svral playrs, striving to gain markt shar. Thr xists a clos comptition btwn ONGC and IOC in th Indian oil markt. RIL has also mrgd as an important playr compting in th upstram sctor subsqunt to th drgulation of th ptrolum sctor. Dmographic issus ar also posing som srious thrats to IOCL. IOCLs north ast oprations continu to suffr from crtain constraints.

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SWOT Analysis With Rspct To Rfinris Division

Strngths: Th rfinris ar dsignd in a flxibl way, which givs ovr 100% fficincy, comptitiv cost and catrs for varity of nds. About 34% of rfining capacity in th country is ownd by IOCL.

58% of IOCs rfining capacity is locatd in th Northrn and Wstrn rgions, which ar high dmand and high growth aras. Pionr in quality managmnt with its Mathura Rfinry as th 1st in Asia and 3rd in th world to arn ISO14001 Crtification. High quality LOBS producd by rfinris contribut to world class lubs. No financial constraints in modrnizing and improving facilitis for rfinris. Waknsss: Oprating cost is comparativly highr than nw rfinris of comptitors (.g. Jamnagar Rfinry of Rlianc Ptrolum). Thr is lss flxibility option of handling various typs of crud (both swt & sour) unlik nw rfinris of comptitors.

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Opportunitis: Nd for additional rfining capacity to mt rising dmand in ptrolum product. Installation of piplin infrastructur for dficit rgions and incrasd application of piplins as a prfrrd mod of transportation for lowr logistics cost as compard to road / rail transport. Improvmnt / cration of nw infrastructur storag, transportation and distribution. Globalization in rfining, piplin and consultancy. Thrats: Th dcontrol in Hydrocarbon sctor is likly to bring in nw playrs spcially th MNCs, with nw rfining capacity having th flxibility to improvis th product mix according to th natur of markt dmand. Growth of mrchant rfining can b a nw sourc of comptition. Highr Capital nds to modrniz xisting infrastructur.

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Piplins An Introduction
Th trm piplin in broadr sns mans a facility usd to transport commoditis from point of rcipt to th point of dlivry. Many commoditis ar transportd through piplins. Crud oil and ptrolum products ar prhaps th most common commoditis transportd by piplins. Dvlopmnt of Piplins in India Most of th arlir rfinris in India wr installd at coastal locations, Thus dpnding on coastal movmnt of Crud Oil. Furthr, Th Rfining capacitis bing low, Th products wr ithr consumd locally or transportd to th consumption cntrs by Rail or Road. Aftr 1960, Most of th Rfinris wr installd in Land-Lockd locations and Crud and Product Piplins wr prompltly laid. Th First Crud Oil Piplin was laid from DIGBOI Oil filds to DIGBOI Rfinry. During 1960-63, OIL INDIA LIMITD laid th First Trunk Crud Oil Piplin, 1156 Km long from Naharkatiya and Moran Oil filds to th rfinris at GuwahatiI and Barauni. Th First Cross Country Product Piplin was laid during 1962-64 to transport products from Guwahati Rfinry to Siliguri. Subsquntly , A numbr of product and Crud Oil Piplins wr laid in th 60s, 70s and 80s, including sub-sa Crud Oil Piplins. Th country today has about 24,000 Km of major Crud Oil and Product Piplins. Th Piplins laid during th 60s wr Dsignd, nginrd and Constructd by Forign Companis. Howvr, Th xposur to this Tchnology nabld indian nginrs
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to gain confidnc, and th Piplins which cam up latr, wr dsignd and constructd with indignous xprtis. Th country today has about 24,000 Km of major Crud Oil and Product Piplins.

Piplin Transportation of Liquid Ptrolum : Th Indian Scnario

Indian oil industry has ovr four dcads of xprinc in transportation of crud oil and finishd ptrolum products. Th crud oil piplins transport waxy crud as wll as low sulphur & high sulphur crud. Th finishd product piplins transport primarily light and middl distillats, including aviation turbin ful, in multi-product piplins.

ADVANTAGS OF PL TRANSPORTATION Cost ffctiv conomis of scal Ngligibl transit loss nrgy fficint Rliabl Saf, nvironmnt frindly WAKNSS IN PIPLIN TRANSPORTATION SYSTM Capital intnsiv Viability dpnds on utilization

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 Onc laid, it is sunk cost/No altrnat us Invntory carrying cost Lss flxibility rgarding batch siz Intrfac and contamination of product Door to Door dlivry not possibl MODS FOR TRANSPORTATION OF PTROLUM PRODUCTS A COMPARISON Piplin Low Low Nil Nil Ngligibl Ngligibl 100%

Road nrgy cost Oprating cost Pollution Movmnt congstion Handling loss Safty Hazards Rliability Vry High Vry High High High High High Low

Rail High High Low Low Low Low Low

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XISTING CRUD OIL & GAS PIPLINS Crud Oil Piplins

S. No 1. 2.

Nam of th Piplin

Lngth (KM) 1870 1312

Diamtr (Inch) 28 / 24 30/18

Rfinry

Capacity (MMTPA) 21.6 11

SALAYA-MATHURA (WR) PARADIP HALDIABARAUNI (R) MUNDRA-PANIPAT (NR) TOTAL

J/M/P H/B/BN

3.

1194 4376

28 / 22

8.4 41.0

Gas Piplins S. No 1. Nam of th Piplin Lngth (KM) 132 Diamtr (Inch) 30 Rfinry Capacity (MMSCMD) 9.5

DADRI-PANIPAT - NR

PRODUCT PIPLINS S. No. Nam of th Piplin ASTRN RGION 1. 2. 3. GUWAHATI-SILIGURI BARAUNI-KANPUR HALDIA-BARAUNI 435 745 525 8 20/12 12 1.4 3.5 1.25 Lngth (KM) Diamtr (Inch) Capacity (MMTPA)

34

4.

HALDIA-MOURIGRAMRAJBANDH WSTRN RGION

277

12

1.35

5. 6. 7. 8. 9.

KOYALI-SANGANR KOYALIDAHJ KOYALI-RATLAM KOYALI-AHMDABAD VIRAMGAM KANDLA

1056 197 265 116 231

18/12 14/12 16 8 16/22

4.6 2.6 2.0 1.1 -

S. No.

Nam of th Piplin

Lngth (KM)

Diamtr (Inch)

Capacity (MMTPA)

NORTHRN RGION 10. MATHURA-DLHI 11. MATHURA-TUNDLA 12. BIJWASAN-PANIPAT NAPHTHA 13. PANIPAT-AMBALA-JALANDHAR 14. PANIPAT-BHATINDA 15. PANIPAT-RWARI 16. PANIPAT-DLHI 17. PANIPAT-JALANDHAR LPG

147 77 111 434 219 155 182 274

16 16/8 10 14/12 14 12 14 10

3.7 1.2 3.5 1.5 1.5 0.7

S. No.

Nam of th Piplin SOUTHRN RGION

Lngth (KM)

Diamtr (Inch)

Capacity (MMTPA)

18. CHNNAITRICHYMADURAI 19. CHNNAI-BANGALOR OTHRS

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683 290

14/12/10 14/12

2.30 2.45

20. CHNNAI ATF 21. NARIMANAM-NAGAPATTINAM 22. BNGALURU ATF 23. DIGBOI-TINSUKIA TOTAL PROJCTS UNDR IMPLMNTATION S. No . 1. Projcts Dscription

95 7 36 75 6632

8 18 8 8/6

0.18 0.368 0.66 1.0 36.858

App. Cost (`/ Cror)

Capacity (MMTP A) -

Lngth (km)

Dia (inch)

Hook-up of Tikrikalan Trminal with MJPL Paradip- Raipur-Ranchi Piplin Intgratd Crud Handling Facilitis at Paradip Addl Tanks and blnding facility at Vadinar D-Bottlncking of SMPL Kolkata ATF Piplin Guwahati ATF Piplin Cauvry Basin Rfinry - Trichy Piplin

59

14

2.

1793

5.0

1065

18/10

3.

1492

70

48

4.

267

5.

1584

767

28/24

6.

45

0.13

28

7.

44

0.07

35

8.

98

0.40

114

36

9.

Paradip-Haldia-Durgapur LPG Piplin PHBPL Augmntation Branch Lin from BKPL to Motihari & Baitalpur Last Mil connctivity to NFL from DPPL

913

0.85

710

12/10

10.

586

4.2

64

18

11.

276

275

10

12.

10

1.8

10

TOTAL

7167

14.65

3137.80

37

GROWTH OF PIPLIN NTWORK

Length ( KM)

16000 14000 12000 10000 8000 6000 4000 2000 0

14278 11600 8951 6364 5423 3980 2014 435 1964 1975 1985 1995 2000 2005 2013 2015

38

GROWTH OF PIPLIN CAPACITY

Capacity(MMT)

100 90 80 70 60 50 40 30 20 10 0

92.51 77.86 56.82

43.72
28.92 23.07 0.48 5.71 1964 1975 1985 1995 2000 2005 2013 2015

39

INCOM- Piplins Division

Fright Rcovry. This is a contra itm in Divisional Accounts and is nullifid at Corporat lvl. Sinc Piplin fright includs an lmnt of profit, th margin is liminatd for closing stock valuation. Consultancy Incom/ Training & Dvlopmnt Sal of Scrap/Wind Powr Rcovris from mploys/contractors Unspnt/ Unclaimd Liabilitis writtn back Intrst on mploy advancs

XPNSS- Piplins Division

Powr & Ful Rpairs & Maintnanc Chmical Consumption stablishmnt Cost Dprciation Gnral Administration xpnss

30% 13% 2% 14% 28% 13%

40

Introduction to th rport
Background Financial Ratio Analysis Ratio Analysis compars on figur in on financial statmnt (say P&L account or Balanc Sht) with anothr figur in th sam financial statmnt or in anothr financial statmnt of th company. A ratio is xprssd in th numrator dnominator format. Thus th numrator and dnominator can b ithr from th P&L account or th Balanc sht of th sam company. Hnc, ratio analysis facilitats intra firm comparison. i.. comparison of your companys prformanc in th currnt yar with your companys prformanc in th prvious yar. It also facilitats intr firm comparison. i.. comparison of your companys prformanc in th currnt yar with your comptitors prformanc in th currnt yar. Pr rviw, as this is calld, hlps you bnchmark your prformanc with your prs. Ratios hlp in ascrtaining th financial halth of th company and also its futur prospcts. Ths ratios can b classifid undr various hads to rflct what thy masur. Thr may b a tndncy to work a numbr of ratios. But w bliv that bing thorough in th computation and intrprtation of a fw ratios (Say 20-25) would b idal, sinc too much of analysis could lad to paralysis.

Capital Budgting Dcisions Th Capital Invstmnt plays a vry vital rol in th growth and financial halth of any company. Such invstmnts ar ncssary for continud growth of th organization, updation of tchnology, rmoval of oprational bottlncks, improvmnt in fficincy and productivity, nhancmnt of capacitis, fulfillmnt of social objctivs tc. Capital Invstmnt dcisions would gnrally includ xpansion, acquisition, modrnization and rplacmnt of long trm assts.

41

Dcisions involving Capital Invstmnts rquirs spcial attntion du to th following rasons: Growth: Invstmnt dcisions ar gnrally long trm and takn for futur bnfits. It has to b ndurd for a longr priod than consquncs of currnt oprating xpnditur. A wrong dcision can prov disastrous for th growth and survival of th company, unprofitabl vnturs can hampr to compt succssfully and vn rsult in loosing on its markt shar. Risk: Capital invstmnt dcision vn changs th risk complxion of a company. If adoption of a particular invstmnt incrass th avrag gain of th firm and along with that also brings in frqunt fluctuations in its arnings, th ovrall risk profil of th company incrass. Funding: Long trm commitmnt of funds gnrally involvs larg amount of funds, which maks it imprativ for th company to tak it dcisions vry carfully and arrang in advanc th procurmnt of financ intrnally or xtrnally. Irrvrsibility: Ths dcisions ar gnrally irrvrsibl and th company would incur havy losss if such assts ar scrappd as th marktability of such invstmnts is vry lss. Furthr, if th fixd chargs rquird to b incurrd can mak difficult th vry survival of th company if thr is no commnsurat incom to mt thm. Complxity: Capital invstmnt dcisions ar an assssmnt of futur bnfits and difficult to prdict.

42

Capital projcts in Indian Oil Corporation Limitd can b broadly dividd into:

Core sector projects

Refining, marketing, pipelines and R&D Exploration and Production (E&P) Core/ non core sector projects overseas

Diversification projects

Globalization projects

As pr rvisd DOA ffctiv from April 9, 2001, all capital invstmnt proposals abov Rs 100 cror rquir boards approval as undr: Abov Rs. 100 cror : Board Abov Rs. 50 cror to Rs. 100 cror: Planning and Projct Committ Board Abov Rs. 10 cror to Rs. 50 cror: Chairman Upto Rs. 10 cror: Functional Dirctor

Projct costing Rs. 250 cror and abov rquirs approval of Projct valuation Committ.

43

Financial valuation Th following two mthods will b considrd to valuat th projct proposal of IOCL: Intrnal Rat of Rturn (IRR): It is th discounting rat at which th prsnt valu of cash outflows will b qual to th prsnt valu of cash inflows. In othr words, th discount rat that yilds a zro Nt Prsnt Valu is known as IRR. Projcts having a IRR lss than th hurdl rat (cost of capital+ prmium) shall not b considrd commrcially viabl and shall b justifid on non- commrcial grounds, whrvr applicabl. For calculation of Rturn on quity Principal Rpaymnt along with intrst outgo shall b takn into considration. Nt Prsnt Valu (NPV): Th prsnt valu of a futur sum of mony can b found by discounting it to th prsnt tim in tim or Yar 0 at th rquird rat of rturn /discount rat. Rquird rat of rturn shall not b lss than cost of capital. Undr this mthod, th prsnt valu of ach yars nt cash flow is calculatd, starting from th Yar 0 till complt projct lif i.. 15 yars. This discounting rat adoptd shall b th hurdl rat. If th projct has a positiv NPV, th projct is considrd to b commrcially viabl.

44

CHAPTR 2 RSARCH MTHODOLOGY

45

Objctiv of th Study
Th study is conductd with rfrnc to IOCL. Th main objctiv of th study is to hav an ida of th practical application of Capital Budgting, Capital Structur and Ratio Analysis whos thortical aspcts ar known.

Th study is conductd with th following objctivs: To undrstand th various financial implications involvd in th piplins projcts. To canvas th stps involvd in th tndring procss. To undrstand th stps involvd in valuating th stimats. To gain knowldg involvd in th prparation of Dtaild Fasibility Rport (DFR). To gt quippd with th workabl knowldg of MS xcl To bridg th gap btwn th thortical aspcts and practical implmntation in Piplins Division To undrstand th working of financ dpartmnt To gt xprinc & xposur for th corporat lif To comprhnsivly calculat all th financial ratios aftr analysing Balanc sht and P/L account and intrprt th rsults. To suggst on th basis of findings, improvmnts in th managmnt of snsitiv factors and financial ratios.

46

Scop of th Study
Study th Augmntation of Barauni-Kanpur Piplin and undrstand th various financial implications involvd in th piplin projct. Undrstand th financial fasibility of th projct Calculat th various Financial Ratios and valuat th financial condition of th company as a whol.

Mthodology
Typ of Rsarch Analytical Rsarch, i.., to us facts or information alrady availabl, & analyz ths to mak a critical valuation (Dtaild Fasibility Rport) Fundamntal or Basic Rsarch, i.., finding information that has a broad bas of applications & thus adds to th alrady xisting organizd body of scintific knowldg (Budgting). Rsarch Dsign Th rsarch conductd hr is of xploratory and Dscriptiv in natur which structurs and idntifis nw problms. Th objctiv of xploratory rsarch and dscriptiv rsarch is to gathr prliminary information. Sourcs of Data Collction Primary Data Th mthod which involvs, collction of data for th givn subjct, is dirctly from th ral world which is collctd by th rsarchr himslf. Th data wr collctd through: Discussions among th concrnd xcutivs of th corporat. Intraction with th ky mploys of th organization.

47

Scondary Data Th data which is collctd by othrs is to b r-usd by th rsarchr. Analysis prpard from collction of various rquird information from: Intrnal Rports (Annual), Prformanc Rport of Indian Oil Corporation-Piplin Division, financial statmnts of th company (i.. Balanc sht, P&L, Rvnu budgts tc.) Study of th Dtaild Fasibility Rports (DFR) of othr projcts which hav bn alrady compltd and th various manuals of th division.

Limitations
Tim constraint: Th duration of th projct limitd th in-dpth undrstanding of vry aspct involvd in th Capital Budgting dcision making of th organization

Limitd scop: Th projct was carrid out within th scop of th company. Th prdtrmind guidlins givn by th corporat offic should b strictly adhrd to. Th fficacy of th mthods followd is still dbatd in th acadmic arna.

Tchnicality: Th proposals put forward by th tchnical dpartmnt of th Piplins ar gnrally vry tchnical and taks ffort for non-tchnical background studnts to intrprt crtain trminologis. Th issu was mainly facd during th bifurcation of cost stimats.

48

Chaptr -3 LITRATUR RVIW

49

In th bginning of nintnth cntury ssntial improvmnt in ratio analysis occurrd. In this priod fw dvlopmnts ar ndognous. First, larg numbr of ratios was concivd in comparison to arlir priod of tim. Scond, propr ratio critria wr appard. In this rgard most famous was currnt ratio critrion. Third, diffrnt analysts undrstand th nd of intrfirm analysis and for that purpos it flt th nd for rlativ ratio critrion. Dspit ths dvlopmnts ratio analysis has bn usd for analysis in this priod and thos flt th nd of using ratio analysis only usd currnt ratio. . In 1920s, intrst in ratio analysis incrasd dramatically. Many publications on th topic of ratio analysis publishd during this priod. Diffrnt crdit agncis, trad unions, univrsitis and individuals sking analyss compild industry data on ratio analysis. Justin (1924) argud that th mthod of gathring industry data and calculats avrags wr calld Scintific ratio analysis. Th word scintific in this titl was not ntirly corrct bcaus no vidnc had bn found that th hypothsis formulation and hypothsis tsting actually carrid out. Horrigan (1968) says ratios analysis has com into xistnc sinc arly ags and th main rason of th dvlopmnt of ratio analysis was its us in th analysis of th proprtis of ratios in 300 B.C. in rcnt tim it is usd as a standard tool for th analysis of financial statmnt. In nintnth cntury main rasons of using ratio analysis ar powr of financial institutions and shifting of managmnt to profssional managrs. Ratio analysis usd for two purposs that ar crdit and managrial. In managrial approach profitability and in crdit approach capacity of firm to pay dbts is th main point of focus. Gnrally, ratio analysis is usd crdit analysis. Thr was rapid xpansion of financial knowldg in nintnth cntury and to study this rapidly xpanding knowldg analyst first compard similar itms thn movd furthr and compard currnt assts and liabilitis as wll with othr ratios. In that priod currnt ratio was th most
50

significant ratio among all othr availabl ratios. To analyz th oprating rsults dupont analysis is also usd. Th rsult dividd into thr parts and thn compard with othr companis to point out th problm and strong aras of businss. Bliss (1923) says basic rlationship within th businss is indicatd by th ratios and dvlopd complt modl basd on th ratios. Th purpos modl was not matur but inspird othrs to start working on this thory. Diffrnt critics of ratio analysis also appard. Gilman (1925) has following concrns on ratio analysis (1) ratios ar bond with tim and changd as tim passd so cannot b intrprtd (2) ratios ar not natural masur for judging th prformanc companis manipulatd thm (3) ratios asily affct th mind of viwrs and hid th actual position and (4) ratios swing widly that also affct th dpndability. Foulk (1931) crat and promotd own st of financial ratios succssfully. This st of financial ratios was printd and promptly known as important and prominnt group of ratios. Fitzpatrick (1932) with th hlp of thirtn diffrnt typ of ratios analysis 120 faild firms and found that thr out of thirtn ratios prdict th failur of firms with prcis accuracy whil othr ratios also shown som prdiction powr. Rasmr and fostr (1931) usd lvn ratios to xamin that th succssful firms has highr ratios than unsuccssful firms. Although this study was immatur but immaturity was ignord by considring th vital contribution this study has in th valuation of usfulnss of ratios. Scurity and xchang commission of Amrica was formd in 1934. This also xpands th flow and numbr of financial statmnts and with th hlp of this priphral factor importanc of ratio analysis furthr nhancd and ralizd. Marwin (1942) by using svral ratios analyz financial trnds of hug succssful and unsuccssful firms. Compard normal ratios of industry with man ratios of larg unsuccssful firms and find out that th thr ratios currnt ratio, nt working capital to total assts and nt worth to dbt wr abl to fors failur bfor actual failur happnd. This study shows th actual powr of prdiction of ratio analysis and rsults wr still rliabl.
51

Waltr (1957) includd cash flow statmnt itms in ratio analysis. At th nd of world war fund statmnt cam into xistnc and with fund statmnt fund statmnt ratios was also producd. Hickman (1958) usd tims intrst arnd ratio and nt profit ratio to prdict th dfault rat on corporat bond. Saulnir (1958) says firms with low currnt ratio and dbt ratio has gratr chanc to dfault thn firms with high ratios. Moor and Atkinson (1961) point out th rlationship btwn capacity to pay and financial ratios and shows rsults of ratio analysis influnc th borrowing ability of firms. Bavr (1967) also xamind th prdiction powr of ratio analysis and point out ratios ability to prdict failur as arly as fiv yars bfor th collapsd. Statistical tchniqu usd in th study was mor powrful than arlir studis and fund statmnt data was usd to calculat ratio. This study st th foundation for futur rsarch on ratio analysis. Sortr and Bckr (1964) xamind th rlationship btwn psychological modl and corporat prsonality of financial ratios and find out that long-stablishd corporation maintain gratr liquidity and solvncy ratios. Gombola and Ktz (1983) found that th fund and incom statmnt ar producd for diffrnt purpos and profitability ratios did not has th information that cash flow ratios provid. In othr words both ratios gav important as wll as diffrnt information from on and othr. In 1940s many nations xprssd intrst in ratio analysis. Currnt ratio has usd in crdit managmnt in Australia aftr intns scrutiny. In ngland data has collctd from diffrnt organization and sort in pyramid in ordr to usd that data in ratio analysis so that dcision mad on mor rational basis. In othr wards British mthod is mor managmnt orintd than Amrican systm that is crdit orintd. Indian and Canadian systm is similar to Amrican systm and sam kind of ratios and critria has bn usd. In Japan data is availabl in grouping
52

on th basis of industry and sizs of firms. China and Russia usd svral ratios as control masur in invstmnt and working capital. mpirical analysis of financial ratios: Pinchs and Mingo (1973) valuat th structur of ratios and found that ratios can b dividd into diffrnt groups. Prsnt gnral classification of financial ratios on logical basis. Rsults concludd that th ratios can b dividd into four groups that ar financial lvrag, short-trm capital intnsivnss, rturn on invstmnt and long-trm capital intnsivnss. Stvns (1973) also studis th topic of ratio classification and groupd th financial ratios in four catgoris that includ activity, liquidity, lvrag and profitability. Pinchs, Mingo, and Caruthrs (1973) and Pinchs, ubank, Mingo, and Caruthrs (1975) carry on furthr workd on this subjct and catgorizd th financial ratios in svn factors that includ rcivabl turnovr, capital turnovr, short-trm liquidity, rturn on invstmnt, invntory turnovr, financial lvrag and cash position. Libby (1975) also studis th division of financial ratios and condnss that division from svn to fiv. Fiv divisions includ liquidity, activity, cash position, profitability and assts balanc. Johnson (1979) furthr studis th rsarch of Pinchs (1973) and addd anothr factor that is dcomposition masur into svn factors. Twlv diffrnt factors or division of financial ratios ar prsntd in fiv diffrnt studis. On th basis of fiv publishd studis assortmnt of financial ratios ar vry tim consuming bcaus th rsults of publishd studis was vry divrs. Chn and Shimrda (1999) dply xamind fiv publishd studis and find out that som of th twlv factors that has bn prsntd in th studis has sam and simply nam is changd. Thrfor, twlv factors ar groupd into svn factors. Svn factors ar cash position, financial lvrag, invntory turnovr, short-trm liquidity, rturn on invstmnt, rcivabl turnovr and capital turnovr.
53

CHAPTR 4 FINDINGS & ANALYSIS

54

Projct Proposal
Financial Analysis of Indian Oil Corporation Limitd and DFR on Proposal for Invstmnt Approval of Branch Piplin from Barauni-Kanpur Piplin to Motihari and Baitalpur for lvraging th transportation tariff.

Brif Dscription of th Proposal

Financial (Ratio) Analysis Financial analysis rfrs to an assssmnt of th viability, stability and profitability of a businss, sub-businss or projct. Profssionals who prpar rports using ratios that mak us of information takn from financial statmnts and othr rports prform it. Ths rports ar usually prsntd to top managmnt as on of thir bass in making businss dcisions. Basd on ths rports, managmnt may: Continu or discontinu its main opration or part of its businss; Mak or purchas crtain matrials in th manufactur of its product; Acquir or rnt/las crtain machinris and quipmnts in th production of its goods; Othr dcisions that allow managmnt to mak an informd slction on various altrnativs in th conduct of its businss. Financial analysts oftn asss th firms on: Profitability- its ability to arn incom and sustain growth in both short-trm and longtrm.

55

Solvncy- its ability to pay its obligation to crditors and othr third partis in th long trm;

Liquidity- its ability to maintain positiv cash flow, whil satisfying immdiat obligations; Solvncy & Liquidity ar basd on th companys balanc sht, which indicats th financial condition of a businss at givn point of tim. Lvrag- Any ratio usd to calculat financial lvrag of a company to gt an ida of th companys mthods of financing or to masur its ability to mt financial obligations. It also givs an ida of how changs in output will affct oprating incom. DU PONT- analysis shows that th profitability dpnds not only on th profit margin but also on how fficintly th firm has usd its assts to gnrat sals. Dbt financing and Growth- It is th maximum growth rat that can b achivd with no xtrnal financing whil taking into considration th dbt quity ratio. Markt tst ratios- It rlats th firms stock pric to its arnings and book valu pr shar.

56

FINANCIAL ANALYSIS OF INDIAN OIL CORPORATION LIMITD

IMPORTANC OF FINANCIAL ANALYSIS

A basic limitation of th traditional financial statmnts comprising th balanc sht and th profit and loss account is that thy do not giv all th information rlatd to th financial oprations of a firm. Nvrthlss, thy provid som xtrmly usful information to th xtnt that th balanc sht mirrors th financial position on a particular dat in trms of th structur of assts, liabilitis and ownrs quity, and so on and th profit and loss account shows th rsults of oprations during a crtain priod of tim in trms of th rvnus obtaind and th cost incurrd during th yar. Thus, th financial statmnts provid a summarizd viw of th financial position and oprations of a firm. Thrfor, much can b larnt about a firm from a carful xamination of its financial statmnts as invaluabl documnts/prformanc rports. Th analysis of financial statmnts is, thus, an important aid to financial analysis. Th focus of th financial analysis is on ky figurs in th financial statmnts and th significant rlationship that xists btwn thm. Th analysis of financial statmnts is a procss of valuating th rlationship btwn componnt parts of financial statmnts to obtain a bttr undrstanding of th firms position and prformanc. Th first task of th financial analyst is to slct th information rlvant to th dcision undr considration from th total information containd in th financial statmnts. Th scond stp is to arrang th information in a way to highlight significant rlationships. Th final stp is th intrprtation and drawing of infrncs and conclusions. In brif, financial analysis is th procss of slction, rlation and valuation.

57

Ratio Analysis: It is important whn xamining a st of financial statmnts and using ratio analysis to rlat thm to rfrnc points or standards. Ths points of rfrnc might b to: stablish trnds from past yars, so providing a standard of comparison compar against othr businsss in th sam industry compar with standards assumd to b satisfactory by th intrstd party, .g. a bank Abov all, it is important to undrstand th rlationships btwn ratios: on ratio may giv an indication of th stat of th businss but, bfor drawing conclusions, this nds to b supportd by othr ratios. Ratios can highlight symptoms, but th caus will thn nd to b invstigatd. Anothr us of ratios is to stimat th likly futur profit or balanc sht of a businss. For xampl, it might b assumd that th sam gross profit prcntag as last yar will also apply nxt yar; thus, givn an stimatd incras in sals rvnu, it is a simpl mattr to stimat gross profit. In a similar way, by making us of ratios, nt profit (profit bfor tax) and th balanc sht can b forcast.

58

Ratio Analysis of IOCL

Particulars Liquidity ratio: Currnt ratio Liquid ratio Dfnsiv Intrval Ratio Activity Ratio: Invntory turnovr ratio Dbtors turnovr ratio Crditors turnovr ratio Assts turnovr ratio Capital turnovr ratio Lvrag ratio: Dbt-quity ratio Total dbt ratio Propritary ratio Intrst covrag ratio Financial lvrag ratio Profitability ratio: Gross profit ratio Oprating profit ratio Nt profit ratio Rturn on capital mployd Rturn on quity Rturn on Assts arnings pr shar Dividnd pr shar Dividnd Payout Ratio Cash profit ratio xpns ratio Du Pont analysis arning Powr Rturn on quity Dbt- financing growth Intrnal growth rat Sustainabl growth rat Markt tst ratio Dividnd-yild ratio arning-yild ratio

2008-09 0.96 0.64 72.62 16.00 41.18 6.34 2.74 3.47 1.02 0.64 0.36 2.10 1.91 0.04 0.03 0.01 0.15 0.07 0.03 24.74 8.93 0.36 0.02 1.16 0.02 0.07 0.02 0.04 0.039 0.128

2009-10 0.92 0.49 67.39 13.24 42.48 6.00 2.28 2.93 0.88 0.61 0.39 10.24 1.11 0.08 0.06 0.04 0.10 0.20 0.09 42.10 15.10 0.36 0.05 1.06 0.08 0.20 0.05 0.11 0.044 0.142

2010-11 0.87 0.44 63.88 12.79 41.31 5.97 2.20 3.42 0.95 0.66 0.34 4.41 1.29 0.05 0.04 0.02 0.18 0.13 0.05 30.67 10.98 0.36 0.04 1.08 0.05 0.13 0.03 0.08 0.028 0.092

2011-12 1.01 0.54 62.76 9.18 42.68 5.39 2.38 4.62 1.30 0.77 0.23 3.05 4.54 0.05 0.04 0.01 0.20 0.07 0.04 16.29 5.80 0.36 0.02 0.98 0.02 0.07 0.02 0.04 0.019 0.062

2012-13 1.03 0.56 58.37 7.39 42.53 6.57 2.37 5.68 1.32 0.77 0.23 1.88 2.13 0.04 0.03 0.01 0.25 0.08 0.08 20.62 7.25 0.35 0.02 1.00 0.02 0.08 0.05 0.05 0.022 0.073

59

Liquidity Ratios:
Th importanc of adquat liquidity in th sns of th ability of a firm to mt currnt/shorttrm obligations whn thy bcom du for paymnt can hardly b ovrstrssd. In fact, liquidity is th prrquisit for th vry survival of a firm. Th short-trm crditors of th firm ar intrstd in th short trm solvncy or liquidity of a firm. But liquidity implis, from th viwpoint of utilization of th funds of th firm that funds ar idl or thy arn vry littl. A propr balanc btwn th two contradictory rquirmnts, that is, liquidity and profitability, is rquird for fficint financial managmnt. Th Liquidity Ratios masur th ability of a firm to mt its short-trm obligations and rflct th short trm financial strngth/solvncy of a firm. Th ratios which indicat th liquidity of a firm ar: 1. Currnt ratios 2. Acid tst/ quick ratios 3. Dfnsiv Intrval ratios Currnt Ratio: Th currnt ratio is th ratio of total currnt assts to total currnt liabilitis. It is calculatd by dividing currnt assts to currnt liabilitis. Th total currnt assts includ thos assts which ar in th form of cash, nar cash or convrtibl into cash within a priod of 1 yar. Th trm currnt assts also includ prpaid xpnss and short trm invstmnts, if any. Th currnt liabilitis includ all typs of liabilitis which will matur for paymnt within a priod of 1yar .g. bank ovrdraft, bills payabl, trad crditors, outstanding xpnss t.c. Th currnt ratio throws light on th firms ability to pay its currnt liabilitis out of its currnt assts.

60

IOCL Currnt Ratio Analysis:

Yar 200809 200910 201011 201112 201213

Currnt Assts (A)

Currnt Ratio Currnt (**) Liabilitis (G) = (B) (A) / (B) 0.96 0.92

76767.32 80330.04 81759.05 89318.01

102565.9 118348.01 0.87 121001.6 119825.93 1.01 128298.6 124133.67 1.03

Current ratio
1.05 1 0.95 0.9 0.85 0.8 0.75 2008-09 2009-10 2010-11 2011-12 2012-13 0.96 0.92 0.87 1.01 1.03

Intrprtation: Currnt Ratio of IOCL has bn clos to 1 most of th tims for th last 3 yars, indicating th inability of th IOCL to mt its short trm obligations. Gnrally, a currnt ratio of 2:1 is considrd to b th minimum rquird ratio for a firm to b dclard liquid. So, from that point of viw, IOCL is suffring from a srious liquidity crunch. Top Managmnt nds to work upon this issu. So, Th ratio signifis that IOCL is inadquatly liquid from th point of viw of its ability to always satisfy th claims of th short-trm crditors. A slight dclin in th valu of th
61

currnt assts will advrsly affct th ability of IOCL to mt its obligations; thrfor, from th viwpoint of th crditors, IOCL is a mor risky vntur.

Acid-Tst/Quick Ratio: On dfct of th Currnt Ratio is that it fails to convy any information on th composition of th currnt assts of a firm. A rup of cash is considrd quivalnt to a rup of invntory or rcivabls. But it is not so. A rup of cash is mor radily availabl to mt currnt obligations than a rup of invntory. This impairs th usfulnss of th currnt ratio. Th acid-tst ratio is a masur of liquidity dsignd to ovrcom this dfct of th currnt ratio. It is oftn rfrrd to as quick ratio bcaus it is a masurmnt of a firms ability to convrt its currnt assts quickly into cash on ordr to mt its currnt liabilitis. Thus, it is a masur of quick or acid liquidity. Th acid-tst ratio is th ratio btwn quick currnt assts and currnt liabilitis and is calculatd by dividing th quick assts by currnt liabilitis. Acid tst ratio = Quick Assts Currnt Liabilitis Th trm Quick assts rfrs to currnt assts which can b convrtd into cash immdiatly or at a short notic without diminution of valu. Includd in this catgory of currnt assts ar cash and bank balanc, short-trm marktabl scuritis and dbtors/rcivabls. Thus, th currnt assts which ar xcludd ar: prpaid xpnss and invntory. Th xclusion of invntory is basd on th rasoning that it is not radily and asily convrtibl in to cash. Prpaid xpnss by thir vry natur ar not availabl to pay off currnt dbts. Thy mrly rduc th amount of cash rquird in on priod bcaus of paymnt in a prior priod.

62

IOCL Quick Ratio Analysis: Quick Ratio (@) (I) = (H) / (B) 0.64 0.49 0.44 0.54 0.56

Yar 200809 200910 201011 201112 201213

Currnt Assts (A) 76767.32 81759.05

Currnt Liabilitis Invntoris (B) (C) 80330.04 89318.01 25149.6 36404.08 49284.52 55829.2 59314.39

Prpaid xpnss (D) 0 1262.76 1483.72 0 0

Liquid Assts (H) = (A) - (C) (D) 51617.72 44092.21 51797.7 65172.36 68984.21

102565.9 118348.01 121001.6 119825.93 128298.6 124133.67

Quick Ratio dpicts th following trnd:

Liquid ratio
0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2008-09 2009-10 2010-11 2011-12 2012-13 0.64 0.49 0.54 0.44 0.56

63

Intrprtation: Th acid-tst ratio masurs th ability to srvic short-trm liabilitis of IOCL. Gnrally, an acid-tst ratio of 1:1 is considrd satisfactory as a firm can asily mt all currnt claims. But th Quick Ratio of IOCL has nvr bn abl to touch th targt point of 1:1, indicating th liquidity crunch for th firm. So, lik Currnt Ratio, Quick Ratio trnd dpicts th sam thing that IOCL is suffring from liquidity and th managmnt nds to tak corrctiv actions immdiatly to rtain th trust of thir crditors.

Dfnsiv Intrval Ratio: Th ratios discussd till now throw light on th ability of th firm to pay its currnt liabilitis. Apart from paying th currnt liabilitis th liquidity position of a firm should also b xamind from in rlation to its ability to mt projctd daily xpnditur from oprations. Th dfnsivintrval ratio provids such a masur of liquidity. It is a ratio btwn th quick/liquid assts and th projctd daily cash rquirmnts. Dfnsiv Intrval Ratio = Liquid Assts Projctd Daily Cash Rquirmnt Th projctd cash oprating xpnditur is basd on past xpnditurs and futur plans. It is quivalnt to th cost of goods sold xcluding dprciation, plus slling and administrativ xpnss and othr ordinary cash xpnss. Liquid assts includ currnt assts xcluding invntory and prpaid xpnss. Th dfnsiv intrval ratio masurs th tim span a firm can oprat on prsnt liquid assts. IOCL Dfnsiv Intrval Ratio Analysis: Slling and Administ Othr Dprici rativ Cash ation xpnss xpns () (f) s (g) 2881.7 251335.42 1 10709.66 267.76 3227.1 230399.35 4 11386.06 253.86 286618.37 4567.0 13378.79 555.25 Cost of Good Sold (d) = (b) (c)
64

Yar 200809 200910 2010-

Liquid Assts (a) = (H) 51617.7 2 44092.2 1 51797.7

Nt Sals (b) 262654.4 2 249271.3 5 302954.3

Gross Profit (c) 11319 18872 16336

Projctd daily cash rquirmt (h) = (d) () +(f) + (g) 710.77 654.28 810.92

DIR ($) (i) = (a) / (h) 72.62 67.39 63.88

11 201112 201213

65172.3 6 68984.2 1

7 396793.0 7 446120.4

1 21600 17257 375193.07 428862.51 4542.4 5219.8 6321.11 5396.76 2055.4 2337.41 1038.43 1181.85 62.76 58.37

defensive interval ratio

80 70 60 50 40 defensive interval ratio 30 20 10 0 2008-09 2009-10 2010-11 2011-12 2012-13 72.62 67.39 63.88 62.76 58.37

Intrprtation: Th figurs of th Dfnsiv Intrval Ratio of IOCL masurs its capacity to mt immdiat cash rquirmnts without rsorting to sals or othr sourcs i.., th tim lag for which IOCL can oprat without rsorting to th sals rcipts. Th Dfnsiv Intrval Ratio of 72.62 in th yar 2008-09 indicats that IOCL has th liquid assts which can mt th oprating cash rquirmnts of businss for 72 days without rsorting to futur rvnus. Similarly, th othr DIRs tlls us th numbr of days for which IOCL can oprat on its liquid assts to mt th cash rquirmnts.

65

Conclusion: To conclud th discussion of liquidity ratios, th short-trm solvncy of th firm Indian Oil Corporation Limitd (IOCL) dos not sms to b good according to th various ratios calculatd. IOCL was nvr abl to achiv th targt valu of a particular ratio ovr a tim span of last 4 to 5 yars. So, this is a mattr of srious concrn to th managmnt and crditors of IOCL.

Activity Ratios:
Funds ar invstd in various assts in businss to mak sals and arn profits. Th fficincy with which assts ar managd dirctly affcts th volum of th sals. Th bttr th managmnt of assts, th largr is th amount of sals and th profits. Activity ratios masur th fficincy or ffctivnss with which a firm manags its rsourcs or assts. Ths ratios ar also calld Turnovr Ratios bcaus thy indicat th spd with which assts ar convrtd or turnd ovr into sals. Th currnt ratio or acid tst ratio givs mislading rsults if currnt assts includ high amount of dbtors du to slow crdit collctions. In th sam mannr, currnt ratio may b furthr mislading if th assts includ high amount of slow moving invntoris as both ths ratios ignor th movmnt of currnt assts, it is important to calculat th following turnovr or fficincy ratios to commnt upon th liquidity or th fficincy with which th liquid rsourcs ar bing usd by a firm. Invntory Turnovr Ratio: vry firm has to maintain a crtain lvl of invntory of finishd goods so as to b abl to mt th rquirmnts of th businss. But th lvl of th invntory should not b too high or too low. Invntory turnovr ratio is also known as stock vlocity. It indicats whthr invntory has bn fficintly usd or not. It indicats th no. of tims th stock has bn turnd ovr during th priod and valuats th fficincy with which a firm is abl to manag its invntory.
66

Dbtors Turnovr Ratio: Dbtors turnovr ratio indicats th vlocity of dbt collction of th firm. In simpl words, it indicats th no. of tims th avrag dbtors (rcivabls) ar turnd ovr during a yar. Crditors Turnovr Ratio: This ratio shows th vlocity of dbt paymnt by th firm. IOCL Turnovr Ratios Analysis: Cost of Goods Sold (C) = (A) - (B) 251335.42 230399.35 286618.37 375193.07 Avrag Invntory (F) = [(D) + ()] / 2 15711.96 17396.805 22405.395 40860.435 58072.01 Invntory Turnovr Ratio (*) (G) = (C) / (F) 16.00 13.24 12.79 9.18 7.39 Days for Invntory Holding (**) (H) 22.82 27.56 28.53 39.75 49.42

Yar 200809 200910 201011 201112 201213

Nt Sals (A) 262654.42 249271.35 302954.37 396793.07 446120.4

Gross Profit (B) 11319 18872 16336 21600

Opning Stock (D) 16549.24 14874.68 19918.93 24891.86 56829.01

Closing Stock () 14874.68 19918.93 24891.86 56829.01 59315.01

17257.89 428862.51

Yar 200809 200910 201011 201112

Nt Purchas (1) 131482.60 123704.72 150484.12 154093.5

Opning Crditors (2) 20973.91 20519.51 20719.03 29661.76

Closing Crditors (3) 20519.51 20719.03 29661.76 27520.75

Avrag Crditors (4) = [(2) +(3)] /2 20746.71 20619.27 25190.395 28591.255

Crditors Tunovr Ratio ($) (5) =(1) / (4) 6.34 6.00 5.97 5.39

Avrag Paymnt Priod (&) (6) = 365 / (5) 57.59 60.84 61.10 67.72

67

201213

188182.2

27520.75

29729.91

28625.33

6.57 Dbtors Tunovr Ratio (@) () =(a) / (d) 41.18 42.48 41.31 42.68 42.53

55.52 Avrag Collction Priod (#) (f) = 365 / () 8.86 8.59 8.84 8.55 8.58

Yar 2008-09 2009-10 2010-11 2011-12 2012-13

Nt Sals (a) 262654.42 249271.35 302954.37 396793.07 446120.41

Opning Dbtors (b) 6819.23 5937.86 5799.28 8869.65 9725.47

Closing Dbtors (c) 5937.86 5799.28 8869.65 9725.47 11254.78

Avrag Dbtors (d) = [(b) +(c)] / 2 6378.55 5868.57 7334.47 9297.56 10490.13

45 40 35 30 25 20 15 10 5 0

41.18

42.48

41.31

42.68

42.53

Inventory Turnover ratio 16 13.24 6.34 6 12.79 9.18 5.97 5.39 7.39 6.57 Debtors Turnover ratio Creditors Turnover ratio

2008-09

2009-10

2010-11

2011-12

2012-13

68

Intrprtation: ITR indicats that IOCL has bn facing a problm in convrting its invntory into sals from th past 4-5 yars as th ITR has shown a continuous dcras ovr this priod. It dirctly affcts th liquidity of th firm. Whn a firm is not abl to convrt its invntory into sals, its liquidity is surly going to b affctd. So, as indicatd by th liquidity ratios, th invntory turnovr ratio also concluds that th liquidity of IOCL is not vry sound and its top managmnt nds to tak corrctiv actions to improv it. DTR ratio shows a good thing for IOCL i.. its vlocity of rcivabls collction has incrasd ovr a span of tim. It shows how fficintly and ffctivly th top managmnt of IOCL has managd its dbtors. CTR ratio shows that IOCL is not vry fast in paying to its crditors. This is an anothr good sign of IOCLs Top Managmnt fficincy. Som othr trnds dpicting th activity ratios of IOCL ar as follows:

Asst turnovr ratio: Asst turnovr ratio is th ratio of a company's sals to its assts. It is an fficincy ratio which tlls how succssfully th company is using its assts to gnrat rvnu. Capital turnovr ratio: Masurs th sals mad pr rup of th capital mployd in th firm. Highr is th ratio, highr is th profit. Avrag Tangibl Assts (D) = [(B) + (C)] / 2 95887.385 109452.545 137474.15 166545.825 Assts Turnovr Ratio (**) () = (A) / (D) 2.74 2.28 2.20 2.38

Yar 200809 200910 201011 201112

Nt Sals (A) 262654.4 249271.4 302954.4 396793.1

Opning Tangibl Assts (*) (B) 94660.08 97114.69 121790.4 153157.9

Closing Tangibl Assts (*) (C) 97114.69 121790.4 153157.9 179933.75

69

201213

446120.4

188255.71 Opning stock of Capital mployd (@) (b) 61542.2 89661.9 80486.5 96750.5 74942.5

188122.02 Closing Stock of Capital mployd (@) (c) 89661.9 80486.5 96750.5 74942.5 82223.1

188188.865

2.37

Yar 200809 200910 201011 201112 201213

Nt Sals (a) 262654.4 249271.4 302954.4 396793.1 446120.4

Avrag Capital mployd (d) = [(b) + (c)] /2 75602.05 85074.20 88618.50 85846.50 78582.80

Capital Turnovr Ratio (#) () = (a) / (d) 3.47 2.93 3.42 4.62 5.68

6 5 4 3 2 1 0 2008-09 2009-10 2010-11 2011-12

5.68

4.62

3.47 2.74 2.93 2.28 2.2

3.42 Assets Turnover ratio 2.37 Capital Turnover ratio

2.38

2012-13

Intrprtation : Asst turnovr ratio whn compard to last fiv yars , givs th highst turnovr in th yar 2008-09 which is showing a positiv impact as it is an fficincy ratio which tlls how
70

succssfully th company is using its assts to gnrat rvnu, thn it is going on dcrasing for nxt two yars and thn in th yar 2012-13 it is raching th point 2.37. Whil doing th intrprtation for Capital turnovr ratio , it is showing a positiv signal as it has incrasd from 3.47 tims in 2008-09 to 5.68 tims in 2012-13 thus this mans it is making mor sals pr rup of th capital mployd in th firm which is a sign of bttr profitability.

Lvrag Ratios:
Th long trm lndrs/crditors would judg th soundnss of a firm on th basis of th longtrm financial strngth masurd in trms of its ability to pay th intrst rgularly as wll as rpay th installmnt of th principal on du dats or in on lump sum at th tim of maturity. Th long-trm solvncy of a firm can b xamind by using lvrag or capital structur ratios. Th lvrag ratios may b dfind as financial ratios which throw light on th long trm solvncy of a firm as rflctd in its ability to assur th long-trm lndrs with rgard to priodic paymnt of intrst during th priod of th loan and Rpaymnt of principal on maturity or in prdtrmind installmnts at du dats.

Dbt-quity Ratio: Th D Ratio is th basic and th most common masur of studying th indbtdnss of th firm. Th D Ratio is basd on th assumption that th xtnt to which th firm should mploy th dbt should b viwd in trms of th siz of th cushion providd by th sharholdrs funds.

71

Th D Ratio is calculatd by comparing th total dbts with th total sharholdrs funds as follows: Dbt quity Ratio = Total Dbt Sharholdr s quity Total Dbt includ th long trm loans and th currnt liabilitis, and th trm sharholdrs quity includ th quity shar capital, th prfrnc shar capital and all accumulatd rsrvs and surplus. Total Dbt Ratio: Th TD Ratio compars th total dbts (long trm as wll as short trm) with th total assts. It is computd as follows: Total Dbt Ratio = Total Dbts Total Assts Propritory Ratio: It stablishs th rlationship btwn th sharholdrs funds to total assts of th firm.

Yar 200809 200910 201011 201112 201213

Long Trm Dbt (A) 44,972. 06 44,566. 25 52,733. 87 75,447. 10 80,894. 01

Currnt Liabiliti s (B) 32754.58 34480.17 52549.94 119825.9 3 124133.6 7

Total Dbt (C) = (A) + (B) 77,726.6 4 79,046.4 2 105,283. 81 195,273. 03 205,027. 68

SC (Rs.10 ach) (D) 1,213. 97 2,427. 95 2,427. 95 2,427. 95 2,427. 95

Rsrv s& Surplus () 42,784.2 1 48,124.9 8 52,904.3 7 55,448.7 5 58,696.3 6

Nt Worth (F) = (D) + () 43,998. 18 50,552. 93 55,332. 32 57,876. 70 61,124. 31

Proprit Total ory Total DbtRati Ratio Assts o (** ) (@) (G) = (H) = (C) (I) = (F) (C) + (F) / (G) / (G) 121,724. 82 0.64 0.36 129,599. 35 0.61 0.39 160,616. 13 0.66 0.34 253,149. 73 0.77 0.23 266,151. 99 0.77 0.23

72

1.4 1.2 1.02 1 0.8 0.64 0.6 0.4 0.2 0 2008-09 2009-10 2010-11 0.36 0.39 0.34 0.61 0.66 0.95 0.88

1.3

1.32

0.77

0.77 Debt-equity ratio Total Debt ratio Proprietary ratio

0.23

0.23

2011-12

2012-13

Intrprtation: Dbt quity ratio Whn compard to its prvious yar, IOCL is now mor subjctd to financial risk and dpnds mor on financial risk. Furthr now IOCL has mor crditors and obligors mony in businss than its sharholdrs. A ratio of 1:1 is usually considrd to b satisfactory. Total Dbt ratio -A dbt ratio of gratr than 1 indicats that a company has mor dbt than assts, manwhil, a dbt ratio of lss than 1 indicats that a company has mor assts than dbt. Propritary ratio-Thus, sharholdrs hav contributd 23% of all funds usd in th businss, with crditors contributing th rmaining 77% of funds in 2013. Highr th ratio, bttr is th long trm solvncy position of th company.

Intrst Covrag Ratio: This ratio is also calld th tims intrst arnd ratio and it masurs th ability of th firm to pay th fixd intrst liability. Th ratio may b calculatd as follows: IC Ratio = BIT Intrst It masurs as to how many tims th intrst liability of th firm is covrd with th oprating profits of th firm.
73

Financial Lvrag Ratio: Th trm financial lvrag rfrs to th us of fixd charg scuritis such as dbnturs and th variabl charg scuritis such as quity shars in th capital structur to financ th total assts of th firm. So, th financial lvrag rfrs to th prsnc of fixd charg (in th form of intrst) in th incom statmnt of th firm. Th fixd charg is fixd in amount and do not vary with th chang in th BIT, whras th rturn availabl to th quity sharholdrs, which is a rsidual balanc, is affctd by th chang in BIT. Th Financial Lvrag Ratio masurs th rlationship btwn BIT and BT and is calculatd as follows: FL Ratio = BIT BT

Yar 200809 200910 201011 201112 201213

PBIT (A) 8,280.73 15,632.55 11,765.69 17,058.00 12,056.59

Intrst (B) 3,952.14 1,526.46 2,669.83 5,596.11 6,408.79

Intrst Covrag Ratio (#) (C) = (A) / (B) 2.10 10.24 4.41 3.05 1.88

PBT (D) 4,328.59 14,106.09 9,095.86 3,754.31 5,647.80

Financial Lvrag Ratio ($) () = (A) / (D) 1.91 1.11 1.29 4.54 2.13

74

12 10.24 10 8 6 4.41 4 2 0 2008-09 2009-10 2010-11 2011-12 2012-13 2.1 1.91 1.11 1.29 4.54 3.05 1.88 2.13

Interest coverage ratio Financial coverage ratio

Intrprtation: ICR- It can b sn that ICR of IOCL in 2009 was 2.10 which incrasd to 10.24(Highst) in 2010.This thn kpt dcrasing thraftr. Sinc ICR was lowst in 2013.Hnc Compard to prvious yars, IOCL was mor burdnd with dbt xpns in this Financial Yar. Highr th ratio, mor saf ar th long trm crditors . FCR- It can b sn that ICR of IOCL in 2009 was 1.91.It dcrasd to 1.11 in 2010, incrasd to 1.29 in 2011 again incrasd to 4.54(Highst) in 2012 and thn dcrasd to 2.13 in 2013. Financial Lvrag Ratio tlls about th xtnt of chang in PBT as a rsult of chang in PBIT.

Profitability Ratios:
Th profitability ratios masur th profitability of th oprational fficincy of th firm. Thr ar two groups of prsons who may b spcifically intrstd in th analysis of th profitability of th firm. Ths ar: Th managmnt which is intrstd in th ovrall profitability and th oprational fficincy of th firm and

75

Th quity sharholdrs who ar intrstd in th ultimat rturns availabl to thm. Both of ths partis and any othr party such as crditors can masur th profitability of th firm in trms of th P ratios. Diffrnt P Ratios hav bn suggstd to assss th profitability of th firm from diffrnt angls. Th prformanc of th firm can b valuatd in trms of its arnings with rfrnc to a givn lvl of assts or sals or ownr intrst t.c. Broadly, P Ratios ar calculatd by rlating th rturns with th Sals of th firm Assts of th firm Th ownrs contribution

Profitability Ratios basd on th Sals of th Firm: Ths ratios ar basd on th prmis that a firm should arn sufficint profit on ach rup of sals. If adquat profits ar not arnd on sals, thr will b difficulty in mting th oprating xpnss and no rturns will b availabl to th ownrs. Ths ratios consist of Gross Profit ratio Oprating profit ratio Nt Profit ratio

Gross Profit Ratio: Th GP Ratio is also calld th avrag mark up ratio. It is calculatd by comparing th gross profit of th firm with th nt sals as follows: GP Ratio = Gross Profit Nt Sals Nt Profit Ratio: It masurs th rlationship btwn nt profits and sals of a firm. Nt Profit ratio = PAT Nt Sals

76

Oprating Profit Ratio: Th oprating profit rfrs to th profit gnratd by th opration of th firm and hnc is calculatd by considring any financial charg tc. OP Ratio = BIT Nt Sals Gross Profit Ratio (*) (C) = (A) / (B) 0.04 0.08 0.05 0.05 0.04 Oprating Profit Ratio (**) () = (D) / (B) 0.03 0.06 0.04 0.04 0.03

Yar 200809 200910 201011 201112 201213

Gross Profit (A)

Nt Sals (B)

PBIT (D) 8,280.73 15,632.55 11,765.69 17,058.00 12,056.59

PAT (F) 2,949.55 10,220.55 7,445.48 3,954.62 5,005.17

Nt Profit Ratio(@) (G) = (F) / (B) 0.01 0.04 0.02 0.01 0.01

11,319.00 262,654.42 18,872.00 249,271.35 16,336.00 302,954.37 21,600.00 396,793.07 17,257.89 446,120.40

9.00% 8.00% 8.00% 7.00% 6.00% 6.00% 5.00% 5.00% 4.00% 4.00% 3.00% 3.00% 2.00% 2.00% 1.00% 1.00% 0.00% 2008-09 2009-10 2010-11 2011-12 2012-13 1.00% 1.00% 3.00% 4.00% 4.00% 4.00% 4.00% 5.00% Gross profit Operating profit Net profit

77

Intrprtation Gross Profit Ratio: Th FY 20121-13 has littl bit lowr prcntag of Gross profit ratio as compard to prvious yars which is not a good indicator as this ratio indicats th margin lft aftr mting manufacturing costs. So, it is to b highr. GPR in th FY 2009-10 was approx. 8% which was a positiv signal from companys point of viw. Nt Profit Ratio:As this ratio shows th arning lft for sharholdrs as prcntag of nt sals and also masurs th fficincy of th managmnt in gnrating additional rvnus ovr and abov th total cost of oprations. Thus Highr th ratio, bttr is th profitability. As NPR of IOCL for th last fiv yars lis btwn 1% to 4% and was highst in th FY 2009-10 but it has kp on dcrasing yar aftr yar which is not showing th sound profitability. Oprating Profit Ratio: Oprating Profit (OP) Ratio shows th pur profit arnd on vry 1 rup of sals mad. Thus a highr valu of oprating margin ratio is favorabl which indicats that mor proportion of rvnu is convrtd to oprating incom. But in IOCL Oprating Profit Ratio is dclining from 6% to 3% from th yar 2010 to 2013 which is not favourabl for th company.

Rturn on Assts Ratio: Th ROA masurs th profitability of th firm in trms of assts mployd in th firm. Th ROA is calculatd by stablishing th rlationship btwn th profits and th assts mployd to arn that profit. ROA = PAT Total Assts

78

Rturn on Capital mployd Ratio: Th profitability of th firm can also b analyzd from th point of viw of th total funds mployd in th firm. Th trm funds mployd or th capital mployd rfrs to th total long trm sourcs of funds. Th capital mployd compriss of sharholdrs funds plus long trm dbts. RC = BIT Avrag Capital mployd

Rturn on quity Ratio: Th RO xamins profitability from th prspctiv of th quity invstors by rlating profits availabl for th quity sharholdrs with th book valu of th quity invstmnt. RO = PAT Prfrnc Dividnd quity Sharholdr s Funds

Yar 200809 200910 201011 201112 201213

PAT (a) 2,949.55

Opning Tangibl Assts (b) 94660.08

Closing Tangibl Assts (c) 97114.69 121790.4 153157.9 58932.29 59823.45

Avrag Tangibl Assts (d) = [(b) + (c)] / 2 95887.385 109452.545 137474.15 106045.095 59377.87

Rturn on Assts (#) () = (a) / (d) 0.03 0.09 0.05 0.04 0.08

PBIT (f) 11,631.64 8,280.73 15,632.55 17,058.00 12,056.59

Opning stock of Capital mployd (g) 61542.2 89661.9 80486.5 96750.5 74942.5

10,220.55 97114.69 7,445.48 3,954.62 5,005.17 121790.4 153157.9 58932.29

79

Yar 2008-09 2009-10 2010-11 2011-12 2012-13

Closing Stock of Capital mployd (h) 89661.9 80486.5 96750.5 74942.5 82223.1

Avrag Capital mployd (i) = [(g) + (h)] / 2 75602.05 85074.2 88618.5 85846.5 78582.8

Rturn on Capital mployd ($) (j) = (f) / (i) 0.15 0.10 0.18 0.20 0.15

Nt worth (k) 43,998.18 50,552.93 55,332.32 57,876.70 61,124.31

Rturn on quity (&) (l) = (a) / (k) 0.07 0.20 0.13 0.07 0.08

30.00% 25.00% 25.00% 20.00% 20.00% 15.00% 15.00% 10.00% 5.00% 0.00% 2008-09 2009-10 2010-11 2011-12 2012-13 10.00% 9.00% 7.00% 5.00% 3.00% 4.00% 10.00% 8.00% 8.00% 13.00% 18.00% Return on assets Return on capital employed Return on equity 20.00%

Intrprtation Rturn on Assts (ROA) shows how much profit is arnd pr rup of assts usd. Highr th ROA, highr is th profitability. Hnc, ROA in 2013 is much highr than its prvious yar.

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Rturn on capital mployd - ROC masurmnt is a comprhnsiv profitability indicator bcaus it gaugs managmnt's ability to gnrat arnings from a company's total pool of capital. Hnc IOCL was mor profitabl in 2013. Rturn on quity - Invstors rcivd th bst rturn on thir invstmnt from IOCL 2010 but compard to prvious yars, IOCL has bn lss profitabl and infficint in utilizing its quity bas proprly.

Othr Charts dpicting th profitability of IOCL ar: No. of quity Shars Issud (2) 119.23 242.79 242.79 242.79 242.79

Yar 200809 200910 201011 201112 201213

PAT (1) 2,949.55 10,220.55 7,445.48 3,954.62 5,005.17

PS (3) = (1) / (2) 24.74 42.10 30.67 16.29 20.62

Div. + Div. Tax (4) 1,065.22 3,665.17 2,665.25 1,408.41 1,760.83

DPS (5) = (4) / (2) 8.93 15.10 10.98 5.80 7.25

DP Ratio (6) = (5) / (3) 0.36 0.36 0.36 0.36 0.35

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45 40 35 30 25 20 15 10 5 0 2008-09 2009-10 2010-11 2011-12 2012-13 Earning per share Dividend per share

Intrprtation PS - IOCL arnings wr mor in FY Mar10 for ach shar issud but compard to prvious yars, IOCL arnings pr shar issud has dcrasd significantly. DPS - Hnc IOCL paid mor dividnds to its sharholdrs for ach shar issud in FY Mar10 and compard to prvious yars IOCL is paying fwr dividnds now. xpns Ratio (^^) (G) = (F) / (A) 1.16 1.06 1.08 0.98 1.00

Yar 200809 200910 201011 201112 201213

Nt Sals (A) 262,654.42

PAT (B) 2,949.55

Dpriciation Cash Profit (C) (D) = (A) + (B) 2,881.71 3,227.14 4,567.01 4,542.40 5,219.80 5,831.26 13,447.69 12,012.49 8,497.02 10,224.97

Cash Profit Ratio (^) () = (D) / (A) 0.02 0.05 0.04 0.02 0.02

Total xpnss (F) 303465.83 263544.52 327694.54 390492.34 444969.7

249,271.35 10,220.55 302,954.37 396,793.07 446,120.40 7,445.48 3,954.62 5,005.17

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140.00% 120.00% 100.00% 80.00% 60.00% 40.00% 20.00% 0.00% 2008-09 2009-10 2010-11 2011-12 2012-13 36.00% 2.00% 36.00% 5.00% 36.00% 4.00% 36.00% 2.00% 35.00% 2.00% 116.00% 106.00% 108.00% 98.00% 100.00% Dividend payout ratio Cash profit ratio Expense ratio

Intrprtation It can b sn that Dividnd payout Ratio of IOCL was 36% in vry yar and 35% in 2013 Hnc IOCL allocats almost sam prcntag of dividnds to arnings in vry yar. If I talk about cash profit ratio of IOCL for th last 5 yars, it was highst in th FY 200910, thus was having th highst profitability but from last two yars it is only 2% which is not a positiv sign. xpns ratio idntifis th proportion of total xpnditur to nt sals. Lowr th ratio, gratr is th profitability. Thus th xpns ratio of th company is not vry sound.

DU PONT Analysis:
DuPont analysis is an xtndd analysis of a company's rturn on quity. It concluds that a company can arn a high rturn on quity if: 1. It arns a high nt profit margin; 2. It uss its assts ffctivly to gnrat mor sals; and/or 3. It has a high financial lvrag. DuPont quation provids a broadr pictur of th rturn th company is arning on its quity. It tlls whr a company's strngth lis and whr thr is a room for improvmnt. It also shows that th profitability dpnds not only on th profit margin but also on how fficintly th firm has usd its assts to gnrat sals.

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PAT Nt Sals Yar (A) (B) 20076,962.58 224,428.14 08 20082,949.55 262,654.42 09 200910,220.55 249,271.35 10 20107,445.48 302,954.37 11 20113,954.62 396,793.62 12 20125,005.17 446,120.40 13
0.25

Profit Margin (C) = (A) / (B) 0.03 0.01 0.04 0.02 0.01 0.01

Total Assts (D) 110017.4 121724.8 129599.4 160616.1 209859.8 223995.3

Assts Turnovr () = (A) / (D) 2.04 2.16 1.92 1.89 1.89 1.99

arnings Powr (ROI) (F) = (C)* () 0.06 0.02 0.08 0.05 0.02 0.02

Nt Worth (G) 41,086.25 43,998.18 50,552.93 55,332.32 57,877.00 61,124.01

Rturn on quity quity Multiplir (I) = (H) = (D) (F) * / (G) (H) 2.68 2.77 2.56 2.90 3.63 3.66 0.17 0.07 0.20 0.13 0.07 0.08

0.2 0.2

0.15

0.13 Earning power

0.1 0.07 0.05 0.02 0 2008-09

0.08 0.05

0.07

0.08

Return on equity

0.02

0.02

2009-10

2010-11

2011-12

2012-13

Intrprtation As arnings powr is usd to analyz stocks to assss whthr th undrlying company is worthy of invstmnt or not. IOCL has continous arning powr lying btwn 2% to 8% and in th currnt yars it is only 2% which is nd to b impovd.
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Rturn on quity masurs a corporation's profitability by rvaling how much profit a company gnrats with th mony sharholdrs hav invstd. So, IOCL should improv its prcntag of rturn on quity to gnrat mor profit on sharholdrs invstmnt.

Dbt financing growth

Intrnal growth rat Sustainabl growth rat

Intrnal growth rat - Th highst lvl of growth achivabl for a businss without obtaining outsid financing. A firm's maximum intrnal growth rat is th lvl at which growth from gnral businss oprations can continu to fund and grow th company. Sustainabl growth rat - Th maximum growth rat that a firm can sustain without having to incras financial lvrag. Th sustainabl growth rat is a masur of how much a firm can grow without borrowing mor mony. Aftr th firm has passd this rat, it must borrow funds from anothr sourc to facilitat growth. Intrnal Growth Rat (#) () = (D) / [1-(D)] 0.02 0.05
85

Yar 200809 2009-

Rtu rn on assts (A) 0.03 0.09

DP Ratio (B) 0.36 0.36

Rtntio n rat (C) = 1(B) 0.64 0.64

ROA * Rtntio n rat (D) 0.02 0.06

Rturn on quity (F) 0.07 0.2

RO * Rtntio n Rat (G) 0.04 0.13

Sustainabl Growth Rat (##) (H) = (G) / [1-(G)] 0.04 0.11

10 201011 201112 201213

0.05 0.04 0.08

0.36 0.36 0.35

0.64 0.64 0.65

0.03 0.03 0.05

0.03 0.02 0.05

0.13 0.07 0.08

0.08 0.04 0.05

0.08 0.04 0.05

0.12 0.1

0.11

0.08 0.08 0.06 0.04 0.04 0.02 0.02 0 2008-09 2009-10 2010-11 2011-12 2012-13 0.03 0.02

0.05 0.04

0.05 0.05

Internal growth rate Sustainable growth rate

Intrprtation: Intrnal Growth Rat: Indicats th highst lvl of growth achivabl for a businss without obtaining outsid financing. IGR of Indian Oil is not vry sound, it was having th good prcntag in th FY 2009-10 but in th currnt yar it is lss. So, it nds to b improvd. Sustainabl Growth rat: Indicats th maximum growth rat that a firm can sustain without having to incras financial lvrag or without borrowing mor mony. As givn abov, SGR of IOCL in th currnt FY is only 5% which nds to b improvd.

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Markt tst ratio:

Dividnd yild ratio arning yild ratio

Dividnd yild ratio is th amount that a company pays to its shar holdrs annually for thir invstmnts. It is xprssd as a prcntag and indicats attractivnss of invsting in a companys stocks. Dividnd yild ratio provids a comparison of amount of dividnd in rlation to invstmnt ndd to purchas its shar. Following formula is usd for th calculation of dividnd yild ratio: DYR = Dividnd Pr shar Markt Pr shar arning yild ratio givs an stimat about an apprciation in th valu of a shar of a company. Lowr th ratio, th bttr it is. YR = arning Pr shar Markt Pr shar

IOCL Markt Tst Ratios Analysis: Markt Pric as on 31st March (B) 193.68 296.75 334.25 262.7 281.6 Dividnd Yild (*) (C) = (A) / (B) 0.039 0.044 0.028 0.019 0.022 arning Yild (#) () = (D) / (B) 0.128 0.142 0.092 0.062 0.073

Yar 200809 200910 201011 201112 201213

DPS (A) 7.64 13.00 9.50 5.00 6.20

PS (D) 24.74 42.1 30.67 16.29 20.61

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16.00% 14.20% 14.00% 12.00% 10.00% 8.00% 6.20% 6.00% 4.00% 2.00% 0.00% 2008-09 2009-10 2010-11 2011-12 2012-13 3.90% 4.40% 2.80% 1.90% 2.20% 9.20% 7.30% Dividend yield ratio Earning yield ratio 12.80%

Intrprtation: Dividnd yild is a way to masur how much cash flow sharholdrs ar gtting for ach rup invstd in an quity position. Valu invstors oftn look at th stock of a company, th way a ral stat invstor looks at rntal proprtis. Thy xpct to put mony on down on tim and xpct to rciv paymnts for th rst of thir livs. Hnc th dividnd yild tlls thm a prcntag of thir original invstmnt that thy would rciv ach yar, if thy invstd in th stocks right away. So, DYR of IOCL is not vry attractiv with invstor point of viw. If w talk about arning yild ratio , it is a way to masur rturns, and it hlps invstors valuat whthr thos rturns commnsurat with an invstmnt's risk. For xampl, th invstor of IOCL may not fl that 7.30% adquatly compnsats for th addd risk of owning IOCL stock if lowr-risk stocks carry yilds of 8.5%. Howvr, a 7.30% arnings yild could b attractiv if similar companis lik BPCL yild only 5%.

88

Cas Study
DFR on Proposal for Invstmnt Approval of Branch Piplin from BKPL to Motihari and Baitalpur for lvraging th transportation tariff
With a viw to giv lvrag in optimizing transportation tariff for Product positioning at Raxaul and Baitalpur, it is proposd to lay a 275 km branch piplin on Barauni-Kanpur Piplin (BKPL) at Patna to Motihari and Baitalpur. Prsntly, supplis to Raxaul, Baitalpur and Npal (partially through Raxaul) ar bing ffctd by rail mostly from Barauni Rfinry. IOCL has to pay substantial amount to Railway for product movmnt to IOCLs dpots at Raxaul and Baitalpur. Raxaul and Baitalpur ar major dmand cntrs of Motor Spirit (MS) and High Spirit Disl (HSD) and th dmand is prdictd to incras in th coming yars. Rsitmnt of Raxaul Dpot to Motihari and Patna dpot to a suitabl location in and around Patna is to b carrid out. For this purpos, a suitabl land at Naubatpur on th outskirts of Patna has bn idntifid for th rsitmnt of th xisting Patna Dpot. arly implmntation of this piplin is vry critical for rtaining IOCLs markt shar in this rgion as wll as Npals markt as othr OMCs may considr xtnding thir piplin to Raxaul and targt Npal markt.

Piplin Rout Th proposd Piplin would originat from Naubatpur, whr rsitmnt of Patna Transfr of Product (ToP) is proposd. From Naubatpur, th Piplin would mov broadly in th North/North-Wst Dirction, crossing Rivrs Son, Ghagara & Ganga and kping wst of Chapra Town, would rach Siwan. A T-Point cum-scrapr station is to b installd nar Siwan. From Siwan T-Point, on branch of th piplin would mov in th North-ast dirction, crossing rivr Gandak and rach Motihari. Anothr branch from Siwan T-Point would mov in th North-Wst dirction to rach th xisting dpot at Baitalpur nar Doria (Uttar Pradsh). Th piplin would b laid almost in indpndnt Right Of Way (ROW), which would b acquird. Th proposd rout travrss through th Gangtic Flood Plains hnc no high
89

lvations ar xpctd. Th trrain along th piplin rout is mostly flat and plain. No rocky trrain is nvisagd along th proposd piplin rout.

Procss Dscription Th branch piplin would rciv High Spirit Disl (HSD) through 20 Barauni-Patna (Naubatpur) sction undr hart-cut opration at Naubatpur, whras Motor Spirit (MS) and Suprior Krosn Oil (SKO) through 12 dia Barauni-Patna (Naubatpur) sction undr blockd out opration at Naubatpur. Patna pump station would rciv products x Barauni both from 20 and 12 Barauni Patna piplin sction of BKPL. 20 piplin would b usd for pumping of HSD as is bing don prsntly. 12 Piplin would b usd for MS/SKO/HSD. During rcipt of products from 20 piplin at Patna, bypassing to branch lin may b hart-cut mod or full-cut mod. Howvr, during bypassing of products to branch lin rcivd through 12 piplin at Patna would ncssarily b in full-cut mod. During this opration, pumping to Patna-Mughalsarai sction might b continud with products from 20 piplin at Patna. Simultanous pumping from Barauni in both 20 and 12.75 piplin of sam or diffrnt products would b don.

Nd and Justification of th Proposal Dpot Dmands Vs Proposd Piplin Throughputs Actual Consumption Th actual throughput (consumption) of Ptrolum Products for Raxaul and Baitalpur fd aras for last 3 yars is shown blow

90

Yar 2009-10 2010-11 2011-12

Raxaul (TKL) (TKL) 512 605 718

Baitalpur 579 631 781

Total (TKL) 1,091 1,236 1,499

Futur Projctd Consumption (in TMTPA) Th futur throughput projctions for markting dpots at Raxaul (Motihari) and Baitalpur has bn workd out and is shown blow:

Combind dmand of Motihari and Baitalpur Dpot Yar 201415 201617 202122 1,102 331 106 1,539 930 248 102 1,280 HSD 836 MS 215 SKO 107 Total 1,158

Projctd throughput of th Piplin (in TMTPA) Though thr is robust growth in th projctd dmand for Motihari and Baitalpur dpots, th optimization study indicats that thr would b product shortag x-Barauni rfinry to fd this piplin and in th procss, th dmand of Motihari and Baitalpur dpots would b rquird to b mt from othr sourcs only. Thrfor, th projctd throughput of th Branch Piplin would b lss than th dmand Th throughput projctions of this branch piplin, as pr optimization study is shown blow Yar 2014-15 2016-17 2021-22 Raxaul 517 545 674 Baitalpur 600 736 462 Total 1,117 1,281 1,136

91

Dspit proposd Piplin connctivity for Motihari and Baitalpur dpots, w can s from th abov tabls that th piplin alon will not b abl to mt th product dmand rquirmnt of ths dpots fully byond 2016-17 as pr optimization study and th balancd products ar to b bridgd from othr sourcs through tank wagon. This is du to incrasd dmands of Barauni fd locations and no corrsponding incras in Barauni Production as wll as no cushion/slack availabl at Barauni through Haldia-Barauni Piplin

stimation of Capital Cost Th complt branch piplin systm is stimatd to cost Rs. 276 cror, including a forign xchang componnt of Rs. 4.48 cror at March 2013 pric lvl. Th projct cost for piplin facilitis has bn stimatd on th basis of th following Cost actually incurrd in th past with appropriat scalation stablishing physical rquirmnts, prliminary spcifications and in-hous cost data xprinc of virtually idntical projcts lswhr to stablish physical rquirmnts and cost xprinc of slightly diffrnt projcts adjustd approximatly to stablish physical rquirmnts and budgtary quotations xprinc of similar projcts in valu/trms adjustd for pric diffrnc by past xprinc and scalation data

Th summarisd tabl of capital cost is shown blow

S. No 1. 2. 3. 4. 5.

Itm Dscription Survy & fild nginring Land,ROW & Crop compnsation Mainlin Pips Mainlin Matrials Mainlin Construction

F 0 0 0 134 0

R 225 2562 8043 70 4212

Total 225 2562 8043 204 4212

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6.

7. 8. 9.

Pump station & trminal Civil lctrical Mchanical Instrumntation Sub-total (Pump station & trminal) Cathodic Protction Tlcommunications Tlsuprvisory (SCADA) SUB-TOTAL (A) Contingncis @ 0% Projct Managmnt, nginring and insuranc@5.711% CSR@1% SUB-TOTAL (B) Intrst during construction TOTAL

0 0 292 0 292 22 0 0

2074 570 3415 758 6817 518 796 511

2074 570 3707 758 7109 540 796 511

10. 11.

448 0 0 0 448 0 448

23754 0 1382 242 25378 1774 27152

24202 0 1382 242 25826 1774 27600

12. 13.

Th dtaild basis of cost stimats hav bn shown as undr : 1. Survy and fild nginring This cost includs th cost of survys, sub-soil invstigation & fild nginring. 2. Land acquisition, ROW and crop compnsation Land rquirmnt for T-point at Siwan and RCPs tc. has bn takn on th basis of prmannt land acquisition. Right -of-way (R0W) compnsation has bn considrd for th nw rout of th piplin, which is approximatly 275 km. 3. Projct managmnt & nginring, insuranc Th proposd schm is xpctd to b compltd in a priod of about 24 months aftr rcipt of statutory clarancs. Th cost of projct managmnt &nginring is stimatd on th basis of nvisagd tim schdul.

93

4. Mainlin pips & matrials Th cost and coating has bn considrd as pr th latst data availabl. Th cost of mainlin matrials rquird such as casing pip, coating and wrapping matrials, valvs tc. has bn stimatd on th basis of budgtary offrs and cost actually incurrd in rcnt past on similar itms. 5. Mainlin Construction Th cost of mainlin construction has bn stimatd on th basis of th cost incurrd in similar projct xcutd lswhr, suitably adjustd to bring it to March 2013 pric lvl 6. Pump station and trminal Th cost undr this had includs th cost of mchanical, civil, lctrical and instrumntation & control facilitis which mainly compris mainlin pumping units, mainlin valvs,sump pump & motor, scrapr barrls, fir alarm & dtction systm, fir hydrant ntwork & rlatd facilitis, Powr-cum-Motor Control Cntr, PLC basd control systm, control buildings tc. including th rction and installation of rquisit facilitis. 7. Cathodic protction This includs th cost of matrials rquird for tmporary and prmannt cathodic protction, installation and commissioning of quipmnt/matrials, CP Rctifir units, ground bds, cabl tc. stimats ar basd on budgtary offrs and th rats from similar projcts xcutd in th rcnt past 8. Tlcommunication and Tlsuprvisory systm OFC basd tlcommunication systm and a ddicatd tlsuprvisory systm has bn nvisagd for th proposd piplin systm. Cost stimats ar basd on budgtary offrs/arlir purchas ordrs. 9. scalation No provision has bn mad for pric scalation during th priod of xcution of th projct

stimation of Oprating Cost Th oprating cost of th branch piplin systm includs th cost if powr rquird for running th mainlin pumping (Naubatpur) pump station of BKPL, utilitis, consumabls, salaris, &

94

wags, administrativ ovrhads, rpair &maintnanc tc. th oprating cost for th dsign capacity of 1.5 MMTPA is stimatd to b Rs 14.47 cror/yar at March 2013 pric lvl.

Conclusion of Cas Study

Th accptanc rul of projcts using th IRR mthod is that th intrnal rat of rturn is highr than th opportunity cost of capital (k). k is also known as th rquird rat of rturn, or th cut-off or th hurdl rat. As pr Indian Oil Corporation Limitd (Corporat offic), th hurdl rat (bnchmark IRR) for capital intnsiv proposals ar 13% for Rfinry and Piplin projcts. Th thr major considrations of th company to dtrmin th hurdl rat ar: Rats ar basd on Dbt: quity ratio and may b applid for all th projcts that ar lss than Rs. 250 Crors. Major projcts with an amount mor than than Rs. 250 Cror, spcific hurdl rat would b drivd basd on funding pattrn and anticipatd borrowing cost. Hurdl rat for global projcts ar subjctiv as varis from country to country dpnding upon th country risk. As th IRR of th proposd projct is 16.42 % which is highr than th hurdl rat w can suggst to go ahad with th branch piplin as it provs to b financially fasibl.

95

CHAPTR 5 LIMITATIONS

96

Limitations
Tim is dfinitly th main constraint. Tim was not sufficint nough to assss all procsss and policis of an organization of th statur of IOCL. vn if actual data was gathrd, it is oftn against th company policy to disclos many such data in th projct rport. In that cas th actual data was thn slightly modifid and thn utilizd for th projct. No opportunity to visit th piplins. Diffrnt accounting procdurs may mak rsults mislading. In spit of prcautions takn thr ar crtain procdural and tchnical limitations. Accounting concpts and convntions caus srious limitation to financial analysis. .

97

CHAPTR 6 CONCLUSION &

RCOMMNDATIONS

98

Conclusion
Financial Analysis of Indian Oil as a whol indicats that th company dos not hav a sound liquidity position. Also, profitability and lvrag analysis of th company indicats that IOCL dos not hold a stabl position with rspct to ths paramtrs. So, in a nutshll, th conclusion is that managmnt nds to tak srious corrctiv masurs to improv th ovrall financial stability of th firm. Also th accptanc rul of projcts (givn in cas study) aftr doing th Snsitivity analysis is that th rats should b mor than th opportunity cost of capital or th hurdl rat. As pr IOCL, th hurdl rat or th opportunity cost of capital is 13%. As calculating th Snsitivity Analysis, w can s that th rats wr always mor than 13%. Thrfor, th projct dos not bar any kind of risk as such. Thrfor, ovrall w can say that th projct is financially fasibl as wll as dos not carry any risk of financial fasibility in th futur.

99

Rcommndations
Basd on my study I would lik to infr th following rcommndations which might b hlpful for th company. Thy ar as follows: Th company should utiliz its stock mor fficintly. Th company should pay attntion towards th propr and fficint utilization of working capital. Th short-trm solvncy of th firm Indian Oil Corporation Limitd (IOCL) dos not sms to b good according to th various ratios calculatd so, th company should work on it. IOCL has bn facing a problm in convrting its invntory into sals from th past 4-5 yars as th Invntory Turnovr Ratio has shown a continuous dcras ovr this priod. It is not vry sound and its top managmnt nds to tak corrctiv actions to improv it. Whn compard to its prvious yar, IOCL is now mor subjctd to financial risk and dpnds mor on financial risk. Furthr now IOCL has mor crditors and obligors mony in businss than its sharholdrs ,so, it should work on its ratio btwn ownd funds and borrowd funds. Profitability ratio of th company is not vry sound, thrfor it should b improvd. Intrnal Growth Rat of Indian Oil is not vry sound, it was having th good prcntag in th FY 2009-10 but in th currnt yar it is lss. So, it nds to b improvd. Limitations of IRR: A non-convntional projct involving mor than on rvrsal of signs in cash flows may hav multipl rats arising out bcaus of th mathmatics of IRR computation. It may also fail to indicat th corrct projct to b chosn amongst various altrnativs and whr w can slct only on. This pitfall of th IRR mthod is bing ovrlookd by IOCL which can b a major drawback in crtain dcisiv proposals. To ovrcom this I would suggst to adopt th Nt Prsnt Valu (NPV) mthod also along with IRR.

100

Larning from th Summr Intrnship Programm (SIP)

Practical xposur: As th SIP was my first work xprinc, I larnt about th diffrnt dpartmnts and thir functioning in an Organization. I larnt th flow of authority and rsponsibility prtaining to th various aspcts of a Company. Dcision making procss: As th projct I workd upon dalt with an important invstmnt dcision, I ralizd that dcision making is quit intricat and nd carful obsrvation of th popl involvd. vry invstmnt for futur bnfit is crucial to an organization and I hav larnt how svral mattrs should b takn into considration whil dtrmining its viability irrspctiv of th industry.

Intrdpartmntal activitis: Th coordination of diffrnt dpartmnts in a Company is ssntially rquird for th vry survival of th Company. vn though th job I handld was rstrictd to th scop of financ dpartmnt, yt crtain issus ncssarily rquird th consultation of th tchnical dpartmnt for clarification. As alrady larnt in th acadmic arna about intrdpartmntal activitis, I practically xprincd it during th cours of my intrnship.

nhancd fficacy: As th SIP also involvd valuating crtain smallr projcts which ar outsid th scop of this rport and ar company spcific; it raisd my capability of crucially xamining data and arriv at som maningful comprhnsions.

101

Chaptr-7 Rfrncs and Appndix

102

Appndix
Balanc Sht of Indian Oil Corporation ------------------- in Rs. Cr. ------------------Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

12 mths

12 mths

12 mths

12 mths

12 mths

Sourcs Of Funds Total Shar Capital quity Shar Capital Shar Application Mony Prfrnc Shar Capital Rsrvs Rvaluation Rsrvs Ntworth Scurd Loans Unscurd Loans Total Dbt Total Liabilitis 2,427.95 2,427.95 0.00 0.00 2,427.95 2,427.95 0.00 0.00 2,427.95 2,427.95 0.00 0.00 48,124.88 0.00 50,552.83 18,292.45 26,273.80 44,566.25 95,119.08 Mar '10 1,192.37 1,192.37 21.60 0.00 42,789.29 0.00 44,003.26 17,565.13 27,406.93 44,972.06 88,975.32 Mar '09 1,192.37 1,192.37 0.00 0.00 39,893.88 0.00 41,086.25 6,415.78 29,107.39 35,523.17 76,609.42 Mar '08

55,448.75 52,904.37 0.00 0.00

57,876.70 55,332.32 13,045.97 20,379.65 57,277.96 32,354.22 70,323.93 52,733.87 128,200.63 108,066.19 Mar '12 Mar '11

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Application Of Funds Gross Block Lss: Accum. Dprciation Nt Block Capital Work in Progrss Invstmnts Invntoris Sundry Dbtors Cash and Bank Balanc Total Currnt Assts Loans and Advancs Fixd Dposits Total CA, Loans & Advancs Dffrd Crdit Currnt Liabilitis Provisions Total CL & Provisions Nt Currnt Assts Miscllanous xpnss Total Assts 99,455.46 92,696.69 39,336.13 34,509.29 60,119.33 58,187.40 13,434.77 12,620.44 18,678.46 19,544.76 56,829.20 49,284.52 15,502.87 8,869.65 307.01 643.92 71,780.60 30,199.53 41,581.07 21,268.63 22,370.25 36,404.08 5,799.28 916.56 43,119.92 17,453.01 398.55 60,971.48 0.00 40,818.96 10,271.56 51,090.52 9,880.96 18.17 95,119.08 62,104.64 27,326.19 34,778.45 18,186.05 32,232.13 25,149.60 5,937.86 796.56 31,884.02 13,348.99 1.46 45,234.47 0.00 38,890.28 2,603.46 41,493.74 3,740.73 37.96 88,975.32 56,731.50 23,959.68 32,771.82 9,170.22 21,535.78 30,941.48 6,819.23 815.05 38,575.76 14,920.93 9.38 53,506.07 0.00 39,326.07 1,172.99 40,499.06 13,007.01 124.59 76,609.42

72,639.08 58,798.09 44,988.11 25,454.49 0.00 650.50

117,627.19 84,903.08 0.00 0.00

66,510.58 60,441.18 15,148.54 6,763.46 81,659.12 67,204.64 35,968.07 17,698.44 0.00 15.15

128,200.63 108,066.19

Contingnt Liabilitis Book Valu (Rs)

28,085.59 31,505.33 238.38 227.90 104

25,715.07 208.21

26,317.31 368.86

25,574.96 344.58

Profit & Loss account of Indian Oil Corporation Mar '12

------------------- in Rs. Cr. ------------------Mar '11 Mar '10 Mar '09 Mar '08

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Incom Sals Turnovr xcis Duty Nt Sals Othr Incom Stock Adjustmnts Total Incom xpnditur Raw Matrials Powr & Ful Cost mploy Cost Othr Manufacturing xpnss Slling and Admin xpnss Miscllanous xpnss Proprativ xp Capitalisd Total xpnss 394,385.52 3,801.74 4,980.06 1,465.94 4,321.11 14,283.79 0.00 423,238.16 Mar '12 299,806.97 1,880.24 6,429.58 1,638.36 13,378.79 1,249.03 -945.24 323,437.73 Mar '11 240,712.77 369.45 5,723.96 1,385.83 11,386.06 733.59 -1,121.28 259,190.38 Mar '10 273,708.98 447.19 5,686.96 1,053.32 10,709.66 804.51 -544.01 291,866.61 Mar '09 223,214.64 357.82 2,894.86 1,200.32 10,084.29 642.54 -403.58 237,990.89 Mar '08 463,285.27 24,455.59 438,829.68 -4,509.80 2,852.13 437,172.01 357,275.89 26,141.04 331,134.85 3,554.94 4,972.93 339,662.72 291,272.84 21,834.76 269,438.08 3,189.68 5,044.25 277,672.01 329,806.88 22,682.89 307,123.99 -2,905.92 -1,674.56 302,543.51 270,410.49 23,051.25 247,359.24 3,128.54 1,958.09 252,445.87

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Oprating Profit PBDIT Intrst PBDT Dprciation Othr Writtn Off Profit Bfor Tax xtra-ordinary itms PBT (Post xtra-ord Itms) Tax Rportd Nt Profit Total Valu Addition Prfrnc Dividnd quity Dividnd Corporat Dividnd Tax Pr shar data (annualisd) Shars in issu (lakhs) arning Pr Shar (Rs) quity Dividnd (%) Book Valu (Rs)

18,443.65 13,933.85 5,590.54 8,343.31 4,867.79 0.00 3,475.52 278.76 3,754.28 -200.34 3,954.62 28,852.64 0.00 1,213.98 194.43

12,670.05 16,224.99 2,702.14 13,522.85 4,546.67 132.04 8,844.14 -41.93 8,802.21 1,297.71 7,445.48 23,630.76 0.00 2,306.55 358.70

15,291.95 18,481.63 1,572.35 16,909.28 3,227.14 133.98 13,548.16 -36.52 13,511.64 3,097.87 10,220.55 18,477.61 0.00 3,156.34 508.83

13,582.82 10,676.90 4,020.98 6,655.92 2,881.71 317.64 3,456.57 915.26 4,371.83 1,364.71 2,949.55 18,157.63 0.00 910.48 154.74

11,326.44 14,454.98 1,589.73 12,865.25 2,709.70 236.53 9,919.02 178.64 10,097.66 3,104.54 6,962.58 14,776.25 0.00 655.81 76.48

24,279.52 16.29 50.00 238.38

24,279.52 30.67 95.00 227.90

24,279.52 42.10 130.00 208.21

11,923.74 24.74 75.00 368.86

11,923.74 58.39 55.00 344.58

Sourc : Dion Global Solutions Limitd

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Rfrncs
I. RFRNCS FROM PRINT MATRIALS I M Pandy, 10th dition, Financial Managmnt, Vikas Publication Hous Prasanna Chandra, 5th dition, Financial Managmnt, Tata Mc Graw-Hill ducation

II RFRNCS FROM LCTRONIC SOURCS a) From onlin nwspaprs, journals, wb pags Indian Oil Corporation Limitd. Availabl from http://www.iocl.com/ http/products.aspx Ministry of Ptrolum and Natural Gas. Availabl from http://ptrolum.nic.in/ India Brand quity Foundation. Availabl from http://www.ibf.org/ BP Statistical Rviw of World nrgy, 2012. Accssd from http://www.bp.com/sctionbodycopy.do?catgoryId=7500&contntId=7068481 Annual Rport of IOCL http://topic.ibnliv.in.com/indian-oil-corporation/profil-295827.html http://topics.wsj.com/prson/B/rs-butola/6690 http://www.iocl.com/InvstorCntr/AnnualRport.aspx http://www.iocl.com/Srvics/PiplinProjctManagmnt.aspx http://www.iocl.com/AboutUs/Profil.aspx http://www.iocl.com/AboutUs/AnnualRports/20_Balanc_Sht_2012.pdf

III. SCONDARY RFRNCING Oprating manual of Barauni Kanpur Piplin to Motihari and Baitalpur Accounts Manual (Scurd) ; Piplins Division, IOCL Guidlins for Capital Invstmnt Proposals, IOCL Annual Rports of IOCL

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