Fa I Hoec

Financial Analysis of HOEC
Oil Exploration/Allied Services Industry
Finance I
PGP I (2010-2012)
Submitted on November 17, 2010
Instructor: Prof. Yogesh Maheshwari
Submitted by Group 6 (Section D)

Abhijeet Dutta
Bunny Sethi
Manjul Kumar
Ompriya Singh
Manahara Krishna
Rajendra Kuruhuri
Solar
FA I FINANCIAL ANALYSIS OF HOEC SECTION D (PGP I) (GROUP 6)
INTRODUCTION
Hindustan Oil Exploration Company (HOEC) The state owned Company’s core business is to explore,
develop and produce hydrocarbons. HOEC’s strategy is to grow Company’s core business over both
medium and the long term with improving profitability through enhanced operational efficiency, capital
efficiency and cost efficiency. HOEC conducts its business with high regard for safety in operations and
in compliance with the law. They intend to focus on the application of technology and developing
relationships based on a commitment to long-term partnerships and mutual advantage.
For 2009-10 (in crores)

Sales 273
Market cap 3255
Oil and Natural Gas Corporation Limited (ONGC) is a state-owned oil and gas company in India. It is
involved in exploration and production of oil. It is involved in exploring for and exploiting hydrocarbons
in 26 sedimentary basins of India. It produces about 30% of India's crude oil requirement.

Sales 18192
Market cap 276513
Oil India (OIL) is a state-owned oil and gas company in India under the administrative control of the
Ministry of Petroleum and Natural Gas of the Government of India. OIL is engaged in the business of
exploration, development and production of crude oil and natural gas, transportation of crude oil and
production of liquid petroleum gas.

Sales 7769
Market cap 33742
Aban Offshore Ltd. is India's largest offshore drilling services provider to oil companies. It is now
ventured into international waters as one of its five rigs is doing work for an Iranian oil company. The
group has also ventured into construction, offshore and onshore drilling, wind energy and power
generation.

Sales 1241
Market cap 3457
Benchmarking: The oil exploration/allied services industry being a capital intensive one is dominated
largely by the state owned corporations with ONGC being the biggest of them all by a fair margin. The
three companies chosen to be the benchmarks are the top three companies in terms of Market
capitalization & sales volumes. Clearly ONGC is the leading company followed by OIL India Limited.
Aban offshore is the private sector company engaged in oil exploration & allied operations. Hence it also
has been included to form the benchmark. ONGC and OIL India are similar to HOEC in that they all are
public sector companies and as a result have similar business models. Aban is a large private company
with which HOEC needs to be benchmarked because HOEC can learn some operational efficiency from
them. Moreover ONGC is the largest company, OIL India is a mid-sized company and Aban is a small
player as per the industry demographics.
1
HOEC Income Statement for three years (in rupees)

Year ended Year ended Year ended
31-Mar-10 31-Mar-09 31-Mar-08
INCOME
Sales and Services 1,400,550,243 851,783,601 833,469,169
Increase/(Decrease) in Stock of Crude Oil Condensate and Natural Gas 49,718,432 -22,436,780 1,306,409
Other Income 138,631,677 462,365,923 201,534,791
1,588,900,352 1,291,712,744 1,036,310,369
EXPENDITURE & CHARGES
Field Operating Expenses 390,912,539 430,057,407 310,835,347
Corporate Expenses (Net) -5,151,650 5,384,165 39,851,422
Depreciation & Amortisation on Fixed Assets 6,026,796 8,309,355 3,434,762
Depletion of Producing Properties 465,923,122 109,875,745 49,178,835
Provisions and Write Offs 0 0 166,392,861
Interest and Finance Charges 80,427,399 103,771,815 75,611,744
938,138,206 657,398,487 645,304,971
PROFIT BEFORE TAX 650,762,146 634,314,257 391,005,398
Provision for Current Income Tax 108,000,000 32,350,000 35,000,000

[including Rs. Nil (Previous Year Rs. 1,350,000) for Prior Years]
Provision for Deferred Tax (See Note 19(ii) of Schedule 16) 231,000,000 95,000,000 113,000,000
Provision for Wealth Tax 200,000 200,000 200,000
Provision for Fringe Benefit Tax 0 2,100,000 1,800,000
MAT Credit Entitlement (Net of MAT Credit Adjustments pertaining to Prior Years) (See Note 19(i) of Schedule 16) -104,362,448 -31,000,000 0
PROFIT AFTER TAX 415,924,594 535,664,257 241,005,398

Profit Brought Forward 1,454,029,967 931,505,283 843,170,508
Less : Transitional Adjustment (See Note 27 of Schedule 16) 0 -13,139,573 0
PROFIT AVAILABLE FOR APPROPRIATION 1,869,954,561 1,454,029,967 1,084,175,906
APPROPRIATIONS:
Proposed Dividend 0 0 130,493,289
Dividend Tax 0 0 22,177,334
Balance Carried to Balance Sheet 1,869,954,561 1,454,029,967 931,505,283
Earnings Per Share of Rs. 10 Face Value (Basic and Diluted) (See Note 18 of Schedule 16) 3.19 4.10 2.47
130,383,885 127,445,045 97,573,036
2
HOEC Balance Sheet for three years (in rupees)

As at As at As at
31-Mar-10 31-Mar-09 31-Mar-08
SOURCES OF FUNDS
Shareholder's Funds
Share Capital 1,305,093,005 1,305,093,005 1,305,093,005
Reserves and Surplus 9,711,476,034 9,295,551,440 8,776,409,756
Loan Funds
Secured Loans 827,177,191 1,304,840,843 1,472,198,692
Unsecured Loans 5,697,500,000 0 0
17,541,246,230 11,905,485,288 11,553,701,453
APPLICATION OF FUNDS
Fixed Assets
Gross Block 17,890,050,830 2,396,967,281 1,612,771,578
Less : Depreciation, Depletion and Amortisation 1,842,449,118 1,361,096,742 1,232,899,406
Net Block 16,047,601,712 1,035,870,539 379,872,172
Capital Work in Progress 654,173,695 10,255,489,079 4,021,871,328
16,701,775,407 11,291,359,618 4,401,743,500
Investments 29,131,475 115,185,816 5,682,525,412
Foreign Currency Monetary Items 2,501,863 17,179,351 0
Translation Difference Account (See note 27 of Schedule 16)
Deferred tax Asset (Net) (See note 19(ii) of Schedule 16) 53,147,919 284,147,919 374,478,090
Current Assets, Loans & Advances
a. Inventories 432,484,561 662,914,303 238,215,358
b. Sundry Debtors 412,325,942 209,914,306 136,686,853
c. Cash and Bank Balances 799,782,476 2,762,716,670 1,571,965,784
d. Other Current Assets 2,182,492 3,596,085 7,394,535
e. Loans and Advances 634,671,105 591,775,112 555,265,832
2,281,446,576 4,230,916,476 2,509,528,362
less : Current Liabilities & Provisions
a. Current Liabilities 679,046,886 3,693,212,769 980,839,416
b. Provisions 847,710,124 340,091,123 433,734,495
1,526,757,010 4,033,303,892 1,414,573,911
Net Current Assets 754,689,566 197,612,584 1,094,954,451
17,541,246,230 11,905,485,288 11,553,701,453
3
HOEC FINANCIAL RATIOS FOR THE THREE YEARS 2008‐2010
2010 2009 2008

SALES 1,400,550,243 851,783,601 833,469,169
COGS 390,912,539 430,057,407 310,835,347
GROSS PROFIT 1,009,637,704 421,726,194 522,633,822
EBIT 731,189,545 738,086,072 466,617,142
INTEREST 80,427,399 103,771,815 75,611,744
NET INCOME 415,924,594 522,524,684 241,005,398
FIXED ASSETS 16,701,775,407 11,291,359,618 4,401,743,500
CURRENT ASSETS 1,646,775,471 3,639,141,364 1,954,262,530
TOTAL ASSETS 19,068,003,240 15,938,789,180 12,968,275,364
CURRENT LIABLITIES 679,046,886 3,693,212,769 980,839,416
LONG TERM DEBT 6,524,677,191 1,304,840,843 1,472,198,692
TOTAL DEBT 7,203,724,077 4,998,053,612 2,453,038,108
COMMON EQUITY 11,016,569,039 10,600,644,445 10,081,502,761
INVENTORY 432,484,561 662,914,303 238,215,358
ACCOUNT RECEIVABLES 412,325,942 209,914,306 136,686,853
ACCOUNT PAYABLES 599,319,371 3,519,983,491 964,282,634
SALES PER DAY 3,837,124 2,333,654 2,283,477
EARNINGS PER SHARE 3.19 4.10 2.47
WEIGHTED AVERAGE NUMBER OF EQUITY SHARES 130,383,885 127,445,045 97,573,036
SHARE PRICE (AS ON 01‐11‐2010) 253.75
CASH FLOW PER SHARE 6.81 5.03 3.01
BOOK VALUE PER SHARE 84.49 83.18 103.32
LIQUIDITY RATIOS
Current Ratio 2.43 0.99 1.99
Quick ratio 1.79 0.81 1.75
ASSET MGMT RATIOS
Inventory Turnover Ratio 3.24 1.28 3.50
Days Sales Outstanding 107.46 89.95 59.86
Fixed assets turnover ratios 0.08 0.08 0.19
Total Assets turnover ratio 0.07 0.05 0.06
DEBT MANAGEMENT RATIOS
Debt ratio 0.38 0.31 0.19
TIE Ratio 9.09 7.11 6.17
PROFITABILITY RATIOS
Profit margin on sales 29.70% 61.34% 28.92%
Basic Earning Power 3.83% 4.63% 3.60%
Return on Total Assets 2.18% 3.28% 1.86%
Return on Equity 3.78% 4.93% 2.39%
MARKET VALUE RATIOS
Price to Earnings ratio 79.55
Price to Cash Flow Ratio 37.26
Market to Book Vlaue Ratio 3.00
DU PONT ANALYSIS
Profiit Margin 29.70% 61.34% 28.92%
Total Assets Turnover 7.35% 5.34% 6.43%
Equity Multiplier 173.08% 150.36% 128.63%
Return on Equity 3.78% 4.93% 2.39%
Days Sales Outstanding 107.46 89.95 59.86

Days Payables Outstanding 156.19 1508.36 422.29
Inventory Conversion period 112.71 284.07 104.32
Cash Conversion Cycle 63.98 ‐1134.34 ‐258.11
Working Capital 967,728,585 ‐54,071,405 973,423,114
4
TIME SERIES RATIO ANALYSIS
Liquidity ratios: The current & the quick ratios were lower during 2009. But they were fairly high
during the other two years. Year 2009 was not a particularly good year because of the recession and a
resultant hit to the crude oil prices which resulted in poor cash flows. At present, due to a stable economy
the company has achieved its 2008 numbers and is doing well on liquidity management front.
Asset Management Ratios: The inventory turnover ratio exhibited the recession effect. It was low
during 2009 because of poor sales. But with a stable economy now & rising crude oil prices and
subsequent demand, the inventory turnover ratio has improved to the 2008 levels.
The “Days Sales Outstanding” has been steadily rising over the three years which is a sign of concern.
HOEC has been too liberal in giving credit to its customers. The company needs to tighten its credit
policy. Even though its liberal policy has resulted in leapfrogging of its sales by more than 70% as
compared to the 2008 levels but the DSO has almost doubled. The company needs to bring DSO under
check.
The fixed asset turnover ratio has been declining even though the decline has been arrested in 2010 due
operationalization of new assets. The company has been investing in fixed assets which when fully
operationalized would generate sales and this metric may improve.
The total asset turnover ratio by contrast has remained fairly stable and is not showing much
fluctuation. The company has been able to use a judicious mix of current assets & fixed assets to generate
sales thereby keeping its total asset turnover ratio under check.
Debt Management Ratios: The debt ratio has been rising over the years. This is because the company
has generated new unsecured loans in the year 2010 to finance its asset expansion plans. This also means
the company has become leveraged and as a result risky too. However they were able to generate fair
amount of sales in 2010 to justify this riskiness.
The TIE ratio has been steadily rising over the years which means that the company has stable business
foundation which has helped it generate cash flows on a consistent basis.
Profitability ratios: The profit margin on sales fell drastically in 2010 despite a large increase in the
sales. This was because of a write down of depletion of properties for the year. This is a one-time expense
because of some of the assets have become non productive and were written down. Overall the
company’s profitability is doing well because the company has been able to generate sales commiserate
with its investment in new assets. The profitability will pick up in the coming years.
The Basic Earning Power after increasing in 2009 fell in 2010. The company has acquired new fixed
assets and as a result the asset base has increased which has not been compensated by the sales generated
from those assets yet. In the coming years, the company would be able to generate sales from those assets
and its BEP would rise again.
5
The Equity Multiplier which signifies the leverage of the company has been steadily rising over the
three years. The company has taken on additional debt to finance its expansion operations and increase its
asset base. The company has taken on only long term debt. The asset expansion hass added on to the sales
and as a result despite the company being more leveraged now one can expect significant windfall for the
equity investors in the near future.
The Return on Equity after rising slightly in 2009 fell again in 2010. ROE fell mainly because of the
write down of properties which were no longer productive which is a one-time expense only and may not
occur in the near future. Thus ROE will rise again in the future on back of a sales increase from new asset
commissioning and operationalization.
The working capital position of the company has declined somewhat as compared to the previous years.
The inventory conversion ratio has more or less remained constant. However the DSO has increased
significantly as the company has become liberal in its credit terms. This has however resulted in an
increase in its sale though by not as much as would have justified the increase of credit terms. However
the company has also started paying earlier its creditors which has also contributed to the worsening of
the cash conversion cycle. The company has used its cash in paying its creditors far too early than is
warranted. There needs to be a be a rethink on this policy of paying early as it is resulting in weakening of
the cash position of the company and may jeopardize its liquidity.
6
120.00
100.00
80.00
DSO
60.00
40.00
20.00
0.00
2008 2009 2010

3.00
2.50
2.00
Current Ratio
1.50
1.00
0.50
0.00
2008 2009 2010

7
3.00
2.50
2.00
Current Ratio
1.50
1.00
0.50
0.00
2008 2009 2010

4.00
3.50
3.00
Inventory Turnover Ratio
2.50
2.00
1.50
1.00
0.50
0.00
2008 2009 2010

8
0.20
0.18
Fixed Assets Turnover Ratio
0.16
0.14
0.12
0.10
0.08
0.06
0.04
0.02
0.00
2008 2009 2010

10.00
9.00
8.00
7.00
6.00
TIE Ratio
5.00
4.00
3.00
2.00
1.00
0.00
2008 2009 2010

9
70.00%
60.00%
Profit Margin on Sales
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2008 2009 2010

5.00%
4.50%
4.00%
Basic Earning Power
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2008 2009 2010

10
3.50%
3.00%
2.50%
Return on Total Assets
2.00%
1.50%
1.00%
0.50%
0.00%
2008 2009 2010

6.00%
5.00%
Return on Equity
4.00%
3.00%
2.00%
1.00%
0.00%
2008 2009 2010

11
200.00%
180.00%
160.00%
140.00%
Equity Multiplier
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
2008 2009 2010

12
ONGC CONSOLIDATED BALANCE SHEET AS OF 31ST MARCH 2010
As of 31st March 2010
SOURCES OF FUNDS
SHAREHOLDERS' FUNDS
Share Capital 21,388.87
Reserves and Surplus 992677.54
MINORITY INTEREST 1014066.41
LOAN FUNDS 16431.64
Secured Loans 6,959.27
Unsecured Loans 55,709.98 62669.25
DEFERRED TAX LIABILITY 103076.9
LIABILITY FOR ABANDONMENT COST 174590.35
TOTAL 1370834.57
GOODWILL ON CONSOLIDATION
Gross 110,742.82
Less: Amortisation 15,357.36
NET 95385.46
FIXED ASSETS
Gross Block 901,926.40
Less: Depreciation and Impairment 658,164.47
NET BLOCK 243,761.93
CAPITAL WORKS‐IN‐PROGRESS (NET) 176,039.21
419801.14
PRODUCING PROPERTIES
Gross Cost 1,031,074.13
Less: Depletion and Impairment 519,409.15
NET PRODUCING PROPERTIES 511664.98
EXPLORATORYIDEVELOPMENT WELLS ‐IN‐PROGRESS (NET) 80124.91
INVESTMENTS 51593.14
DEFERRED TAX ASSETS 164.69
CURRENT ASSETS, LOANS AND ADVANCES
Inventories 82,400.07
Sundry Debtors 71,423.52
Cash and Bank Balances 149,703.83
Deposit with Bank Under Site Restoration Fund Scheme 74,138.43
Other Current Assets 7,430.89
Loans and Advances 120,566.90
505,663.64
LESS: CURRENT LIABlllTlES AND PROVISIONS
Current Liabilities 226,818.90
Provisions 75,157.73
301,976.63
NET CURRENT ASSET 203687.01
MISCELLANEOUS EXPENDITURE 8413.24
(To the extent not written off or adjusted)
TOTAL 1370834.57
13
ONGC CONSOLIDATED PROFIT AND LOSS ACCOUNT AS OF 31ST MARCH 2010
2009‐10
INCOME
Gross Sales 1,061,688.44
Less: Excise Duty 44,142.77
Net Sales 1,017,545.67
Other Income 52,727.60
1,070,273.27
EXPENDITURE
Decrease/(lncrease) in stocks ‐3,728.81
Purchases 37.92
Production, Transportation, Selling and Distribution Expenditure 571,745.36
Depreciation, Depletion, Amortisation and Impairment 187,188.30
Financing Costs 5,021.90
Provisions and Write‐offs (Net) 5,995.57
Adjustments relating to Prior Period (Net) ‐400.61
7651859.63
Profit before Tax and Extraordinary items 304,413.64
Extraordinary Items
Profit before Tax 304,413.64
Provision for Taxation
Current Tax (including Wealth Tax Rs25.79 million Previous year Rs39.17 million) 95,756.65
For Earlier years ‐176.45
Deferred Tax 11,557.72
Fringe Benefit Tax
Profit after Taxation 197,275.72
Add: Share of Profit/(Loss) in Associate 78.13
Less: Share of Profill(Loss)‐ Minority Interest 3,318.52
Group Profit after Tax 194,035.33
Surplus at the beginning 93,335.23
Adjustment due to Change in holding ‐21.32
BALANCE AVAILABLE FOR APPROPRIATION 287,349.24
APPROPRIATIONS
Proposed Dividend on Preference Shares 0.01
Proposed Dividend on Equity Shares 32,083.09
Capital Redemption Reserve
Tax on Proposed Dividend 5,705.15
Interim Dividend 38,499.71
Tax on Interim Dividend 6,287.01
Transfer to General Reserve 87,242.72
Transfer to Debenture Redumption Reserve 1,154.19
Balance carried to Balance Sheet 116,377.36
287,349.24
Earnings per Equity Share ‐ Basic and Diluted
(Face Value Rs 10/‐Per Share)
before extraordinary items (net of Tax) 90.72
after extraordinary items 90.72
SIGNIFICANT ACCOUNTING POLICIES
NOTES TO THE ACCOUNTS
14
RATIOS FOR ONGC FOR 2010 ONGC
2010
SALES 1,017,545.67
COGS 568,054.47
GROSS PROFIT 449,491.20
EBIT 262,302.90
INTEREST 5,021.90
NET INCOME 287,349.24
FIXED ASSETS 511,664.98
CURRENT ASSETS 303,527.42
TOTAL ASSETS 1,664,397.96
CURRENT LIABLITIES 226,818.90
LONG TERM DEBT 62,669.25
TOTAL DEBT 289,488.15
COMMON EQUITY 1,014,066.41
INVENTORY 82,400.07
ACCOUNT RECEIVABLES 71,423.52
ACCOUNT PAYABLES 226,818.90
SALES PER DAY 2,787.80
EARNINGS PER SHARE 90.72
WEIGHTED AVERAGE NUMBER OF EQUITY SHARES 3,167.43
SHARE PRICE (AS ON 01‐11‐2010) 1,303.25
CASH FLOW PER SHARE 149.82
BOOK VALUE PER SHARE 320.15
LIQUIDITY RATIOS
Current Ratio 1.34
Quick ratio 1.20
ASSET MGMT RATIOS
Inventory Turnover Ratio 12.35
Days Sales Outstanding 25.62
Fixed assets turnover ratios 1.99
Total Assets turnover ratio 0.61
Debt ratio 0.17
TIE Ratio 52.23
Profit margin on sales 28.24%
Basic Earning Power 15.76%
Return on Total Assets 17.26%
Return on Equity 28.34%
MARKET VALUE RATIOS
Price to Book Value Ratio 4.07
DU PONT ANALYSIS
Profiit Margin 28.24%
Total Assets Turnover 61.14%
Equity Multiplier 1.64
Days Payables Outstanding 81.36
Inventory Conversion period 29.56
Cash Conversion Cycle ‐26.18
Net Working Capital 76,709
15
OIL INDIA BALANCE SHEET FOR YEARS ENDED MARCH, 2010 (Rs IN LAKHS)
As at
31st March, 2010
SOURCES OF FUNDS
SHAREHOLDERS' FUNDS
Share Capital 24045.44
Reserves and Surplus 1352333.38
1376378.82
LOAN FUNDS
Secured Loans 0
Unsecured Loans 3750 3750
DEFERRED TAX LIABILITY (NET) 102089.84
WELL ABANDONMENT SINKING FUND 189.08
TOTAL 1482407.74
FIXED ASSETS
Gross Block 321104.48
Less: Depreciation 213582.79
Net Block 107521.69
Capital Work‐in‐progress 32866.49
PRODUCING PROPERTIES
Gross Cost 545105.08
Less: Depletion 250736.56
Net Cost 294368.52
PRE‐PRODUCING PROPERTIES 59844.1
494600.8
INVESTMENTS 85943.73
CURRENT ASSETS,LOANS AND ADVANCES
Inventories 45337.98
Sundry Debtors 65966.81
Cash and Bank Balances 854291.1
Interest accrued on Term Deposits 30661.38
Interest accrued on Investments 4.06
Loans and Advances 230692.63
1226953.96
LESS: CURRENT LIABILITIES AND PROVISIONS
Current Liabilities 180452.91
Provisions 146475.85
326928.76
NET CURRENT ASSETS 900025.2
MISCELLANEOUS EXPENDITURE 1838.01
TOTAL 1482407.74
16
OIL INDIA Income statement for year ended March, 2010 (Rs. in lakh)
Year ended
31st March, 2010
INCOME
Sales 774855.91
Income from Transportation 15699.19
Other Income 93712.77
Other adjustments 1704.8
885972.67
EXPENDITURE
(Increase)/Decrease In Stocks 1057.4
Production, Transportation & Other Expenditure 407290.02
Provision against debts, advances and other write‐offs 28271.93
Depletion 26281.34
Depreciation 21827.23
Interest & Debt Charges 365.19
Exchange Loss/(Gain)‐Net ‐477.51
Other Adjustments 11261.66
495877.26
Profit for the period 390095.41
Prior Period items 586.12
Profit Before Tax 389509.29
Provision for Taxation
Current Tax (Including Wealth Tax) 115981.62
Tax for earlier years 368.17
Deferred Tax 12107.38
Fringe Benefi t Tax 0
128457.17
Profit After Tax 261052.12
BALANCE AVAILABLE FOR APPROPRIATION 261052.12
APPROPRIATIONS
Interim Dividend 43281.79
Tax on Interim Dividend 7355.74
Final Dividend (Proposed) 38472.7
Tax on Proposed Dividend 6389.83
Balance of Profit and Loss Account 165552.06
261052.12
Earnings Per Share (Rupees) (Basic and Diluted) 113.78
17
Ratios for OIL INDIA LIMITED for 2010 2010
SALES 774855.9
COGS 407290
GROSS PROFIT 367565.9
EBIT 401244.8
INTEREST 365.19
NET INCOME 261052.1
FIXED ASSETS 494600.8
CURRENT ASSETS 965595.9
TOTAL ASSETS 1811175
CURRENT LIABLITIES 180452.9
LONG TERM DEBT 3750
TOTAL DEBT 184202.9
COMMON EQUITY 1376379
INVENTORY 45337.98
ACCOUNT RECEIVABLES 65966.81
ACCOUNT PAYABLES 180452.9
SALES PER DAY 2122.893
WEIGHTED AVERAGE NUMBER OF EQUITY SHARES 2294.359
SHARE PRICE (AS ON 01‐11‐2010) 1429.5
LIQUIDITY RATIOS
Current Ratio 5.35
Quick ratio 5.10
ASSET MGMT RATIOS
Debt ratio 0.10
TIE Ratio 1098.73
MARKET VALUE RATIOS
DU PONT ANALYSIS
Profiit Margin 33.69%
Equity Multiplier 131.59%
Net Working Capital 785,143
18
BALANCE SHEET FOR ABAN FOR YEAR END MARCH, 2010 AS at
31st March, 2010
Rupees
I. SOURCES OF FUNDS
1. Shareholders Funds
Equity Share Capital 87,018,950
Preference share capital 3,260,000,000
Reserves and Surplus Share Application 1838,21,31,654
Money pending allotment of ESOS Equity shares 1,55,376
2. Loan Funds
Secured Loans 2851,30,08,289
Unsecured Loan 301,84,90,263
3. Deferred Tax (Net) 43,56,82,948
TOTAL FUNDS EMPLOYED 5369,64,87,480
II APPLICATION OF FUNDS
1. Fixed Assets
Gross Block 1387,63,02,673
Less:Depreciation 825,93,61,306
Net Block 561,69,41,367
Add: Capital Work in Progress 13,94,76,472
575,64,17,838
2. Investments 3968,63,83,333
3. Current Assets,Loans and Advances
(a) Inventory of Stores, Spares and Fuel 65,90,69,847
(b) Sundry Debtors 174,73,53,990
(c) Cash and Bank Balances 63,06,10,937
(d) Loans and Advances 865,11,64,998
1168,81,99,772
Less:Current Liabilities and Provisions
(a) Current Liabilities 275,83,22,577
(b) Provisions 67,61,90,886
343,45,13,463
Net Current Assets 825,36,86,309
TOTAL ASSETS 5369,64,87,480
19
ABAN OFFSHORE INCOME STATEMENT FOR YEAR ENDED MARCH, 2010
31st March, 2010
Rupees
INCOME
Income from Operations 1182,00,46,015
Other Income 181,82,83,046
TOTAL 1363,83,29,061
EXPENDITURE
Operating, Administrative and Other Expenses 486,11,44,741
Interest 337,14,23,057
Depreciation 109,11,57,111
Goodwill Amortised 0
TOTAL 932,37,24,909
Profit for the Year before taxation 431,46,04,152
Less: Provision for taxation
Current Tax 159,00,00,000
Fringe Benefit Tax ‐‐
Deferred Tax ‐79,827,445
Profit for the year after taxation 280,44,31,597
Add: Profit brought forward from Previous Year 476,27,43,127
Profit available for Appropriation 756,71,74,724
Transfer to Capital Redemption Reserve 50,00,00,000
Transfer to General Reserve 29,00,00,000
Proposed Dividend ‐ Preference 27,89,00,000
Proposed Dividend ‐ Equity 15,66,09,990
Tax on Preference Dividend 4,73,99,055
Tax on Equity Dividend 2,66,15,868
Balance Carried to Balance Sheet 626,76,49,811
Earnings per Equity Share of Rs. 2/‐ each (see Note 16)
Basic 62.18
Diluted 61.22
20
RATIOS FOR ABAN FOR 2010 2010
SALES 11,820,046,015.00
COGS 3,838,211,000.00
GROSS PROFIT 7,981,835,010.00
EBIT 8,777,184,320.00
INTEREST 3,371,423,037.00
NET INCOME 7,567,174,724.00
FIXED ASSETS 5,756,417,838.00
CURRENT ASSETS 3,037,034,774.00
TOTAL ASSETS 17,444,617,610.00
CURRENT LIABLITIES 2,758,322,577.00
LONG TERM DEBT 31,531,498,540.00
TOTAL DEBT 34,289,821,117.00
COMMON EQUITY 18,469,150,600.00
INVENTORY 659,069,847.00
ACCOUNT RECEIVABLES 1,747,653,990.00
ACCOUNT PAYABLES 2,758,322,577.00
SALES PER DAY 32,383,687.71
WEIGHTED AVERAGE NUMBER OF EQUITY SHARES 121,697,888.00
SHARE PRICE (AS ON 01‐11‐2010) 786.85
LIQUIDITY RATIOS
Current Ratio 1.10
Quick ratio 0.86
ASSET MGMT RATIOS
Debt ratio 1.97
TIE Ratio 2.60
MARKET VALUE RATIOS
DU PONT ANALYSIS
Profit Margin 64.02%
Equity Multiplier 0.94
Net Working Capital 278,712,197
21
ABAN ONGC HOEC OIL INDIA BENCHMARK

LIQUIDITY RATIOS
Current Ratio 1.10 1.34 2.43 5.35 2.55
Quick ratio 0.86 1.20 1.79 5.10 2.24
ASSET MGMT RATIOS
Inventory Turnover Ratio 17.93 12.35 3.24 17.09 12.65
Days Sales Outstanding 53.97 25.62 107.46 31.07 54.53
Fixed assets turnover ratios 2.05 1.99 0.08 1.57 1.42
Total Assets turnover ratio 0.68 0.61 0.07 0.43 0.45
Debt ratio 1.97 0.17 0.38 0.10 0.65
TIE Ratio 2.60 52.23 9.09 1,098.73 290.66
Profit margin on sales 0.64 0.28 0.30 0.34 0.39
Basic Earning Power 0.50 0.16 0.04 0.22 0.23
Return on Total Assets 0.43 0.17 0.02 0.14 0.19
Return on Equity 0.41 0.28 0.04 0.19 0.23
MARKET VALUE RATIOS
Price to Earnings ratio 12.65 14.37 79.55 12.56 29.78
Price to Cash Flow Ratio 11.06 8.70 37.26 2.38 14.85
Price to Book Value Ratio 5.18 4.07 3.00 2.38 3.66
DU PONT ANALYSIS
Profit Margin 0.64 0.28 0.30 0.34 0.39
Total Assets Turnover 0.68 0.61 0.07 0.43 0.45
Equity Multiplier 0.94 1.64 1.73 1.32 1.41
Return on Equity 0.41 0.28 0.04 0.19 0.23
Days Sales Outstanding 53.97 25.62 107.46 31.07 54.53

Days Payables Outstanding 85.18 81.36 156.19 85.00 101.93
Inventory Conversion period 20.35 29.56 112.71 21.36 45.99
Cash Conversion Cycle ‐10.86 ‐26.18 63.98 ‐32.57 ‐1.41
Net Working Capital (in Rs) 278,712,197.00 76,708,520,000.00 967,728,585.00 785,142.98 19,488,936,481.25
22
CROSS SECTIONAL RATIO ANALYSIS
Liquidity ratios: The current ratio is comparable to the benchmark even though the quick ratio is
somewhat lower. The lower quick ratio may become a source of trouble during recession times when the
company may not be able to quickly convert its inventory into sales and realize cash flows thereof.
Asset Management Ratios: The inventory turnover ratio is way below the benchmark. It suggests that
HOEC is unnecessarily holding a large amount of inventory which in effect is an item of zero return. This
coupled with the fact that they have high current ratio signifies that they are holding onto obsolete goods
for too long and may hit them when crude prices fluctuate.
The “Days Sales Outstanding” is almost double that of the benchmark which is again, a negative sign.
The company has been fairly liberal in its credit policy to generate sales. It however indicates that the
company is losing out on funds which it could use to generate sales and close its cash conversion cycle.
The fixed asset turnover ratio is way below the benchmark. This could be because of two reasons.
Firstly the company has acquired some new assets from which sales would materialize in the next few
years. Secondly the fixed assets are carried at historical cost in the balance sheet and HOEC being a new
company has its fixed assets at fairly high cost as compared to its benchmark.
The total asset turnover ratio is also below the benchmark because of the reasons stated earlier. The
company however needs to generate more sales to justify its fixed assets investment.
Debt Management Ratios: The debt ratio is lower than the industry benchmark presumably because of
the values being skewed because of one company Aban which is highly leveraged & risk taking as a
result. However HOEC is doing well on this front as it has been leveraging itself in the last few years to
acquire new assets. However the ratio is still higher than the two other PSUs and as a result HOEC may
find it difficult to raise additional in the near future.
The TIE ratio is below the benchmark which further reinforces the observation made from the Debt ratio
analysis that the company may find it difficult to raise additional debt in the near future.
Profitability ratios: The profit margin on sales even though below the benchmark is fairly good in the
industry overall. Overall the company’s profitability is doing well because the company has been able to
generate sales commiserate with its investment in new assets. The profitability will pick up in the coming
years.
The Basic Earning Power is much below the benchmark. The company has acquired new fixed assets
and as a result the asset base has increased which has not been compensated by the sales generated from
those assets yet. In the coming years, the company would be able to generate sales from those assets and
its BEP would rise again.
The return on assets has been fairly low as compared to the benchmark. The asset expansion has added
on to the sales and as a result despite the company being more leveraged now one can expect significant
windfall for the equity investors in the near future. In the coming years, the company would be able to
23
generate sales from those assets and its ROA would rise again. The company should however strive to
improve its asset utilization.
The Return on Equity is fairly low as compared to the benchmark. Thus ROE will rise again in the
future on back of a sales increase from new asset commissioning and operationalization. However the
company needs to improve its asset utilization as well.
The working capital position of the company is much below the industry benchmarks. The DSO metric
has been worsening because of delay in payments from the customers. Even though the DPO metric is
better than the benchmark, it could result in difficulty in obtaining credit in the near future because the
benchmark is much better. Also the inventory conversion is fairly slow which signifies that the cash of the
company is tied up in inventory without being converted to sales. This is resulting in operational
inefficiencies and a cash conversion cycle lengthy than the benchmark. HOEC needs to take measures to
improve its operational efficiency firstly by improving its inventory conversion cycle so that cash is not
unnecessarily tied up in inventory and also speeding up payment from its customers.
Market value ratios: HOEC has the lowest ratios for all the metrics P/E, P/BVPS & P/CFPS among its
comparable companies. This signifies that the company is undervalued and there is tremendous growth
potential with sales from its newly acquired assets driving the value.
24
DU PONT ANALYSIS
The DU Pont Analysis breaks down the ROE into Profit margin, total asset turnover & the equity
multiplier. HOEC has a profit margin which is below the benchmark but by not much. It is also expected
to rise in the future because of sales from its newly acquired assets and may even surpass the benchmark.
The total asset turnover ratio has been fairly low for the company over the years and is also below the
benchmark. The company is not utilizing its existing assets to the fullest and even though they have
acquired new assets which are generating sales, the existing assets are not generating sales commiserate
with the investment in them. The company needs to dispose of its non-performing assets & improve asset
utilization.
The company is highly leveraged, more than the benchmark. It has been using debt to finance its asset
increase programs. However what needs to be realized that the company may find it difficult to raise debt
in the near future because of its already high leverage. It may also face the risk of bankruptcy.
Overall the return on equity for the company has somewhat fallen since the last year and also is the
lowest among comparable companies. To improve its ROE, HOEC needs to improve its asset utilization
the most. This is the only problematic area. They should dispose of non-performing assets and seek to
improve the asset utilization from the existing assets. They should also not acquire any further debt to
prevent from being highly leveraged and risky in the near future.
25
Current Ratio
2.60
2.55
2.50
2.45
2.40
2.35
HOEC Benchmark

Quick Ratio
2.50
2.00
1.50
1.00
0.50
0.00
HOEC Benchmark

26
Inventory Turnover Ratio
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
HOEC Benchmark

Days Sales Outstanding
120.00
100.00
80.00
60.00
40.00
20.00
0.00
HOEC Benchmark

27
Fixed Assets Turnover Ratio
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
HOEC Benchmark

TIE Ratio
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00
HOEC Benchmark

28
Profit Margin on Sales
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
HOEC Benchmark

Basic Earning Power
0.25
0.20
0.15
0.10
0.05
0.00
HOEC Benchmark

29
Basic Earning Power
0.25
0.20
0.15
0.10
0.05
0.00
HOEC Benchmark

Price to Cash Flow Ratio
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
HOEC Benchmark

30
Price to Book Value Ratio
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
HOEC Benchmark

Equity Multiplier
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
HOEC Benchmark

31

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Financial Analysis of HOEC

Oil Exploration/Allied Services Industry

Submitted by Group 6 (Section D)

For 2009-10 (in crores)

For 2009-10 (in crores)

For 2009-10 (in crores)

For 2009-10 (in crores)

HOEC Income Statement for three years (in rupees)

PROFIT BEFORE TAX 650,762,146 634,314,257 391,005,398

Provision for Current Income Tax 108,000,000 32,350,000 35,000,000

PROFIT AFTER TAX 415,924,594 535,664,257 241,005,398

130,383,885 127,445,045 97,573,036

HOEC Balance Sheet for three years (in rupees)

2010 2009 2008

Days Sales Outstanding 107.46 89.95 59.86

TIME SERIES RATIO ANALYSIS

ABAN ONGC HOEC OIL INDIA BENCHMARK

Days Sales Outstanding 53.97 25.62 107.46 31.07 54.53

CROSS SECTIONAL RATIO ANALYSIS

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