Refineries Group 12

8/3/2019 Refineries Group 12

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REFINERIES

SUBMITTED TO:

PROF. R.K.ARORA

SUBMITTED BY-ASTHA BISHNOI-11PGDMHR13

DIKSHA UNIYAL-11PGDMHR19

NIRANKAR ROYAL-11PGDMHR36

SWIMMI ALASAKA-11PGDMHR55


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INDIAN OIL CORPORATION LIMITED

Indian Oil Corporation Ltd. is India's largest company by sales with a turnover of Rs.

3,28,744 crore ($ 72,125 million) and profit of Rs. 7445 crore ($ 1,633 million) for the year

2010-11.

Indian Oil is the highest ranked Indian company in the latest Fortune Global 500 listings,

ranked at the 98th position. Indian Oil's vision is driven by a group of dynamic leaders who

have made it a name to reckon with.

Distinctions of IOCL-

IndianOil tops Fortune India 500 list

IndianOil features in Platts Global Energy Top 50 companies

IndianOil features in BT500

IndianOil in BW500 list of biggest companies

IndianOil breaks into Top 100 of Fortune Global listing, ranked 98th

IndianOil: One of The Best Companies to Work For

IndianOil in Top Ten of the Most Recognised & Respected Indian MNCs

IndianOil tops BS 1000 rankings

IndianOil - One of the Best Companies to Work For: BT Survey

IndianOil tops the Fortune India 500 Rankings

IndianOil in top five in Business India's Super 100

IndianOil is Indias Biggest Company: ET 500


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VISION OF IOCL


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REFINING

Born from the vision of achieving self-reliance in oil refining and marketing for the nation,

Indian Oil has gathered a luminous legacy of more than 100 years of accumulated

experiences in all areas of petroleum refining by taking into its fold, the Digboi Refinery

commissioned in 1901. Indian Oil controls 10 of Indias 20 refineries. The group refining

capacity is 65.7 million metric tonnes per annum (MMTPA) or 1.30 million barrels per day

-the largest share among refining companies in India. It accounts for 34.8% share of national

refining capacity.

The strength of Indian Oil springs from its experience of operating the largest number of

refineries in India and adapting to a variety of refining processes along the way. The basket

of technologies, which are in operation in Indian Oil refineries include: Atmospheric/Vacuum

Distillation; Distillate FCC/Resid FCC; Hydro cracking; Catalytic Reforming, Hydrogen

Generation; Delayed Coking; Lube Processing Units; Visbreaking; Merox Treatment; Hydro-

Desulphirisation of Kerosene& Gasoil streams; Sulphur recovery; Dewaxing, Wax Hydro

finishing; Coke Calcining, etc.

The Corporation has commissioned several grass root refineries and modern process units.

Procedures for commissioning and start-up of individual units and the refinery have been

well laid out and enshrined in various customized operating manuals, which are continually

updated. Indian Oil refineries have an ambitious growth plan with an outlay of about Rs.

55,000 crore for capacity augmentation, de-bottlenecking, bottom upgradation and quality

upgradation. Major projects under implementation include a 15 MMTPA grassroots refinery

at Paradip, Orissa, Naphtha Cracker and Polymer Complex at Panipat, Panipat Refinery

expansion from 12 MMTPA to 15 MMTPA, among others.

On the environment front, all Indian Oil refineries fully comply with the statutoryrequirements. Several Clean Development Mechanism projects have also been initiated. To

address concerns on safety at the work place, a number of steps were taken during the year,

resulting in reduction of the frequency of accidents. Innovative strategies and knowledge-

sharing are the tools available for converting challenges into opportunities for sustained

organisational growth.


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.


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MAJOR COMPETITORS OF IOCL


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RELIANCE INDUSTRIES

One of India's largest private sector enterprises, Reliance is also a Fortune Global 500

company. The group's activities span exploration and production of oil and gas, petroleum

refining and marketing, petrochemicals (polyester, fibre intermediates, plastics and

chemicals), textiles, retail and special economic zones. The company is also one of the

biggest exporters in India with one of the largest petrochemical and oil refining complexes in

the world at Jamnager.It recently sold a stake in its valuable Godavari Basin to BP for a

whopping $7.5 billion.Extremely cash rich with a horde of more than $15 billion, it has

started on empire building through ventures in Finance ( DE Shaw) ,Communications

(buying of wirelss broadband spectrum),Shale Gas Buys in the USA,Hospitality (Buying up

stakes in Hotel Companies).

Turnover: Rs 214,532 cr (Rs 2,145.32 billion)

Profit: Rs 15,898 cr (Rs 158.98 billion)

M-cap: Rs 322,139.37 cr (Rs 3.22 trillion)

BHARAT PETROLEUM


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Bharat Petroleum Corporation Ltd is one of the largest state-owned oil and gas companies in

India. A Fortune Global 500 company, it deals with retailing of petroleum products. The

companys low margins and abysmal stock price performance is due to the government

control which forces it to sell at below cost leading to huge losses and curtails capex for

growth. Despite noises of liberalization, nothing has come about with increased global crude

prices increasing the losses greatly. Bharat Petroleum produces a diverse range of products,

from petrochemicals and solvents to aircraft fuel and speciality lubricants and markets them

to hundreds of industries and several international and domestic airlines.

Turnover: Rs 1,26,181.92 crore (Rs 1.26 trillion)

Profit: Rs 1,632.36 crore (Rs 16.32 billion)

M-cap: Rs 24,310.88 crore (Rs 243.10 billion)

HINDUSTAN PETROLEUM CORP

Hindustan Petroleum Corporation Ltd is one of the major integrated oil refining and

marketing companies in India. A mega PSU with Navaratna status, HPCL accounts for about

20 per cent of the market share and about 10 per cent of India's refining capacity with two

coastal refineries. It has two major refineries producing a wide variety of petroleum fuels &

specialties, one in Mumbai (West Coast) and the other in Vishakapatnam, (East Coast).

HPCLs vast marketing network consists of its zonal & regional offices facilitated by a

supply & distribution infrastructure comprising terminals, pipeline networks, aviation service

stations, LPG bottling plants, inland relay depots & retail outlets, lube and LPG

distributorships. HPCL accounts for about 20% of the market share and about 10% of the

nations refining capacity. The revenue earned was around Rs. 34,000 crores with a net profit

margin of 0.6% in Dec10.

Turnover: Rs 1,13,304.34 cr (Rs 1.13 trillion)

Profit: Rs 1,475.29 cr (Rs 14.75 trillion)

M-cap: Rs 13,367.93 crore (Rs 133.67 billion)

ESSAR OIL LIMITED


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Essar has made their mark in a number of industries in India and they offer a wide range of

products to bulk customers in the transportation and industrial sector. The company has

agreement with a number of oil companies like Indian Oil Corporation, Hindustan Petroleum

Corporation, Bharat Petroleum Corporation for sharing product infrastructure and off take.

Essar Energy is a world-class, low-cost, integrated energy company focused on India and

positioned to capitalize on Indias rapidly growing energy demand. We have an established

track-record and assets worth US$12 billion across the power and oil and gas industries

Essar Energy's operations straddle the global power, and oil and gas industries with existing

operations and projects under development in both.

ADANI POWER

Market cap (Rs Cr) 14,442.73

Adani Welspun Exploration Limited (AWEL) is a joint venture (JV) company between

Ahmedabad based Adani Group and Mumbai based Welspun Group to undertake upstream

oil & gas business. In this JV, Adani Group holds 65% through its flagship company Adani

Enterprises Limited (AEL), while Welspun Group holds 35% through Welspun Natural

Resources Pvt. Ltd., a subsidiary of its flagship company Welspun Gujarat Stahl Rohren

Limited (WGSRL). AEL & WGSRL are listed on various Stock Exchanges.

AWEL had successfully won two onland exploration Blocks with majority shareholding

(90%) in NELP-VI bid round, one in Cambay Baisn (CB-ONN-2004/5) and the other in

Assam-Arakan Basin (AA-ONN-2004/4). AWEL was awarded another Block in Mumbai

offshore (MB-OSN-2005/2), close to Tapti fields, in NELP-VII bid round, where the

company is the operator with 100 % working interest. AWEL has two more concessions

(L39/48 & L22/50) with 100 % operating interest in onshore Thailand. Recently, AWEL has

been awarded an offshore Block (Block 5) in Gulf of Suez, Egypt in consortium with GSPC.

AWEL has a strong and experienced management and technical team in place and has

already built a prospective portfolio of onshore, offshore and international assets. AWEL

aims to be a medium sized Oil & Gas company with exploration & production assets

globally.


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ANALYSIS

(incrore

)

2010-11 2009-10

Sales(million tonnes) 72.92 69.92

PBIT(in crore) 11769 15632

PBT 9096 14106

For levels Q=61.9, PBIT=15632,

PBT=14106

DOL

5.75957

4

DFL

1.43722

1

DTL

8.27778

3


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Degree of operating leverage (DOL)

Degree of operating leverage (DOL) of value greater than 5 shows that a slight change in

sales provides a high degree of change in PBIT. This also indicates that IOCL has a higher

proportion of fixed costs as compared to the variable costs. It uses more of its fixed assets.

IOCL invests more in risky assets. Hence, it has a high DOL. With a lot of costs tied up in

machinery, plants, real estate and distribution networks, it would be difficult for IOCL to cut

expenses to adjust to a change in demand. So, if there is a downturn in the economy, earningsdon't just fall, they can plummet.

Degree of financial leverage (DFL)

DFL of value greater than 1 shows that financial leverage exists in IOCL. It shows the

changes in EPS relative to EBIT. Hence, if business conditions are unchanged, higher EPS

will result when debt is added to the capital structure. A large part of the capital structure of

IOCL consists of debt which shows that financial leverage of greater than 1 is reasonable.

Degree of Combined Leverage (DCL)

DCL or DTL has a value which shows that IOCLs business is highly risky with maximum

part of it attributed to DOL. This means more fixed costs to IOCL.

Low DFL as compared to DOL shows that IOCL tries to maintain its risk or tries not toincrease its risk to compensate for high DOL.

ANALYSIS OF THE CAPITAL STRUCTURE OF IOCL FROM 2006-

2011

YEAR 2010-11

The company is very high on debt for this financial year. The debt is almost as high as57837.61.If the situation does not improve, we may not be left with money to import crude


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from the international market and we will have to shut some of our refineries, said RS

Butola, chairman and managing director, Indian Oil.

YEAR 2009-10

As the ratio is higher we can say that Indian Oil has been aggressive i.e .88:1 in financing its

growth with debt.This can result in volatile earnings as a result of the additional interestexpense.

YEAR 2008-09

Increased borrowings to fund under-recoveries have skewed the ratio.The high debt-equity

ratio was due to the losses we incurred in the form of under-recoveries and we had to borrow

heavily. However, the situation is improving now and the picture at the close of this fiscal

should be different, said B Mukherjee, director (Finance), HPCL.

YEAR 2007-08


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Indian Oil Corporation (IOC) has seen a sharp increase in the debt-equity ratio during the

first three quarters of the current year as they increased borrowing to fund record under-

recoveries.

YEAR 2006-07

The debt equity ratio in this year is high .78:1,since a lot of borrowing was done by IOCL for

their expansion plans in the US. The companys debt-equity ratio has improved to 0.78: 1

during 2006-07 from 0.9: 1 in 2005-06. As the government bonds issued to IOC as

compensation for the under-recoveries in kerosene and LPG were released only towards the

fag end of the financial year,the company had to take recourse to higher borrowings.

Year Equity

Capital

Retained

earnings

Secured

loans

Unsecured

loans

2006-

07

1,168.01 4,886.00 5,671.42 21,411.27

2007-

08

1,192.37 89.43 6,415.78 29,107.39

2008-

09

1,192.37 409.00 17,565.13 27,406.93

2009-

10

2427.95 1,382.00 18,292.45 26,273.80

2010-

11

2427.95 4779 21292.83 36544.78


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GRAPHICAL ANALYSIS OF CAPITAL STRUCTURE OF IOCL FROM

2006-07

GRAPHICAL ANALYSIS OF CAPITAL STRUCTURE OF

COMPETITORS OF IOCL FROM 2006-2011

YEAR 2010-11

YEAR 2009-10

YEAR 2008-09


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YEAR 2007-08

YEAR 2006-07


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DIVIDEND POLICY OF IOCL

The term dividend refers to that part of profit (after tax) which is distributed to the

shareholders who are the real owners of the company. The amount which is undistributed part

rest out of the profits of the company is known as Retained earnings. Higher the dividend

payout, lower will be retained earnings.

The dividend policy of a company refers to the views and policies of the management with

respect of distribution of dividends. The dividend policy of a company should aim at

shareholder-wealth maximization but it also moves according to the sentiments of the market

as well as to the prospects of the company as Indian Oil Corporation Limited is doing from

last many of years to provide wealth maximization to the shareholders with providing

dividends as well as the prices of their shares in stock market has also been increasing which

is benefitting the owners with capital gains in their shares.

For the year ending March 2011, Indian Oil Corporation has declared an equity dividend of

95.00% amounting to Rs 9.5 per share. At the current share price of Rs 252.60 this results in


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a dividend yield of 3.76%.The company has a good dividend track report and has consistently

declared dividends for the last 5 years.

IOCL

2010-11 2009-10 2008-09 2007-08 2006-07

Number of shares 2427.952 2427.952 1192.374 1192.374 1168.012PAT(in crore) 7445.48 10220.55 2950 6963 7499

Earning per share 30.6656804 42.0953544 24.74055959 58.39610726 64.2031075

Dividend per share 9.5 13 7.5 5.5 19

Dividend payout ratio 30.9792572 30.8822676 30.31459322 9.418436019 29.59358314

Retention Rate 69.0207428 69.1177324 69.68540678 90.58156398 70.40641686

BONUS SHARES

IOCL announced bonus issue with ratio 1:1 with record date set on 30th October 2009. It was

announced on 20th October, 2009. At the same time, for 2009-10, it announced a cash

dividend of 130% which indicate that it had more than enough amount of cash reserves.

After the announcement of record date, the share price got affected and after 2 days, it flowed

under negative sign, as shown

After the issue of bonus shares, the market price of IOCL shares dipped in the next 3 days.

Date Open High Low Close

Differenc

e

10/26/2009 655 666.2 640.35 648 -7

10/23/2009 659 659.1 650 650.2 -8.8

10/22/2009 654.7 659.8 643.1 647.85 -6.85

10/21/2009 645.5 664 645 651.8 6.3

10/20/2009 630 643 630 641.55 11.55


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Hence, there is no effect on market capitalization or the wealth of the shareholders in terms of

increasing number of shares because the price got reduced and the value of their holdings still

have the same value.

DIVIDENDS PAID BY THE COMPANY OVER THE LAST 5 YEARS

YEAR MONTH DIVIDEND(%)

2011 May 95

2010 May 1302009 May 75

2008 May 55

2007 May 130

2006 Dec 60

2006 May 125

WORKING CAPITAL MANAGEMENT OF IOCL


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2010-11 2009-10 2008-09 2007-08 2006-07

INVENTORY TURNOVER RATIO

Inventory turnover ratio has been decreasing for the two years and the inventory has also

been increasing for the last two years. This shows that IOCL has not been able to convert its

most of the raw materials into finished goods in the last two years.

ACCOUNTS RECEIVABLE PERIOD

The figures show that IOCL provides a very small credit period to its debtors. It is an

extremely good receivable period as it has been able to operate in the highly competitive

market even after giving small credit period.

FIXED ASSET TURNOVER RATIO

This ratio increased from 2006-07 to 2008-09 but began decreasing 2009-10 onwards. This

shows a decrease in the efficiency in converting fixed assets to finished goods. This may be

due to lack of technology or other environmental issues.

Working Capital Turnover

Ratio 13.79281

18.4079

2

33.4667

1

13.4800

7

23.1524

8

Fixed Asset Turnover Ratio 5.690873

6.47983

6

8.83098

5

7.54788

4

6.48782

9

Inventory Turnover Ratio 3.503867

3.91790

9

5.07854

3 4.04385

4.06105

7

Inventory Period(days) 104.1706

93.1619

3 71.871

90.2605

1

89.8780

9

Accounts Receivable

Period(days) 7.308485

7.81916

9

7.58132

9 8.84415

8.59624

2

Operating Cycle 111.4791

100.981

1

79.4523

3

99.1046

6

98.4743

3


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OPERATING CYCLE

Due to a decrease in inventory turnover ratio, there is an increase in inventory period. This

increases the overall operating cycle.

COMPARISON WITH COMPETITORS

Inventory Turnover Ratio

It can be seen that this ratio has been decreasing for all the companies. This shows that

companies are not able to convert their raw materials into finished goods. This could be the

result of decrease in demand of petroleum products or some other external environmental

issues like government laws.

FIXED ASSET TURNOVER RATIO

The graph indicates that BPCL and HPCL are more efficient than IOCL in using their fixed

assets. BPCL and HPCL may have better technologies to do so.

ACCOUNTS RECEIVABLE PERIOD

In the past three years, it can be seen that all the companies other than Adani have provided

small credit period which indicate that it is a highly competitive market.

OPERATING CYCLE


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Adani has shown long operating cycle in the past two months. This is due to low inventory

turnover ratios in the past years which increases its inventory period.

Refineries Group 12

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