Final Project Repot Hp 10-11-2011

8/2/2019 Final Project Repot Hp 10-11-2011

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A

SUMMER TRAINING REPORT

ON

"Financial Analysis of HindustanPetroleum"Submitted in partial fulfillment of the requirement for the award of degree of

Master in Business administration (MBA) (SM) Session 2010-12under University School of Management

Submitted to : Submitted by :University School of Management Parveen KumarKurukshetra University, Roll NO. 25Kurukshetra

KURUKSHETRA UNIVERSITY,

KURUKSHETRA


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ACKNOWLEDGEMENT

Sometimes words fall short to show gratitude, the same happened with me during this project. The

immense help and support received from HPCL overwhelmed me during the project.

It was a great opportunity for me to work with HPCL, pioneers in the field of Oil and Gas. I am extremely

grateful to the entire team of HPCL at Scope Minar, New Delhi who have shared their expertise and

knowledge with me and without whom the completion of this project would have been virtually impossible.

I would like to express my deepest gratitude and sincere thanks to all those who have guided, encouraged

or supported me in one way or another throughout the whole course of my project.

I express my sincere thanks to my guide, Mr. Ajay Jain, Manager Finance, for imparting their knowledge to

me, and for his continuous and conscientious guidance & attention. I would like to thank Mr.K.G. Head

Finance, Northern region who gave me an opportunity to become a part of this important and interesting

project.

In the end, a sincere thanks to everyone else professionally involved in my internship. I believe my seven

weeks tenure at HPCL was a very vivid experience that gave me a feel of the corporate culture.

Parveen Kumar

MBA, Batch of 20010-12USM,KUK. University


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DECLARATION

It is hereby declared that, this project is being submitted as a partial fulfillment of the Post-

Graduate Program in Masters of Business Administration (Full Time) under Faculty of

Management Studies, University of Kurukshetra & has been exclusively designed and

prepared by me. It has not been submitted to any other institute or organization except

Hindustan Petroleum Corporation of India. It has also not been published elsewhere.

Parveen kumar

MBA, Batch of 2010-12

USM,Kuk. University


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EXECUTIVE SUMMARY

Hindustan Petroleum Corporation Limited (HPCL) is the one of the largest PSU oil companies and a FortuneGlobal 500 ranked organization. Its Corporate Office is located at Petroleum House, Nariman Point,

Jamshedji Tata Road, and Mumbai. HPCL's growth post-nationalization (in 1976) has been phenomenal.

During the financial year 2009-10, the annual turnover of HPCL was Rs. 1, 08,599 Crores and sales/ income

from operations was Rs. 1, 14,889 Crores.

This project is initiated to analyze the financial environment in which Hindustan Petroleum corporation

limited is operating. Through a thorough financial analysis, my aim to understand the financial factors is

influencing the company and its decision making. Later, I try and evaluate the various ratios to appreciate

their impact on companys performance over the last five years the financial statements of last five years

are identified, studied and interpreted in light of companys performance. Critical decisions of distributing

dividends, Issue of bonus Debentures and other current news are analyzed and their impact on the bottomline of the company is assessed. Finally, I study ratio analysis, fund flow analysis, cash flow analysis, Balance

sheet and Profit & Loss of the company to analyzing the financial position of the company in last five years.

The intended growth strategy demands a strong financial position to build and sustain the growth story. Any

company whether industrial or trading requires the current assets for day to day working of the unit and

these current assets are often referred as working capital of the company and is one of the major

contributors in improving profitability of any organization and is a vital component of success and survival

i.e. both profitability and liquidity for the organization.

Also in this project an attempt has been made to compare the profitability of HPCL with its main

competitors in the public sector viz. IOCL and BPCL. This has been done with the help of a detailed

comparative ratio analysis of IOCL, BPCL and HPCL. Such analysis has helped in pointing out the facets ofbusiness in which HPCL should improve upon its competitors. At last the valuation of the company is done

because Valuations are needed for many reasons such as investment analysis, capital

budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the

proper tax liability, and in litigation.
http://en.wikipedia.org/wiki/Investment_analysishttp://en.wikipedia.org/wiki/Capital_budgetinghttp://en.wikipedia.org/wiki/Capital_budgetinghttp://en.wikipedia.org/wiki/Mergerhttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Financial_reportinghttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Litigationhttp://en.wikipedia.org/wiki/Litigationhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Financial_reportinghttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Mergerhttp://en.wikipedia.org/wiki/Capital_budgetinghttp://en.wikipedia.org/wiki/Capital_budgetinghttp://en.wikipedia.org/wiki/Investment_analysis


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CONTENTSAcknowledgement

Declaration

Executive Summary

CHAPTER-1

Industry Overview

CHAPTER-2

Company overview

CHAPTER-3

Objective, Scope and Research Methodology

CHAPTER-4Data analysis and interpretation

CHAPTER-5

Findings

CHAPTER-6

Suggestions & Recommendation

CONCLUSION

BIBLIOGRAPHY


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CHAPTER-1

INDUSTRY OVERIVIEW


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Industry overview

India is the fifth largest energy consumer in the world with primary commercial energy consumption of387.9 MMROE

In the 2004 the consumption of oil and gas formed a major percentage in the world energy consumption

basket.

Energy Consumption grew at an average compound annual growth rate of 3.8 percent in the period 1999-

2005.

The significance of the oil and gas sector can be gauged from following facts:

1. Oil and gas industry size is estimated at USD 110 BN (about 15% of Indian GDP).2. It contributed to about 34% of gross revenue of government through Taxes and duties.3. The total contribution to government exchequer in 2004-2005 was USD 27 BN.4. It contributed to about 45% of India primary energy consumption.5. It constitutes 30.87% of India import in 2005-2006.6. IT accounts for 11.21% of Indias export in 2005-2006.7. India is the sixth largest crude consumer in the world.8. India is the ninth largest crude importer in the world.

India is among those countries, which have the highest growth rate in the consumption of petroleum

products. Its consumption of petroleum products was 107.9 million tons in 2003-04 and we expected to

reach 150 million tons by 2010.


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Petroleum

Petroleum is extracted from underground reserves; then it is cracked or refined into end products for

various uses. The petroleum industry thus has two parts: an oil exploration and production industry

upstream and a refinery industry downstream. Most oil producers also own refineries. But the reverse is not

true; a high proportion of oil is sold to refinery companies that do not produce crude oil.

Petroleum is buried underground in tiny pockets in rocks. We drill oil wells in to the rocks to pump out the

oil. A few wells are more than two miles deep. A lot of oil is under the oceans along our shores. Oil rigs that

can float are used to reach this oil. After the oil is pumped to the surface, it is send to refineries. At the

refineries, it is separated into different types of oil and made into fuels. Most of the oil is made into

gasoline. The oil is moved from one place to another through pipelines and by ships and trucks.


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Liquefied petroleum gas (LPG), mostly a combination of butane and propane. It is heavier than air, and

liquefies under pressure. It is used as a household cooking fuel, refrigerant, and vehicular fuel; 4 million

vehicles are estimated to be powered by LPG in the world.

Petrol is used to fuel internal combustion engines, mainly vehicular. Its early use as a killer of lice and their

eggs has completely disappeared.

Naphtha is used to make additives for high-octane petrol, and to make polymeric plastics and Urea, a

nitrogenous fertilizer.

Aviation turbine fuel (ATF) is the fuel used in propeller planes. It is akin to petrol.

Kerosene, also known as paraffin, is used as an illuminant and cooling fuel in India and other poor countries,

and as a space heating fuel in industrial countries.

Jet fuel, used in jet planes, is closely akin to kerosene.

High-speed diesel oil is used in engines running at 750 revolutions per minute (rpm) or more. It is mostly

used in diesel- powered vehicles.

Light diesel oil is used in diesel engines running at lower speed mainly irrigation pumps and generation

sets.

Furnace oil is made by diluting residual fuel oil from refining with middle distillates Such as diesel oil. It is

used in boilers, bunkers, heaters, furnaces, or as fertilizer feedstock. Low-sulphur heavy stock (LSHS) is a

variant of furnace oil.

Lubricating oil consists of greases and viscous oils used to lubricate moving parts in industry, automobiles,

railway engines and carriages and marine engines.

Paraffin wax is used as an electrical insulator, for heat storage and in thermostats.

Asphalt is a black thermoplastic product that is used to make roads and sometimes for waterproofing. It is

similar to tar, which is made from coal. Asphalt is found in natural form; it was used to waterproof Egyptian

mummies.

Petroleum coke is mostly used as fuel, but is also used to make electrodes and dry cell batteries.


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Key players international


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Key trends alternative fuels

Coal bed methane (CBM)

CBM is an eco-friendly natural gas (methane), which is adsorbed in coal and lignite seams. Coal isthe main source of CBM production, which is conducted by simple depressurisation and

dewatering, processes.

Exploration and production of CBM activities furthers the quest to reduce the greenhouse effectand earn carbon credits.

The GoI approved the CBM Policy in July 1997. The first commercial production of CBM was initiated in July 2007 at about 72,000 cubic metres per

day. Four rounds of bidding have been completed till date:

CBM I (2001) 7 blocks offered

CBM ii (2003) 9 blocks offeredCBM iii (2006) 10 blocks offered

CBM IV (2India is the fourth-largest coal producer in the world with the third-largest proven coal

reserves. With about 4.6 TCM of CBM resources, the country has significant prospects for commercial .

Key trends alternative fuels

Underground coal gasification (UCG)

The technique of underground coal gasification converts unminable underground coal or ligniteinto combustible gases by gasifying the coal in situ. The technology was first widely used in the US

in the 1800s and in India, in Kolkata and Mumbai, in the early 1900s. UCG is currently the only

feasible technology available to harness energy from deep unminable coal seams, both

economically and in an environmentally clean manner. This process reduces capital investment and

operating costs as well as the cost of output gases by 25 to 50 per cent compared to surface

gasification.

Gas hydrates

The GoI has initiated the National Gas Hydrate Programme (NGHP) to map gas hydrates for use asan alternate source of energy by extracting methane from solids below the seabed in the deep

ocean and the permafrost regions of the world.

NGHP is a consortium of national E&P companies and research institutions.Biofuels

Biofuels (bioethanol and biodiesel) are fuels that are produced as an alternate source of energyfrom domestic renewable resources.

Biofuels have lower emissions compared to petroleum or diesel.


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In India, biodiesel is produced from plants (renewable resources) such as jatropha and has thepotential to reduce the countrys dependence on oil imports.

Bioethanol is mainly produced from sugar or starch containing materials such as sugarcane andcellulosic material.

The Gol has signed an agreement with the US to develop a joint clean energy research anddevelopment centre with second generation biofuels as one of its priority areas.Growth drivers

Abundant raw material

India has large reserves of coal, crude oil and natural gas.Growing demand for natural gas

Utilization of natural gas in different industries has increased over the years.Industry-wise utilization of natural gas in India

Growth drivers

Natural gas is an important input in various industries for the following:Energy:

o Power generationo Industrial and domestic fuelo Tea plantationso Captive use or LPG shrinkage Non-energy:

Fertilizers industry

Petrochemicals

CNG


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Industry infrastructure


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InvestmentsFDIM

Indias petroleum and natural gas sectors attracted FDI equity worth US$ 525 million between April2010 and September 2010.

Cumulative FDI in the petroleum and natural gas sectors has been estimated at US$ 3.2 billionbetween April 2000 and September 2010.

Investments M&A Inbound deals:

ONGC signed a Memorandum of Understanding (MoU) with Arrow Energy (Australia) for

cooperation in CBM production in 2009.

Vedanta Resources signed an agreement to buy 51 to 60 per cent of Cairn Indias oil and gas assets

for US$ 9.6 billion. Vedanta seeks to acquire a 31 to 40 per cent stake directly and the remaining 20

per cent through its subsidiary, Sesa Goa.

Domestic deals:2009: IOCL has bought a 5 per cent stake in OIL for US$ 232.9 million.

2010: Reliance Power Ltd has acquired Reliance Natural Resources Ltd for US$ 1,529 million.


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Investments M&A

Outbound deals:Reliance Eagle ford Upstream LP, a subsidiary of Reliance India Ltd (RIL), has entered a JV with

Pioneer Natural Resources Company. It will acquire a 45 per cent stake in Pioneers Eagle Ford

Shale acreage for a consideration of US$ 1.3 billion.

Reliance Marcellus LLC, a subsidiary of Reliance India Ltd (RIL), has formed a JV with Atlas Energy,

Inc The former has acquired a 40 per cent interest in Atlas Marcellus Shale acreage for US$ 1.7

billion.

An international consortium, comprising Indian national oil companies, has acquired a 40 per cent

stake in Empresa Mixta in Venezuela. The members and their stakes include ONGC Videsh Limited

(OVL) 11.0 per cent, IOCL 3.5 per cent, OIL 3.5 per cent, Repsol YPF 11 per cent and

PETRONAS 11 per cent. The total project cost is US$ 19 billion.

Through its subsidiary, Reliance Marcellus II, LLC, Reliance Industries has formed a 60:40 JV with

Carrizo Oil & Gas, Inc of the US. Reliance plans to acquire a 20 per cent interest in Carrizos 52,600

net acres in Pennsylvanias shale acreages for US$ 65 million through the agreement. The company

will also acquire a 100 per cent stake in these acreages from an affiliate of Avista Capital Partners

for US$ 327 million.

Increasing demand

Between 2005 and 2010, Indias consumption and import of crude oil increased steadily, whileproduction remained largely stagnant due to the countrys low oil discovery rate.

Imports are currently meeting the high demand for crude oil as a source of energy. They accountedfor 82.5 per cent of total crude oil supply in 200910.

*Crude oil demand-supply trend *Demand projection


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CHAPTER-2

COMPANY OVERVIEW


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COMPANY OVERVIEW

COMPANY AT A GLANCE

HPCL is a Fortune 500 company, with an annual turnover of Rs. 1,08,599 Crores and sales/income from

operations of Rs 1,14,889 Crores (US$ 25,306 Millions) during FY 2009-10, having about 20% Marketing

share in India and a strong market infrastructure. HPCL operates 2 major refineries producing a wide

variety of petroleum fuels & specialties, one in Mumbai (West Coast) of6.5 Million Metric Tonnes Per

Annum (MMTPA) capacity and the other in Vishakhapatnam, (East Coast) with a capacity of8.3 MMTPA.

HPCL holds an equity stake of 16.95% in Mangalore Refinery & Petrochemicals Limited, a state-of-the-art

refinery at Mangalore with a capacity of 9 MMTPA. In addition, HPCL is constructing a refinery at Bhatinda,

in the state of Punjab, as a Joint venture with Mittal Energy Investments Pte. Ltd.

o HPCL also owns and operates the largest Lube Refinery in the country producing Lube Base Oils ofinternational standards, with a capacity of335 TMT. This Lube Refinery accounts for over 40% of

the India's total Lube Base Oil production.

o HPCL's vast marketing network consists of 13 Zonal offices in major cities and 101 Regional Officesfacilitated 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, over the years, has moved from strength to strength on all fronts. The

refining capacity steadily increased from 5.5 MMTPA in 1984/85 to 14.8 MMTPA presently. On the

financial front, the turnover grew from Rs. 2687 Crores in 1984-85 to an impressive Rs 1, 16,428

Crores in FY 2008-09.

MISSION AND VISION OF HPCL

MISSION

"HPCL, along with its joint ventures, will be a fully integrated company in the Hydrocarbons sector of

exploration and production, refining and marketing; Focusing on enhancement of productivity, quality and

profitability; caring for customers and employees; caring for environment protection and cultural heritage.

It will also attain scale dimensions by diversifying into other energy related

Fields and by taking up transnational operations."

VISION

To be a World Class Energy Company known for caring and delighting the customers with high quality

products and innovative services across domestic and international markets with aggressive growth and

delivering superior financial performance. The Company will be a model of excellence in meeting social

commitment, environment, health and safety norms and in employee welfare and relations
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PERFORMANCE PROFILE OF HPCL

o FINANCIAL2009-2010 2005-2006

SALES 114,888.63 76,920.26GROSS PROFIT 4,193.18 1,151.21

DEPREICIATION 1,164.40 690.23

INTEREST 903.75 175.88

TAX (including differed

tax)

823.61 (131.91)

PROVISION FOR FBT 0.05 11.38

NET PROFIT 1,301.37 405.63

DIVIDEND 406.35 101.80

TAX ON DISTRIBUTEDPROFIT

67.49 14.28

RETAINED EARNINGS 827.53 289.55

SOURCE: 58 ANNUAL REPORT OF HPCL

WHAT CORPORATION OWES

2009-2010 2005-2006

GROSS FIXED ASSETS 24,988.37 13,479.25

DEPRECIATION 9,681.70 6,141.85

NET FIXED ASSETS 15,306.67 7,337.40

CAPITAL WORK IN

PROGRESS

3,887.59 2,363.88

INVESTMENTS : JVC 2,623.83 825.76

OTHERS 8,763.39 3,201.88

NET CURRENT ASSETS 4,086.83 3,055.09

DEFFERD TAX LIABILITY (1,807.97) (1,384.44)

TOTAL 32,860.34 15,399.57

2009-2010 2005-2006

NET WORTH 11,557.97 8,735.74

SHARE CAPITAL 339.71 338.94

SHARE FORFEITURE (0.70) -

RESERVES 11,218.96 8,396.80

BORROWINGS 21,302.37 6,663.83

TOTAL 32,860.34 15,399.57

SOURCE: 58 ANNUAL REPORT OF HPCL

This data shows that overall sales of the company are increased from Rs. 76,920.26 crores (2005-2006) toRs. 114,888.63 (2009-2010), the gross profit of the company increased from Rs. 1,151.21 crores (2005-

2006) to Rs. 4,193.18 (2009-2010) and the overall net profit of the company is increased from Rs. 405.63


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(2005-2006) to Rs. 1,301.37 (2009-2010) so this shows that there is a 220.8% of increase in net profit but

the overall net worth of the company is increased from Rs. 8,735.74 (2005-2006) to Rs. 11,557.97 (2009-

2010).

Products & Services

Refineries Aviation Bulk Fuels & Specialities International trade LPG - HP GAS Lubes - HP LUBES Retail Exploration & Production Joint Ventures

JOINT VENTURES OF HPCL

In an effort to fulfill its vision and achieve its objectives, HPCL has formulated plans for expansion,

diversification and internal development

Crude Refining and Marketing of finished Petroleum products is the core area of the Corporation.

Opportunities are also being explored to access new revenue streams, and augment downstream

businesses. Accordingly, HPCL has ventured in Upstream activities (Exploration and Production) and piped

gas distribution in major cities

1 HPCL-Mittal Energy Ltd. (HMEL)2 Hindustan Colas (HINCOL)3 Prize Petroleum Company Limited4 South Asia LPG Co Pvt. Ltd. ( SALPG)5 Bhagyanagar Gas Limited (BGL)6 Aavantika Gas Limited7 Petronet India Limited (PIL)8 Petronet MHB Limited (PMHBL)9 Mangalore Refineries and Petrochemicals Limited (MRPL)10 CREDA-HPCL Biofuel Limited (CHBL)11 Sushrut Hospital and Research Centre
http://www.hindustanpetroleum.com/En/ui/RefineriesHome.aspxhttp://www.hindustanpetroleum.com/En/ui/RefineriesHome.aspxhttp://www.hindustanpetroleum.com/En/ui/AviationHome.aspxhttp://www.hindustanpetroleum.com/En/ui/AviationHome.aspxhttp://www.hindustanpetroleum.com/En/ui/BulkFuelsSpecialitiesHome.aspxhttp://www.hindustanpetroleum.com/En/ui/BulkFuelsSpecialitiesHome.aspxhttp://www.hindustanpetroleum.com/En/ui/InternationalTradeHome.aspxhttp://www.hindustanpetroleum.com/En/ui/InternationalTradeHome.aspxhttp://www.hindustanpetroleum.com/En/ui/LPGHome.aspxhttp://www.hindustanpetroleum.com/En/ui/LPGHome.aspxhttp://www.hindustanpetroleum.com/En/UI/LubesHome.aspxhttp://www.hindustanpetroleum.com/En/UI/LubesHome.aspxhttp://www.hindustanpetroleum.com/En/ui/RetailHome.aspxhttp://www.hindustanpetroleum.com/En/ui/RetailHome.aspxhttp://www.hindustanpetroleum.com/En/ui/ExplorationandProductionHome.aspxhttp://www.hindustanpetroleum.com/En/ui/ExplorationandProductionHome.aspxhttp://www.hindustanpetroleum.com/En/ui/JointVentures.aspxhttp://www.hindustanpetroleum.com/En/ui/JointVentures.aspxhttp://www.hindustanpetroleum.com/En/ui/JointVentures.aspxhttp://www.hindustanpetroleum.com/En/ui/ExplorationandProductionHome.aspxhttp://www.hindustanpetroleum.com/En/ui/RetailHome.aspxhttp://www.hindustanpetroleum.com/En/UI/LubesHome.aspxhttp://www.hindustanpetroleum.com/En/ui/LPGHome.aspxhttp://www.hindustanpetroleum.com/En/ui/InternationalTradeHome.aspxhttp://www.hindustanpetroleum.com/En/ui/BulkFuelsSpecialitiesHome.aspxhttp://www.hindustanpetroleum.com/En/ui/AviationHome.aspxhttp://www.hindustanpetroleum.com/En/ui/RefineriesHome.aspx


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REFINERIES OF HPCL

Without refining, the rich resources of crude petroleum of nature would remain latent. Value-added

products from crude petroleum like petrol, diesel, kerosene, liquefied petroleum gas, naphtha and many

more products would not be available for growth and development of a nation.

HPCL refineries upgrade the crude petroleum into many value-added products and over 300 grades oflubricants, specialties and greases. The Lubricating Oils Refinery set up at Mumbai is largest lube refinery in

India. It produces superior quality lube base oils.

The offsite product handling facilities of refineries at Mumbai and Vishakhapatnam has been automated.

Projects have been implemented and facilities upgraded to produce green fuels like unleaded petrol and

low sulphur diesel. and Euro III & Euro IV works are in progress . The refineries have been benchmarked by

an international agency for various performance parameters.

Numerous awards have been bestowed on both the refineries in recognition of the efforts in the field of

energy conservation, environment and safety.

CAPACITY OF REFINERIES

1 MUMBAI REFINERY : 6.5 million metric tons per annum (MMTPA) capacity2 VISAKH REFINERY : 8.3 million metric tons per annum (MMTPA) capacity


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NEW PROJECTS OF HPCL

Identification and implementation of projects for process

improvement, performance, safety and environment related

concerns are ongoing processes. The following new projects

have been undertaken by Mumbai and Visakh Refineries to

upgrade the facilities to meet the product demand :

Facilities for Euro-III & IV grade Gasoline: Both Refineries have executed Green Fuels &

Emission Control Project (GFECP) at Mumbai Refinery and Clean Fuel Project at Visakh

Refinery to produce Euro-III/IV gasoline with capability to produce Euro-IV MS. Apart from

meeting MS quality stipulations, the project also enabled to upgrade Naphtha to Gasoline

which is a value added product.

New FCCU project at Mumbai Refinery: In order to enhance the production of value added

products like LPG, MS and HSD, the refinery is installing a new FCCU of 1.4 MMTPA capacity,

which will increase the FCCU processing capacity from the existing level of 1 MMTPA to 2.4

MMTPA. The project is expected to be completed by the 2nd qtr of 2010-11.

Environmental facilities: Environmental facilities are being upgraded in both the Refineries

by installing Integrated Effluent Treatment Plants to comply with air pollution limits set forth

by Pollution Control Board.

Bottom Up-gradation Projects: Mumbai Refinery has undertaken Feasibility Study of

Solvent Deasphlating Unit (SDA) by using the proprietary technology Residuum Oil

Supercritical Extraction (ROSE). Setting up of this plant is expected to enhance the recovery

of valuable oil from the heavier fraction of the crude (VTB).

Similarly Visakh Refinery has also planned to implement the Delayed Coker Unit (DCU)

Projects for bottom up gradation.

LOBS Project: Mumbai refinery produces various grades of LOBS with sulphur above 300

ppm and saturates below 90%, which fall under API Gr-I category. To meet the increased

demand of the same LOBS quality in the domestic market including the API Gr-II/III category

the capacity is being uplifted. The project will help HPCL to keep its market share of LOBS

intact. The project is expected to be completed by June 2010.

MR/VR DHT: Both Refineries are setting up DHT projects to upgrade / produce the Euro-III /

IV HSD and projects are expected to be completed mechanically by Sept 2011.

The Environmental Clearance for DHT Projects for both the refineries, Mumbai

Refinery and VisakhRefinery hbeenobtained.

The Environmental Statement for the FY 2009-10 has been submitted to Andhra Pradesh
http://www.hindustanpetroleum.com/Upload/En/UPdf/Environmental_Clearance_DHT_MR.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/Environmental_Clearance_DHT_MR.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/Environmental_Clearance_DHT_%20VR.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/Env_%20Statement_09-10.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/Env_%20Statement_09-10.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/Environmental_Clearance_DHT_%20VR.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/Environmental_Clearance_DHT_MR.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/Environmental_Clearance_DHT_MR.pdf


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Pollution Control Board (APPCB). View the Compliance Status of Environmental

Clearance Stipulations for DHT VR Project.

Single Point Mooring (SPM) Project at Visakh Refinery: Visakh Refinery putting up SPM

project to facilitate unloading of large crude parcels of the size of around 300,000 Metric

Tonnes from Very Large Crude Carriers (VLCCs). The VLCCs cannot be berthed in the existing

crude receiving jetties due to draught restrictions. The installation of SPM will reduce the

freight cost and wharf age charges and thus will improve the economics of the Refinery. The

Environmental Clearance for this project has been obtained. View status of Compliance of

Stipulated EC Conditions. The offshore and onshore installation work of the project has

been completed. The Environmental Statement for the financial year (FY2009-10) has also

been submitted to the Andhra Pradesh Pollution Control Board (APPCB) .

Modernization Project for Mounded Storage System for LPG /Propylene at Visakh

Refinery: Visakh Refinery is executing the Mounded storage system for LPG and Propylene in

place of existing LPG /Propylene Horton spheres. This is a risk mitigation project andundertaken following the recommendations by the external safety agencies, viz., High Power

steering Committee August, 1998, 4th Round ESA - September, 1999 etc. The Mounded

storage of LPG has proved to be safer compared to above ground storage vessels since it

provides intrinsically passive and safe environment and eliminates the possibility of Boiling

Liquid Expanding Vapor Explosion (BLEVE) phenomenon. The approved project cost is Rs.

124 Crores.
http://www.hindustanpetroleum.com/Upload/En/UPdf/VR-DHT_Proj_%20Compliance.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/VR-DHT_Proj_%20Compliance.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/Environmental_Clearance_SPM_Visakh.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/Compliance_%20EC_SPM_VR.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/Compliance_%20EC_SPM_VR.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/SPM_Env%20Statement-9-10.PDFhttp://www.hindustanpetroleum.com/Upload/En/UPdf/SPM_Env%20Statement-9-10.PDFhttp://www.hindustanpetroleum.com/Upload/En/UPdf/Compliance_%20EC_SPM_VR.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/Compliance_%20EC_SPM_VR.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/Environmental_Clearance_SPM_Visakh.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/VR-DHT_Proj_%20Compliance.pdfhttp://www.hindustanpetroleum.com/Upload/En/UPdf/VR-DHT_Proj_%20Compliance.pdf


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Corporate Social Responsibility OF HPCL

Environment

Mission & SHE policy

Mission

To have safe, healthy and pollution free environment in and around all our refineries, plants, facilities and

other premises at all times; instill awareness in these areas, including relevant laws, in all employees,

families and the communities in which they carry out the activities.

Environment Policy

The Corporation is committed to conduct its operation in such a manner as compatible with environment

and economic development of the community. Its aim is to create an awareness and respect for the

environment, stressing on every employees involvement in environmental improvement by ensuring

healthy operating practices, philosophy and training.

Health Policy

To provide a structured program to look after and promote the health of vital Human Resource, essential

for productivity and effectiveness of the Corporation.

Safety Policy

As an integral part of its business, HPCL believes that no work or service or activity is so important or

urgent that safety be overlooked or compromised. Safety of the employees and public, protection of their

as well as Corporations assets shall be paramount. Corporation considers that safety is one of theimportant tools to enhance productivity and to reduce national losses. The Corporation will constantly

Endeavour to achieve and maintain high standards of Safety in its operations.


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BEYOND BUSINESS CORPORATE SOCIAL RESPONSIBILITY OF HPCL

Promising whatever it takes to make a difference:

HPCL is committed to create a positive impact on the society and contribute to socio economic

development including measures for improving the quality of life of underprivileged classes of the society.

Since its inception, HPCL has tried to follow Corporate Social Responsibility in the true sense. This sense of

responsibility comes from a feeling that not every achievement of the company is reflected in its balancesheets. The relevance that a company achieves by virtue of its socio-economic participation surpasses the

profit and loss measurements by far. In this respect HPCL has proceeded in the truly corporate manner,

planning investments in social causes methodically, executing the various steps with utmost care and

securing distinctive developments for the poor and the downtrodden masses. HPCL has provided sustained

value for the above mentioned investments all the time and has contributed to the living standards of

underprivileged masses.

A compact booklet: "Bringing Smiles (2008-09)" provides details of HPCL's various CSR activities during

FY 2008-09. "Bringing Smiles (2009-10)" contains details of CSR activities undertaken by HPCL during the

FY-2009-10.

When it comes to social contribution our country never lacked goodwill among corporate citizens but

competent contributors were never in good numbers as far as management and execution skills are

concerned. HPCL has surely paved the way in the right direction with exemplary contributions. HPCL's

initiatives have created value in the following diverse ways

1. HPCL's initiatives have made notable differences in fields as diverse as education, infrastructure,welfare measures, health and hygiene, vocational training & employment generation, training in

self-reliance, amenities for the sufferers of natural disasters and environmental protection. The

most commendable feature of the support is that HPCL has taken innovative measures to infuse

self reliance in masses to secure long lasting improvements.

2. HPCL has categorized different projects of social relevance according to national and regionalsignificance. The investment has been made according to solid result oriented plans with every

detail of the prospect taken into consideration.

3. The funds for different CSR projects have been consistently allocated in a transparent manner.HPCL follows an allocation process based on complete evaluation and benchmark standardization.

4. A Foundation has been established to take up projects of National significance. This initiative hashelped to identify the impacts of projects keeping national interest in mind.

5. HPCL has set exemplary organizational competency in carrying out complex and demandingprojects. The implementation process is supported by adequate checks and balances including

reporting, assessment and appraisal by world class professionals.

HPCL took its first step in this direction during the year 1985-86 with a modest budget allocation of Rs.18

Lakhs for undertaking various welfare activities for the benefit of SC/STs and other weaker sections of the

Society under the Special Component Plan/Tribal Sub-Plan and Welfare Plan for Weaker Sections. Later the

corporation expanded the scope and allotment of such projects in manifolds to uphold its "Socially

Responsible Corporate citizen" Image and to address the huge welfare expectation which the society was

increasingly resting on the corporation. Budget for the CSR projects subsequently rose every year and

larger portions of underprivileged masses were gradually incorporated into the schemes. The corporation


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went beyond the parameters of the SC/ST Component Plan to extend support. The fund has been arranged

by virtue of a policy decision to allocate certain percentage of the net profit for each financial year to

Component Plan and CSR activities and to operate the CSR policy on Triple Bottom Line principle i.e.

Economic, Social & Environment. The Expenditure for the year 2005-06 stands at a whopping Rs.7 crores

for SCP projects and Rs. 8 crores for other CSR projects.

An "HPCL Foundation" is being set up to finance the CSR projects and also monitor implementation ofdistinct schemes like AIDS prevention, vocational training for unemployed youth, education of rural

children, computer training, healthcare facilities, etc.

Corporate Social Responsibility Initiatives touching lives :

The following CSR Initiatives have placed HPCL in a league of its own.

Swavalamban:The objective of this programme is to provide free Vocational Training to

beneficiaries from low income group households. HPCL and CII have joined hands along with M/s City &

Guilds to impart training to youths and change them into able professionals.

Navjyot:This project aims at increasing the health index of children who have been unfortunately displaced from

slums. The project currently accommodates 3100 slum children from Bawana Resettlement Colony and

imparts health care services. Navjyot India Foundation is the official partner in the project.

Unnati:The objective of this initiative is to provide Computer training to 3000 students at Visakhapatnam through

NIIT Limited.

Nanhi Kali:The project is an initiative towards Supporting the Girl Child. Corporation has provided Sponsorship of the

quality school education of 498 renewals of Nanhi Kalis and additional 1400 Nanhi Kalis from various Govt.

Schools from Mehboobnagar Dist. and Paderu region in Andhra Pradesh in collaboration with M/s KC

Mahindra Education Trust.

Muskan:This project ponders into the welfare of 100 underprivileged children, many of them living in footpaths by

providing shelter at Tuglakabad and Jahangipuri in Delhi. Education, meals, clothing, health care,

vocational training etc. are provided for them through HPCL's operating partner M/s Prayas Juvenile Aid

Centre (JAC) Society.

Suraksha:This is an initiative towards prevention of HIV/AIDS through training/lectures and distribution of condoms

to truckers at Highway Retail Outlets. The project operating partner is Organization for Socially Economic

and Rural Development (OSERD).

Global Warming:

Under this project, approximately 20000 school children are being educated on causes of Global Warming

at Delhi, Goa and Mumbai through our operating partner CSRL (Centre for Social Responsibility &

Leadership).


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A Corporate approach towards development:The current projects bear the mark of a well thought of corporate mindset .To summarise HPCL's approach

towards social welfare we have to mention the following points-

1. Strategic approach to every issue is the key to HPCL's success.2.

HPCL has meticulously secured the input-output-outcome balance.

3. HPCL has underlined the social problems accurately and has taken result orientedinitiatives.

4. The advanced planning regarding allocation of resource and correct evaluation ofperformance against benchmark have represented organizational competence.

The success of HPCL lies in the maintenance of social responsibilities amid profit driven and competitive

business environment. Apart from directly contributing to the betterment of weaker sections of the

society, HPCL has been associated with healthcare, education, environmental protection, agricultural

development, rural reconstruction, water supply development etc. It can be said that the corporation has

touched lives qualitatively acting as a corporate social ambassador. HPCL has always seen itself as a

contributing participant in India's overall development. The corporation has stood the test of time being

true to citizen's expectations.


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CHAPTER-3

OBJECTIVE, SCOPE AND RESEARCH

METHODOLOGY


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RESEARCH METHODOLOGY

PRIMARY OBJECTIVES:

To Analysis Financial Statement of HPCL highlighting its growth and Profitability. To understand the various ratios to appreciate their impact on companys performance To understand the short-term solvency as well as the effectiveness of working capital in the

operation of business.

To comprehensively evaluate the inventory, receivables, creditors and cash Managementperformances.

To suggest on the basis of findings, improvements in the management of working capital, at HPCL. To do a comparative profitability analysis of HPCL with major competitors IOCL & BPCL, thus

pointing out the restraining factors.

To understand the value of the company by doing valuation.

SCOPE OF THE STUDY:

The scope of this project work is confined to the Financial Statement Analysis of HPCL highlighting its growth

and Profitability for the last five years, different Ratios, Balance Sheet and Profit & Loss Analysis, Company

Practices at HPCL only for a past period of 3 years i.e. from 2007-08 to 2009-10 and at the same time a

comparative financial analysis of HPCL with IOCL and BPCL for duration 2007-08 to 2009-10.

DATA COLLECTION:

Primary Data: Primary data was collected through direct interaction with the companys finance and

accounts department.

Secondary Data: The secondary sources comprise Annual Reports of the firm, other journals and

periodicals. Also I have referred some websites, the list of which is given in the bibliography.

LIMITATIONS:

Time is definitely the main constraint. Time was not sufficient enough to assess allProcesses and policies of an organization of the stature of HPCL.

Inadequacy of required data is another constraint. The authenticity of the suggestions and recommendations depend upon the rationality of the data

provided to me.


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CHAPTER-4

DATA ANALYSIS AND INTERPRETATION


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RATIO ANALYSIS

FINANCIAL ANALYSIS

Financial analysis is the process of identifying the financial strengths and weaknesses of the

firm and establishing relationship between the items of the balance sheet and profit & loss account.

Financial ratio analysis is the calculation and comparison of ratios, which are derived from the

information in a companys financial statements. The level and historical trends of these ratios can be used

to make inferences about a companys financial condition, its operations and attractiveness as an

investment. The information in the statements is used by

Trade creditors, to identify the firms ability to meet their claims i.e. liquidity position of thecompany.

Investors, to know about the present and future profitability of the company and its financialstructure.

Management, in every aspect of the financial analysis. It is the responsibility of the management tomaintain sound financial condition in the company.

RATIO ANALYSIS

The term Ratio refers to the numerical and quantitative relationship between two items

or variables. This relationship can be exposed as

Percentages Fractions Proportion of numbers

Ratio analysis is defined as the systematic use of the ratio to interpret the financial

statements. So that the strengths and weaknesses of a firm, as well as its historical performance and current

financial condition can be determined. Ratio reflects a quantitative relationship helps to form a quantitative

judgment.


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STEPS IN RATIO ANALYSIS

The first task of the financial analysis is to select the information relevant to the decision underconsideration from the statements and calculates appropriate ratios.

To compare the calculated ratios with the ratios of the same firm relating to the pas6t or with theindustry ratios. It facilitates in assessing success or failure of the firm.

Third step is to interpretation, drawing of inferences and report writing conclusions are drawn aftercomparison in the shape of report or recommended courses of action.

BASIS OR STANDARDS OF COMPARISON

Ratios are relative figures reflecting the relation between variables. They enable analyst to

draw conclusions regarding financial operations. They use of ratios as a tool of financial analysis involves thecomparison with related facts. This is the basis of ratio analysis. The basis of ratio analysis is of four types.

Past ratios, calculated from past financial statements of the firm. Competitors ratio, of the some most progressive and successful competitor firm at the same point

of time.

Industry ratio, the industry ratios to which the firm belongs to Projected ratios, ratios of the future developed from the projected or pro forma financial

statements

NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of

establishing and interpreting various ratios for helping in making certain decisions. It is only a means of

understanding of financial strengths and weaknesses of a firm. There are a number of ratios which can be calculated

from the information given in the financial statements, but the analyst has to select the appropriate data and

calculate only a few appropriate ratios. The following are the four steps involved in the ratio analysis.

Selection of relevant data from the financial statements depending upon the objective of theanalysis.

Calculation of appropriate ratios from the above data. Comparison of the calculated ratios with the ratios of the same firm in the past, or the ratios

developed from projected financial statements or the ratios of some other firms or the comparison

with ratios of the industry to which the firm belongs.


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INTERPRETATION OF THE RATIOS

The interpretation of ratios is an important factor. The inherent limitations of ratio analysis

should be kept in mind while interpreting them. The impact of factors such as price level changes, change in

accounting policies, window dressing etc., should also be kept in mind when attempting to interpret ratios.

The interpretation of ratios can be made in the following ways.

Single absolute ratio Group of ratios Historical comparison Projected ratios Inter-firm comparison

GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS

The calculation of ratios may not be a difficult task but their use is not easy. Following

guidelines or factors may be kept in mind while interpreting various ratios are

Accuracy of financial statements Objective or purpose of analysis Selection of ratios Use of standards Caliber of the analysis

IMPORTANCE OF RATIO ANALYSIS

Aid to measure general efficiency Aid to measure financial solvency Aid in forecasting and planning Facilitate decision making Aid in corrective action Aid in intra-firm comparison


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Act as a good communication Evaluation of efficiency Effective tool

LIMITATIONS OF RATIO ANALYSIS

Differences in definitions Limitations of accounting records Lack of proper standards No allowances for price level changes Changes in accounting procedures Quantitative factors are ignored Limited use of single ratio Background is over looked Limited use Personal bias

CLASSIFICATIONS OF RATIOS

The ratios can be classified on the basis of requirements of various uses, e.g., creditors , bankers, investors,

management, government etc.

The ratios may be classified as follows:

1. Liquidity Ratios2. Leverage or Long Term Solvency Ratios3. Activity Ratios4. Profitability Ratios5. Coverage Ratios6. Market Test Ratios


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INDUSTRY OVERVIEW

Ratios

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

Investment Valuation Ratios

Face Value 10.00 10.00 10.00 10.00 10.00

Dividend Per Share 3 18 3 5.25 12

Operating Profit Per Share (Rs) 24.02 74.23 54.53 97.19 75.10

Net Operating Profit Per Share (Rs) 2,105.05 2,644.18 3,080.47 3,689.45 3,168.69

Free Reserves Per Share (Rs) 247.31 272.74 301.08 306.75 -

Bonus in Equity Capital 78.01 78.01 78.00 78.00 78.00

Profitability Ratios

Operating Profit Margin (%) 1.14 2.8 1.77 2.63 2.37Profit Before Interest And Tax Margin

(%)

0.17 2.01 0.94 1.83 1.26

Gross Profit Margin (%) 1.33 2.85 0.95 1.84 1.28

Cash Profit Margin (%) 1.52 2.52 1.31 1.42 2.31

Adjusted Cash Margin (%) 1.18 2.07 1.31 1.42 2.31

Net Profit Margin (%) 0.56 1.74 1.08 0.45 1.19

Adjusted Net Profit Margin (%) 0.22 1.29 1.08 0.45 1.19

Return On Capital Employed (%) 2.75 11.41 6.23 9.48 9.20

Return On Net Worth (%) 4.64 16.37 10.74 5.35 11.25

Adjusted Return on Net Worth (%) 1.87 12.2 5.01 7.61 11.72

Return on Assets Excluding

Revaluations

1.63 282.87 311.94 316.89 341.32

Return on Assets Including Revaluations 1.63 282.87 311.94 316.89 341.32Return on Long Term Funds (%) 3.22 12.6 7.38 10.59 9.2

Liquidity And Solvency Ratios

Current Ratio 0.91 0.82 1.03 0.93 1.12

Quick Ratio 0.34 0.29 0.51 0.53 0.44

Debt Equity Ratio 0.76 1.1 1.59 2.12 1.84

Long Term Debt Equity Ratio 0.51 0.9 1.19 1.79 1.84

Debt Coverage Ratios


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Interest Cover 2.67 5.43 2.15 1.53 3.35

Total Debt to Owners Fund 0.76 1.1 1.59 2.12 1.84

Financial Charges Coverage Ratio 6.92 7.04 3.22 2 4.64

Financial Charges Coverage Ratio Post

Tax

7.81 6.34 3.5 1.75 3.73

Management Efficiency Ratios

Inventory Turnover Ratio 9.18 11.14 9.47 15.31 9.13

Debtors Turnover Ratio 58.53 60.42 63.44 63.23 45.87

Investments Turnover Ratio 10.14 12.31 9.47 15.31 9.13

Fixed Assets Turnover Ratio 8.23 7.92 5.35 6.22 4.29

Total Assets Turnover Ratio 4.65 4.47 3.83 3.74 3.27

Asset Turnover Ratio 5.32 5.76 5.35 6.22 4.29

Average Raw Material Holding 26.06 19.07 32.6 18.05 -

Average Finished Goods Held 27.98 23.65 27.93 18.31 -

Number of Days In Working Capital 8.42 -0.3 18.18 7.59 7.65

Profit & Loss Account Ratios

Material Cost Composition 95.11 92.36 96.28 91.75 93.86

Imported Composition of Raw Materials

Consumed

81.74 82.32 77.3 79.39 74.82

Selling Distribution Cost Composition 3.06 2.88 2.11 2.01 -

Expenses as Composition of Total Sales 3.94 5.29 6.1 4.81 5.94

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 28.61 45.09 10.47 36.17 36.41

Dividend Payout Ratio Cash Profit 10.6 31.14 5.98 13.36 19.21

Earning Retention Ratio 29.25 39.5 77.57 74.54 65.04

Cash Earning Retention Ratio 86.4 62.22 91.4 88.44 81.2

Adjusted Cash Flow Times 7.81 5.61 12.16 12.65 8.46

Earnings Per Share 11.95 46.3 33.51 16.98 38.43

Book Value 257.44 282.87 311.94 316.89 341.32

(Source: Self Generated)


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Data analysis

1. LIQUIDITY RATIOS

Liquidity refers to the ability of a concern to meet its current obligations as & when there

becomes due. The short term obligations of a firm can be met only when there are sufficient liquid assets.The short term obligations are met by realizing amounts from current, floating (or) circulating assets The

current assets should either be calculated liquid (or) near liquidity. They should be convertible into cash for

paying obligations of short term nature. The sufficiency (or) insufficiency of current assets should be

assessed by comparing them with short-term current liabilities. If current assets can pay off current

liabilities, then liquidity position will be satisfactory.

To measure the liquidity of a firm the following ratios can be calculated

Current ratio Quick (or) Acid-test (or) Liquid ratio Absolute liquid ratio (or) Cash position ratio

(a) CURRENT RATIO:

Current ratio may be defined as the relationship between current assets and current

liabilities. This ratio also known as Working capital ratio is a measure of general liquidity and is most widely

used to make the analysis of a short-term financial position (or) liquidity of a firm.

Components of current ratio

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Bills receivable Bills payable

Inventories Short-term advances

Work-in-progress Sundry creditorsMarketable securities Dividend payable


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Short-term investments Income-tax payable

Sundry debtors

Prepaid expenses

In theory, the higher the current ratio, the better it is for the company.

Year Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

Current Ratio 0.91 0.82 1.03 0.93 1.12

Interpretation

The liquidity position of hpcl has improved significantly during the study period. This fact is backed by the

current ratio which has increased by around 23% from mar06 to mar10. Hence, the company is now in a

much better position to meet its liabilities.

As a rule, the current ratio with 2:1 (or) more is considered as satisfactory position of the

firm. It is shown the satisfactory position of the firm.

GRAPHICAL REPRESENTATION

(b) QUICK RATIO

Quick ratio is a test of liquidity than the current ratio. The term liquidity refers to the ability

of a firm to pay its short-term obligations as & when they become due. Quick ratio may be defined as the

relationship between quick or liquid assets and current liabilities. An asset is said to be liquid if it is

converted into cash with in a short period without loss of value.

0

0.2

0.4

0.6

0.8

1

1.2


0.91 0.82

1.030.93

1.12

Current Ratio

Current Ratio


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Components of quick or liquid ratio

QUICK ASSETS CURRENT LIABILITIES

Cash in hand Out standing or accrued expenses

Cash at bank Bank over draft

Bills receivable Bills payable

Sundry debtors Short-term advances

Marketable securities Sundry creditors

Temporary investments Dividend payable

Income tax payable

The higher the Quick ratio, the better it is for the company.


Quick Ratio 0.34 0.29 0.51 0.53 0.44

Interpretation

Quick assets are those assets which can be converted into cash with in a short period of time,

say to six months. So, here the sundry debtors which are with the long period does not include in the quick

assets.

Compare with 2006, the Quick ratio is increased because the sundry debtors are increased

due to the increase in the corporate tax and for that the provision created is also increased.


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1. LEVERAGE RATIO

Financial leverage refers to the use of debt in a firms capital structure. While debt capital is a cheaper

source of finance, it exposes the firm to greater risk. Debt capital is cheaper than equity capital because

interest on debt capital is a tax-deductible expense where as dividend on equity capital is not. Hence,

financial leverage has both returns and risk implications.

These ratios give users a general idea of the companys overall debt load as well as its mix of equity and

debt.

In general the greater the amount of debt held by a company the greater the financial risk of bankruptcy.

i. DEBT-TO-EQUITY RATIO

Formula:

0

0.1

0.2

0.3

0.4

0.5

0.6


0.340.29

0.51

0.53

0.44

Quick Ratio

Quick Ratio


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Net worth = Shareholders money Miscellaneous expenditure

It is a structural ratio showing the relative dependence on debt and equity sources of financing. This is a

measurement of how much suppliers, lenders, creditors and obligators have committed to the company

versus what the shareholders have committed.

A low value of this ratio means the company is less dependent on leverage, i.e., money borrowed from

and/or owed to others. In general, the higher the ratio, the more risk that a company is considered to have

taken on.

The lower the ratio, the less leverage a company is using and stronger is its equity position .


Debt Equity Ratio 0.76 1.1 1.59 2.12 1.84

InterpretationProportion of debt has increased more than 100% for the study period. This the risk to the shareholder has

been increased. How ever the company will also be getting tax benefits.


ii. TIMES INTEREST EARNED RATIO OR INTEREST COVERAGE RATIO

Formula:

0

0.5

1

1.5

2

2.5


0.76

1.1

1.59

2.12

1.84

Debt Equity Ratio

Debt Equity Ratio


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It is a coverage ratio reflecting the cover available for the interest burden. It is used to determine how easily

a company can pay interest expenses on outstanding debt. The lower the ratio, the more the company is

burdened by debt expenses.

Higher is the ratio, better is the company in a position to off the interest on outstanding debt .


Interest Cover 2.67 5.43 2.15 1.53 3.35

Interpretation

The company is now in the better position to meet its interest liabilities this fact is proved by the interest

coverage ratio which has shown an increase of around 30% from mar06 to mar10 .


iii. LONG-TERM DEBT-TO-EQUITY RATIO

Formula:

0

1

2

3

4

5

6


2.67

5.43

2.15

1.53

3.35

Interest Cover

Interest Cover


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It is another leverage ratio that compares a companys long-term liabilities to its shareholders equity or net

worth.

The lower the ratio, the less leverage a company is using and stronger is its equity position.


Long Term Debt Equity Ratio 0.51 0.9 1.19 1.79 1.84

Interpretation

The company is now using more debt leverage and the equity position of the company is also weaker now.

As the table shows the long term debt equity ratio has increased by 250 % from mar06 to mar10


3. ACTIVITY RATIOS

Funds are invested in various assets in business to make sales and earn profits. The efficiency

with which assets are managed directly effect the volume of sales. Activity ratios measure the efficiency (or)

effectiveness with which a firm manages its resources (or) assets. These ratios are also called Turn over

ratios because they indicate the speed with which assets are converted or turned over into sales.

0

0.2

0.4

0.6

0.8

1

1.2

1.41.6

1.8

2


0.51

0.9

1.19

1.79 1.84

Long Term Debt Equity Ratio

Long Term Debt Equity Ratio


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In common parlance it is understood in the financial world that the better (higher) this ratio better is the

financial health of the company.

i. INVENTORY TURN OVER RATIO

Formula:

It reflects the efficiency of inventory management. The inventory turnover ratio indicates how quickly a

firm has used inventory to generate the goods and services that are sold.

Higher the ratio, higher is the efficiency of inventory management in a company.


Inventory Turnover Ratio 9.18 11.14 9.47 15.31 9.13

Interpretation

The company inventory turnover ratio is highest in 2009 and the inventory management was not that

effective in 2010. The low turnover rate indicates poor liquidity, possible overstocking and obsolescence.

So, care has to be taken by the management in this front.


0

2

4

6

8

10

12

1416


9.18

11.14

9.47

15.31

9.13

Inventory Turnover Ratio

Inventory Turnover Ratio


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ii. FIXED ASSET TURNOVER RATIO

Formula:

Fixed assets here involve namely the property, plant and equipments.

Higher is the ratio, higher is the efficiency of fixed asset utilization by the company.


Fixed Assets Turnover Ratio 8.23 7.92 5.35 6.22 4.29

Interpretation

The company fixed assets turnover ratio has been decrease 50% from mar06 to mar10. This shows that the

utilization rate of fixed assets for sales has decrease significantly.


0

1

2

3

4

5

6

7

8

9


8.237.92

5.35

6.22

4.29

Fixed Assets Turnover Ratio

Fixed Assets Turnover Ratio


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iii. TOTAL ASSETS TURNOVER RATIO

Formula:

The inventory and accounts receivable turnover ratios reflect the benefits obtained from the use of specific

assets (inventory and accounts receivable). For a more general picture of the productivity of the firm, we

can compare the sales during a period with the total assets that generated these sales.

One way is with the total asset turnover ratio which tells us how many times during the year the value of a

firms total assets is generated in sales.

Higher is the ratio, higher is the overall efficiency of asset management in the company.


Total Assets Turnover Ratio 4.65 4.47 3.83 3.74 3.27

Interpretation

The company Total assets turnover ratio has been decrease 25% from mar06 to mar10. This shows that

efficiency which the asset management is done has decrease.


0

1

2

3

4

5


4.65 4.47

3.83 3.743.27

Total Assets Turnover Ratio

Total Assets Turnover

Ratio


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4. PROFITABILITY RATIOS

The primary objectives of business undertaking are to earn profits. Because profit is the engine, that drives

the business enterprise.

It reflects the relationship between (defined variously) and sales and are usually expressed in percentages. It

gives a good understanding of how well the company utilized its resources in generating profit and

shareholder value. The long term profit of the company is vital for both the survivability of the company as

well as the benefit received by shareholders. They give us an idea of which factors make up a firms income

and are usually expressed as a portion of each rupee of sales. For example, the profit margin ratios we

discuss here differ only in the numerator. Its in the numerator that we can evaluate performance for

different aspects of the business.

i. GROSS PROFIT MARGIN RATIO

Formula:

Suppose the analyst wants to evaluate how well production facilities are managed. The analyst would focus

on gross profit (sales less cost of goods sold), a measure of income that is the direct result of production

management.

This ratio tells us the portion of each rupee of sales that remains after deducting production expenses.


Gross Profit Margin (%) 1.33 2.85 0.95 1.84 1.28

Interpretation

This ratio is calculated to find the profitability of business. The company Gross Profit Ratio has been

decrease mar07 to mar10. This shows that profit in the business is not sufficient in comparison to sales.

This situation is not healthy for the business. Hence, a low gross profit margin ratio should be carefully

investigated. Its indicate unfavorable trends in the form of reduction in selling prices not accompanied by

proportionate decrease in cost of goods sold or increase in cost of goods sold or reduction in sales volume

with or without reduction in selling price.


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ii. OPERATING PROFIT MARGIN RATIO

Formula:

To evaluate operating performance, we need to consider operating expenses in addition to the cost of

goods sold. To do this, we remove operating expenses (e.g., selling and general administrative expenses)

from gross profit, leaving us with operating profit, also referred to as earnings before interest and taxes

(EBIT).


Operating Profit Margin (%) 1.14 2.8 1.77 2.63 2.37

Interpretation

Operating margin is used to measure company's pricing strategy and operating efficiency. It gives an

idea of how much a company makes (before interest and taxes) on each dollar of sales. Operating margin

ratio shows whether the fixed costs are too high for the production or sales volume. It shows high

0

0.5

1

1.5

2

2.5

3


1.33

2.85

0.95

1.84

1.28

Gross Profit Margin(%)

Gross Profit Margin(%)


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operating margin from mar06 to mar07 if the operating margin is increasing, the company is earning

more per dollar of sales.


iii. NET PROFIT MARGIN RATIO

Formula:

Both the gross profit margin and the operating profit margin reflect a companys operating perform ance.

But they do not consider how these operations have been financed. To evaluate both operating and

financing decisions, we need to compare net income (that is, earnings after deducting interest and taxes)

with sales.

The various profit margin ratios reflect profit margins at successive stages. At the final stage, we have post-

tax profit margin ratio referred to more commonly as net profit margin ratio, which measures the overall

effectiveness of production, administration, selling, financing and tax management.

These ratios provide a valuable understanding of the cost and profit structure of the firm and enables

analyst to identify the sources of business efficiency/inefficiency.

0

0.5

1

1.5

2

2.5

3


1.14

2.8

1.77

2.63

2.37

Operating Profit Margin(%)

Operating Profit Margin(%)


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Higher is the value of these ratios, better is the position of the company in terms of utilizing its resources

in generating profit.


Net Profit Margin (%) 0.56 1.74 1.08 0.45 1.19

Interpretation

This ratio is a symbol of profitability and efficiency of the business. Higher the ratio the more favorable for

the business as it denotes sound management and efficiency. Lower ratio reveals decline in profits and

mismanagement. The company shows increase in net profit ratio from mar06 to mar10.


iii. RETURN ON ASSETS

Formula:

It indicates how profitable a company is relative to its total assets. It illustrates how well management is

employing the companys total assets to make profit.


Return on Assets 1.63 282.87 311.94 316.89 341.32

Interpretation

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8


0.56

1.74

1.08

0.45

1.19

Net Profit Margin (%)

Net Profit Margin (%)


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The higher the ratio, the more efficient management is in utilizing its assets base.

iv. RETURN ON NETWORTH

Formula:

It measures how much the shareholders earned for their investment in the company.

The higher the ratio, the more efficient management is in utilizing its equity base and the better return is

to investors.


Return On Net Worth (%) 4.64 16.37 10.74 5.35 11.25

Interpretation

This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. As the

primary objective of business is to maximize its earnings, this ratio indicates the extent to which this primary

objective of businesses being achieved. This ratio is of great importance to the present and prospective

0

50

100

150

200

250

300

350


1.63

282.87311.94 316.89

341.32Return on Assets

Return on Assets


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shareholders as well as the management of the company. As the ratio reveals how well the resources of the

firm are being used, higher the ratio, better are the results. The company shown the higher return on net

worth from maro6 to mar07. As it shows that the investors can invest because the return is higher.


v. RETURN ON CAPITAL EMPLOYED

Formula:

Capital employed= Long term debt + Net worth

This measure narrows the focus to gain a better understanding of a companys ability to generate returns

from its available capital base. It also depicts how the use of leverage impacts a companys profitability. It is

a more comprehensive profitability indicator because it gauges managements ability to generate earnings

from a companys total pool of capital.

The higher the ratio, the more efficient management is in utilizing its total pool of capital base to

generate earnings.


Return On Capital Employed (%) 2.75 11.41 6.23 9.48 9.20

0

5

10

15

20


4.64

16.37

10.74

5.35

11.25

Return On Net Worth(%)

Return On Net Worth(%)


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Interpretation

The company is showing high return on capital employed from mar06 to mar10. This shows that the

management has been successful in increasing the income of the shareholders through the use of borrowed

capital.


5. Coverage Ratios

These ratios computed from information available in the profit and loss account. For a normal firm, in the

ordinary course of business, the claims of creditors are not met out of the sale proceeds of the permanent

assets of the firm. The obligations of a firm are normally met out of the earnings or profits. The coverage

ratios measure the relationship between what is normally available from operations of the firms and the

claims of the outsiders. The important coverage ratios are:

i) Interest Coverage Ratio:

It is also known as time-interest-earned, ratio. This ratio indicates the relationship between net

profits before interest on long-term debts. Interest coverage ratio determines the debt servicing

capacity of a business enterprise keeping in view fixed interest on long-term debt. The way to

ascertain the ratio is:

Year Mar '06 Mar '07 Mar '08 Mar '09 Mar '10Interest Cover 2.67 5.43 2.15 1.53 3.35

0

2

46

8

10

12


2.75

11.41

6.23

9.48 9.2

Return On Capital Employed(%)

Return On Capital

Employed(%)


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Interpretation

The company is showing higher interest coverage ratio from mar 06 to mar 07. It is beneficial for the

company as it is for the lenders, this ratio measures the margin of safety for the lenders. This also indicates

that the company has the ability to meet interest payments.


6. Market Test Ratios

It indicates how the equity stock of the company is assessed in the capital market. Since the market value of

equity reflects combined influence of risk and return, the valuation ratios may be deemed as the most

comprehensive measure of a firms performance.

i. EARNINGS PER SHARE

Formula:

This figure tells us what profit has been earned by the common shareholder for every share held.

It serves no purpose to compare the earnings per share in one company with that in another because a

company can elect to have a large number of shares of low denomination or a smaller number of higher

0

2

4

6


2.67

5.43

2.151.53

3.35

Interest Cover

Interest Cover


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denominations. A company can also decide to increase or decrease the number of shares on issue. This

decision will automatically alter the earnings per share.

While the absolute value of earning per share tells nothing about a companys performance, the growth in

EPS over time is a very important statistics.

Growth in EPS tells us more about a companys progress than growth in absolute profits. Growth in profitscan result from great many things. For instance, a company could acquire another for shares and thereby

increase its profits. However, if the percentage increase in profits is less than the percentage increase in

number of shares, EPS will fall even with higher profits.

Growth in EPS has a significant influence on the market price of the share. Not only is the growth

important but also its stability. A high quality rating is given to earnings that are showing steady, non-

volatile growth.


Earnings Per Share 11.95 46.3 33.51 16.98 38.43

Interpretation

The company is showing higher earnings per share from mar06 to mar10. Higher the earnings per share,

better is the performance and prospects of the company. The increasing trend of E.P.S. increases the

possibility of more dividend and bonus shares which finally has a favorable effect on the market value of

share. This ratio assists in evaluating the prevailing market price of share in the light of earning capacity of

the firm.


0

10

20

30

40

50


11.95

46.3

33.51

16.98

38.43

Earnings Per Share

Earnings Per Share


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ii. DIVIDENDS PER SHARE

Formula:

The total return to the shareholder over time consists of the dividend received plus the growth in share

price. While for some investors growth is important, many shareholder and potential investors pay very

close attention to dividends.

Companies dislike having to reduce the dividend because this will drive away investors with possibly

serious effects on share price.


Dividend Per Share 3 18 3 5.25 12

Interpretation

The company is showing higher dividend per share from mar06 to mar10. Higher dividend per share

ratio is more favorable for the company because this ratio shows that how much income as profit will be

received by the investors.


0

5

10

15

20


3

18

3

5.25

12

Dividend Per Share

Dividend Per Share


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CHAPTER-5

FINDINGS of Study


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FINDINGS OF THE STUDY

1. The current ratio has shown in a continuous increase from mar06 to mar10 0.91, 0.82, 1.03, 0.93,1.12 during 2006 of which indicates a continuous increase in both current assets and current

liabilities.

2. The quick ratio is also in a fluctuating trend through out the period 2006 10 resulting as 0.34,0.29, 0.51, 0.53, 0.44. The companys present liquidity position is satisfactory.

3. The Debt Equity Ratio has shown a fluctuating trend. The Debt Equity Ratio is decrease comparedwith the last year. So, the long term solvency of the firm is decrease.

4. The fixed assets turnover ratio is in decreasing trend from the year 2006 10. It indicates that thecompany is not efficiently utilizing the fixed assets.

5. The net profit ratio is in fluctuation manner. It increased in the current year compared with theprevious year from 0.45 to 1.19.

6. The net profit is increased greatly in the current year. So the return on total assets ratio is increasedfrom 1.63 to 341.32.

7. The earnings per share was very high in the year 2007 i.e., 46.3. That is decreased in the followingyears because number of equity shares are increased and the net profit is decreased. In the current

year the net profit is increased due to the increase in operating and maintenance fee. So the

earnings per share is increased.

8. The operating profit ratio is in fluctuating manner as 1.14, 2.8, 1.77, 2.63 and 2.37 from 2006 10respectively.

9. The return on investment is increased from 2.75 to 9.20 compared with the mar 06. Both the profitand shareholders funds increase cause an increase in the ratio.


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SUMMARY

1) After the analysis of Financial Statements, the company status is better, because the Net workingcapital of the company is doubled from the last years position.

2) The company profits are huge in the current year; it is better to declare the dividend toshareholders.

3) The company is utilising the fixed assets, which majorly help to the growth of the organisation. Thecompany should maintain that perfectly.

4) The company fixed deposits are raised from the inception, it gives the other income i.e., Interest onfixed deposits.

5) After the analysis of Financial Statements, the company status is better, because the Net workingcapital of the company is doubled from the last years position.

6) The company profits are huge in the current year; it is better to declare the dividend toshareholders.

7) The company is utilising the fixed assets, which majorly help to the growth of the organisation. Thecompany should maintain that perfectly.

8) The company fixed deposits are raised from the inception, it gives the other income i.e., Interest onfixed deposits.


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CONCLUSION

The companys overall position is at a good position. Particularly the current years position

is well due to raise in the profit level from the last year position. It is better for the organization to diversify

the funds to different sectors in the present market scenario.


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COMPARATIVE FINANCIAL ANALYSIS OF HPCLA firm would like to know its financial standing vis--vis its major competitors and the Industry group. The

analysis of financial performance of all firms in an industry and their Comparison at a given point of times is

referred to the cross-section analysis or the inter-firm analysis.

To ascertain the relative financial standing of a firm, its financial ratios are compared either with its

immediate competitors or with the industry average. We have used the data from annual reports of the

companies to illustrate the inter-firm comparison.

The financial statements HPCL over last five years can be analysed by applying the Ratio analysis method.

The financial statements of HPCL over last three years are also compared with its close competitors like

Bharat Petroleum Corporation Ltd. And IOCL.

RATIO ANALYSIS

1. Liquidity Ratio

1.1 Current Ratio

Year 2007-08 2008-09 2009-10

HPCL 1.03 0.93 1.12

BPCL 0.74 0.50 0.72

IOCL 0.84 0.61 0.76

Comments:

HPCL has a better liquidity position in terms of liquidity in comparison to its competitors. However, all the companies current ratio do not match with expected norm.

2007-08 2008-09 2009-10

HPCL 1.03 0.93 1.12

BPCL 0.74 0.5 0.72

IOCL 0.84 0.61 0.76

0

0.2

0.4

0.6

0.8

1

1.2

Ratio

Current Ratio


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1.2 QUICK RATIO

YEAR 2007-08 2008-09 2009-10

HPCL 0.51 0.53 0.44

IOCL 0.54 0.47 0.45

BPCL 0.61 0.67 0.68

Comments:

Comparatively BPCL has a higher and better quick ratio than HPCL & IOCL. Investments in quick assets of HPCL are lesser than that of its competitors.

2007-08 2008-09 2009-10

HPCL 0.51 0.53 0.44

BPCL 0.54 0.47 0.67

IOCL 0.61 0.67 0.68

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Ratio

Quick Ratio


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2. Solvency Ratios

2.1 Debt-Equity Ratio

Year 2007-08 2008-09 2009-10

HPCL 1.59 2.12 1.84BPCL 1.29 1.75 1.70

IOCL 0.86 1.02 0.88

Comments:

HPCL has the poorest position in terms of solvency. IOCL has the best solvency position. Debt-Equity ratio of HPCL is more than 1 for all the years.

2007-08 2008-09 2009-10

HPCL 1.59 2.12 1.84

BPCL 1.29 1.75 1.7

IOCL 0.86 1.02 0.88

0

0.5

1

1.5

2

2.5

Ratio

Debt Equity Ratio


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2.2 Long Term Debt to Equity Ratio

Year 2007-08 2008-09 2009-10

HPCL 1.19 1.79 1.84

BPCL 0.34 0.31 0.93

IOCL 0.35 0.43 0.40

Comments: HPCL has the highest proportion of long term debt in its capital structure. IOCL has the lowest and the best solvency position by this ratio.

2007-08 2008-09 2009-10

HPCL 1.19 1.79 1.84

BPCL 0.34 0.31 0.93

IOCL 0.35 0.43 0.4

0

0.2

0.4

0.60.8

1

1.2

1.4

1.6

1.8

2

Ratio

Long Term Debt to Equity


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3. PROFITABILITY RATIOS:

3.1 NET PROFIT MARGIN

Year 2007-08 2008-09 2009-10

HPCL 1.08 0.45 1.19

BPCL 1.42 0.54 0.26IOCL 2.78 0.95 3.74

Comments: IOCL is clearly the winner in this case. Its net profit is significantly higher than its competitors. HPCLs net profit margin is the lower than IOCL but higher than BPCLs for 2009-10.

Profit decreased during the year 2008-09 because:

Pressure from Ministry of Finance to keep prices of SKO and LPG less to avoid sky rocketing inflation. Increase in crude oil prices, manufacturing and other expenses. Dependence on govt. special oil bonds has been another reason.

2007-08 2008-09 2009-10

HPCL 1.08 0.45 1.19

BPCL 1.42 0.54 0.26

IOCL 2.78 0.95 3.74

0

0.5

1

1.5

2

2.5

3

3.5

4

Margin

Ratio

Net Profit Margin


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1.2Gross Profit Margin

Year 2007-08 2008-09 2009-10

HPCL 0.95 1.84 1.28

BPCL 1.86 2.58 1.86

IOCL 3.47 3.46 4.40

COMMENTS:

HPCL has the lowest amount of gross profit margin. IOCL has the highest gross profit margin. HPCLs gross profit margin may be lower because o

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