Final Sapm

Madurai - 625 005
EQUITY RESEARCH ON REFINERY INDUSTRY COMPANIES

By
Anand Natarajan
Anup Kannan
Siv Chelladurai
Venkata Subramanian
Vijaya Raghavan

Abstract
Fundamental analysis is an approach to arrive at the correct price of the security. Its objective
is to identify the underpriced and overpriced securities in the market place so that the investment
decision-buying and selling of securities can be made. A security is said to be underpriced if its
current market price is less than the correct price known as intrinsic value or true value.
Conversely, it is overpriced if the current market price is above its intrinsic value. Fundamental
analysis is a method of evaluating a security that entails attempting to measure its intrinsic value
by examining related economic, financial and other qualitative and quantitative factors, and
company specific factors. TOP- DOWN APPROACH E-I-C approach: Economy (E)-
industry(I)- company(C) is used for carrying out Fundamental Analysis. The present study aims
at carrying out the Fundamental analyses of five leading companies of Indian refineries industry
and estimating their intrinsic value to assist investment decisions. The refineries industry is one
of the core industries in India and is optimistic of posting good sales in the coming years. So, the
investment in the shares and securities of Petroleum companies seems to be profitable. Five
leading petroleum companies Reliance industries limited, IOCL, BPCL, EOL and HPCL listed in
the National Stock Exchange are selected for this study. The study is done using secondary data
collected from Reserve Bank of India website, BSE website and Company Annual Reports for
the period of last five years from year 2007 to 2011. Fundamental Analysis of both the
companies is carried out and their intrinsic value ranges are obtained from the EIC Analysis of
these companies to help investor decisions.
Introduction
Fundamental analysis is an approach to arrive at the correct price of the security. Its objective
is to identify the underpriced and overpriced securities in the market place so that the investment
decision-buying and selling of securities can be made. A security is said to be underpriced if its
current market price is less than the correct price known as intrinsic value or true value.
Conversely, it is overpriced if the current market price is above its intrinsic value. Fundamental
analysis is a method of evaluating a security that entails attempting to measure its intrinsic value
by examining related economic, financial and other qualitative and quantitative factors, and
company specific factors. Intrinsic value of the security as defined by the GRAHAM & DODD
is that value which is justified by the facts, e.g. assets, earnings, dividends, definite prospects,
including the factors of management. The intrinsic value of the company is determined by
discounting the companys prospective earnings stream or the shareholders prospective dividend
stream. According to fundamental analysts, earning of the company and prospective dividend
stream of shareholders depend on following factors:
Economic and industrial environment.
Relative importance of company within its industry.
Companys financial strength and performance.
Its policies, quality of assets and management
Fundamental analysis is based on the assumption that a security has an intrinsic value at any
given time. This value is a function of underlying economic values-specifically expected return
and risk. By assessing these fundamental determinants of intrinsic value of an intrinsic value can
then be compared to the current market price to determine whether the stock is underpriced or
overpriced. Another assumption of the fundamental analysis is that discrepancies between the
intrinsic value and current market value occurs from time to time, which eventually is recognized
by the investors who invest in the stock and those who recognize these value discrepancies
earlier, benefit from these in the long run. The objective of the fundamental analysis is not to
enter and exit the market very often, for switching securities or to have speculative gains;
instead, it is for long-term investments. It reduces the risk of loss from buying an overpriced
stock or selling an underpriced stock.

Framework of Fundamental Analysis
There are broadly two main approaches to fundamental analysis:

(1) TOP- DOWN APPROACH
E-I-C approach
Economy (E) - Industry (I) - Company(C)

(2) BOTTOM-UP APPROACH
C-I-E approach
Company(C) -Industry (I) - Economy (E)
For our purpose of carrying out Fundamental Analysis we follow

TOP- DOWN APPROACH i.e.; E-I-C Approach: Economy (E) - Industry (I) - Company(C).
Thus,

We first analyse the overall economy.
Then analyse the industry within which a particular company operates.
Finally we carry out the analysis of the company.

Data Analysis
Economy Analysis
The economic analysis aims at determining if the economic climate is conducive and is capable
of encouraging the growth of business sector, especially the capital market. When the economy
expands, most industry groups and companies are expected to benefit and grow. When the
economy declines, most of the sectors and companies usually face survival problems. Hence, to
predict share prices, an investor has to spend time exploring the forces operating in the overall
economy. The selection of a country for investment has to focus itself to the examination of a
national economic scenario. It is important to predict the direction of the national economy
because economic activity affects corporate profits, not necessarily through tax policies but also
through foreign policies and administrative procedures. A zero growth rate of the economy can
lead to lower business profits, a prospect that can endanger investor outlook and lower share
prices.
King B.F. (1966) observed that, on an average, over half the variations in a share price could be
attributed to a market influence that affects all stock market indices. However, shares are also
subject to an industry influence, over and above the influence common to all shares. This
industry influence explains, on an average, about 13% of the variation in a share price. On the
whole according to this research finding, about 2/3rd of the variations in share price are the result
of market and industry influences. In the present study, the variables used for performing
economic analysis are:
Gross Domestic Product
Inflation
Import and Exports
Current Account Deficit.
Crude oil production
GDP Growth Rate
In 2014-15, the Indian economy is poised to overcome the sub-5% growth of the gross domestic
product (GDP) witnessed over the last two years. Persistent uncertainty in the global outlook,
caused by the crisis in the Euro area and general slowdown in the global economy, compounded
by domestic structural constraints and inflationary pressures, resulted in a protracted slowdown.
The slowdown is broadly in sync with trends in other emerging economies, but relatively deeper.
Indias growth declined from an average of 8.3% per annum during 2004-05 to 2011-12 to an
average of 4.6% in 2012-13 and 2013-14. Average growth in the emerging markets and
developing economies including China declined from 6.8 to 4.9% in this period (calendar-year
basis). What is particularly worrisome is the slowdown in manufacturing growth that averaged at
0.2% per annum in 2012-13 and 2013-14.

Aided by favorable monsoons, the agriculture and allied sectors achieved a growth of 4.7% in
2013-14, compared to its long-run average of around 3% (between 1999-2000 and 2012-13).
However, in certain other sectors, slowdown has been more pronounced and protracted. Mining
and quarrying activities have decelerated since 2011-12. Two prominent components of mining,
coal and crude petroleum have stagnated in the last three to four years. Subsequent to an average
growth of 7.1% in coal production during the four-year period from 2006-07 to 2009-10, its
growth declined to an average of 1.6% during the next four years ending 2013-14. The
slowdown in coal production partly owes to regulatory issues. The compound annual growth rate
(CAGR) of crude petroleum was 1.2% during 2004-05 to 2013-14. As coal and petroleum are
universal intermediates, the slack in their production impacted the economy adversely.

The disaggregated sectorial trends may be better understood in terms of movement in sectorial
shares in GDP. The share of the agriculture and allied sectors in GDP has been consistently
declining. During the eight years between 1999-2000 and 2007-08, the share of agriculture and
allied sectors in GDP declined by 6.4 percentage points, while that of industry and services
increased by 1.9 and 4.4 percentage points.

The last two years were particularly disappointing for the manufacturing sector, with growth
averaging at 0.2% per annum. The decline has been quite broad-based, as per the data from the
index of industrial production (IIP). The slowdown in services, in particular the internal trade,
transport, and storage sectors, could be attributed to the loss of momentum in commodity-
producing sectors.

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
GDP
Growth 7.92 9.29 9.26 9.8 3.89 8.48 10.26 6.64 4.74 4.35 5.41
7.92
9.29 9.26
9.8
3.89
8.48
10.26
6.64
4.74
4.35
5.41
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
GDP Growth Rate
GDP Growth
GDP Composition

Inflation Rate
Compared to previous years, inflation showed signs of receding with average wholesale price
index (WPI) inflation falling to a three-year low of 5.98% during 2013-14. Consumer price
inflation, though higher than the WPI, has also exhibited signs of moderation with CPI (new-
series) inflation declining from 10.21% during 2012-13 to about 9.49% in 2013-14. Food
inflation, however, remained stubbornly high during FY 2013-14. As inflation remained above
the comfort level of the Reserve Bank of India (RBI), the tight monetary policy stance was
maintained by the central bank. The depreciation of the rupee, following the taper indication by
the Federal Open Market Committee (FOMC) in May 2013, also impacted the inflation situation.

The rupee went into a free fall and touched a low of 68 INR to a dollar by the end of August.
However, the government and the RBI were quick to respond and announced immediate
measures to arrest volatility and quell speculation. The RBI has since stuck to its commitment to
bringing down inflation levels and maintained high rates in 2013-14. Going forward, both
wholesale and consumer price inflation in India is expected to inch downwards, paving the way
for monetary easing, although there are risks to the outlook for inflation from a possible sub-
normal monsoon during 2014-15 as predicted by the IMD, possible step-up in the pass-through
of international crude oil prices, and exchange rate volatility. Fuel inflation remained in double
digits in the last three quarters, largely on account of movements in global crude prices,
65%
18%
17%
GDP Composition
Service
Industry
Agriculture
exchange rates, and revision in the administered prices. Oil marketing companies are allowed to
revise retail.

The prices of diesel up to 50 paise per month. Electricity tariffs were revised, and raised, in
several states and pass-through of both global crude prices, as well as rupee depreciation
particularly after the taper announcement by the US Federal Reserve in May 2013 increased
domestic prices of several sub-components such as high-speed diesel. Inflation in non-food
manufactured (NFM) commodities, i.e. core inflation, remained benign at around 2.5 to 3.5%
throughout the year on account of lower international prices and growth slowdown. Unlike the
inflation in food and fuel, inflation in NFM inched up partly on account of the wearing off of the
base effect and inflationary pressure within the chemicals, machinery and textile groups.

One of the strategies to control inflation is to move to market prices. It is important to know that
the deregulation of diesel prices, power-sector reforms, and the move from administered to
market-determined prices will release suppressed inflation in the short run. Nevertheless, the
consequent reduction in subsidy and fiscal deficit will have a salutary effect in reducing
inflation.

Import and Export Growth

The 2008 global financial crisis and subsequent slowdown in the world economy resulted in a
steep decline in Indias export growth. It had registered a robust growth of 30.1% in the five pre-
crisis years (2003-2007), which then decelerated to 16% in the five post-crisis years (2009-
2013). Indias export growth, in the past five years, has twice entered the negative territory: in
2009-10 as an aftershock of the 2008 crisis and in 2012-13 as a result of the Eurozone crisis. In
2013-14, there was a mild revival of 4.1% in export growth after the decline to -1.8% in 2012-
13.

The export growth for India was in double digits continuously for four months from July to
October 2013.Thereafter; it decelerated to a single digit for three months from November 2013
to January 2014, remained in negative territory in the next two months, and ended with positive
but low growth at 4.1% for the full year. In April 2014, export growth was slightly better at 5.3
per cent, further improving to 12.4% in May 2014 and touching the double-digit growth after a
gap of six months.

Export growth in dollar terms as well as in rupee terms showed an improvement over the
previous year growth in dollar terms accelerating from -1.8% in 2012-13 to 4.1% in 2013-14
and in rupee terms from 11.5% in 2012-13 to 15.9% in 2013-14.

Import growth decelerated sharply from 32.3% in 2011-12 to 0.3% in 2012-13 and fell to a
negative -8.3% in 2013-14, owing to a fall in non-oil imports by 12.8%. Among the major items
of import, the value of petroleum, oil, and lubricants (POL), which constituted 36.7% of total
imports in 2013-14, grew marginally by 0.7%. This marginal growth was on account of moderate
quantity growth of POL (2.6%) despite the moderation in crude oil prices with the average price
of crude oil (Indian basket) falling to 105.5 USD/bbl in 2013-14 from 108.0 USD/bbl. in 2012-
13. The growth in POL exports, which was negative for the first three quarters of 2012-13 (-
7.3%), entered into positive territory in 2013-14. In the first two months of 2014-15(P), there
was further improvement in petroleum products exports, growth of which stood at 14% during
this period.

The sharp fall in imports and moderate export growth in 2013-14 resulted in a sharp fall in
Indias trade deficit by 27.8%. A decomposition of the performance of trade deficit in 2013-14
vis--vis 2012-13 indicates that of the total reduction in trade deficit on Balance of Payments
(BoP) basis, reduction in imports of gold and silver contributed approximately 47%, reduction in
non-POL and non-gold imports constituted 40%, and change in exports constituted 25%. Higher
imports under POL and non- Directorate General of Commercial Intelligence and Statistics
(DGCI&S) imports contributed negatively to the process of reduction to the extent of 12% in
2013-14 over 2012-13.

In absolute terms, trade deficit fell to 137.5 billion from 190.3 billion USD during 2012-13.
However, there was not much change in the POL deficit which was hovering at around 100
billion USD in the last two years. With the fall in imports of both gold and capital goods, non-
POL deficit fell sharply to 35 billion USD in 2013-14 from 87.2 billion USD in 2012-13.

Significant compositional changes have taken place in Indias export basket between 2000-01
and 2013-14 with the share of petroleum, crude, and products increasing nearly five times to
20.1% in 2013-14 from 4.1% in 2000-01, catapulted by its 33.5% average annual growth. There
have been significant compositional changes in Indias import basket in recent years as well. The
share of POL imports increased from 31.3% in 2000-01 to 36.7% in 2013-14, implying an
average CAGR of 21.6%.

Current Account Deficit

One of the major reasons for the increase in the Centres fiscal deficit after 2008-09 has been the
build-up in subsidies. As per the provisional actual figures of the Controller General of Accounts
(CGA), the major subsidies in 2013-14 amounted to 2, 47,596 crore INR, well above the Revised
Estimate (RE) figures. There has been a sharp increase in total subsidies from 1.42 % of GDP in
2007-08 to 2.26 % in 2013-14 (RE).

The under-recoveries of the oil marketing companies (OMCs) have been rising in tandem with
international oil prices. The under-recoveries have increased from approximately 77123 crore
INR in 2007-08 to 1, 39,869 crore INR in 2013-14. The cap set on the number of subsidised
liquefied petroleum gas (LPG) cylinders per month per family has also been increased from 9 to
12 from April 2014. The single largest component of the wider levels of FD as well as the
current account deficit (CAD) owes to the inability to pass through the rise in global oil prices to
the domestic market. In addition, leakages from the system also contribute substantially to the
overall increase in subsidy. An International Monetary Fund (IMF) working paper, The Fiscal
and Welfare Impacts of Reforming Fuel Subsidies in India (Anand et al, 2013) found fuel
subsidies in India to be badly targeted, with the richest 10% of households benefiting seven times
more than the poorest 10%.

In recent years, under-provisioning of petroleum and fertiliser subsidies has been an important
reason for
Supplementary demands for grants with a cash outgo. In 2013-14, out of the three supplementary
demands for grants that was presented totaling approximately 74,321.26 crore INR, about 24,255
crore INR was on account of petroleum, fertiliser, and food subsidies.

Crude Oil Production

In order to meet the ever-growing demand for petroleum products, the government has
consistently endeavored to enhance exploration and exploitation of petroleum resources, along
with developing a concrete and structured distribution and marketing system. Despite this, crude
oil production for 2013-14 remained stagnant at around 37.8 million metric tonnes (MMT) as
against 37.9 MMT in 2012-13, showing a marginal decrease of about 0.20%. The bulk of crude
oil production is from ageing fields, with the exception of the Krishna Godavari (KG) deep-
water and Rajasthan blocks. Production of crude oil was also affected by environmental issues,
bandhs/blockades, lower base potential, and delay in production from wells in some states. The
average natural gas production for 2013-14 was about 35.4 BCM as against 40.7 BCM for 2012-
13, showing a decline of about 13%.

Refining Capacity

The Indian refining industry has done exceedingly well in establishing itself as a major player
globally. India is emerging as a refinery hub and refining capacity exceeds demand. The last
decade has seen tremendous growth in the sector. The countrys refining capacity has increased
from a modest 62 million metric tonnes per annum (MMTPA) in 1998 to 215.07 MMTPA as on
1 April 2014, and comprises 22 refineries, with 17 under the public sector, three under the
private sector, and two in joint ventures (JVs). By the end of the 12th Five Year Plan, refinery
capacity is expected to reach 307.37 MMTPA. Refinery crude throughput (crude oil processed)
for 2013-14 was about 222.70 MMT as against 219.21 MMT for 2012-13, showing a marginal
increase of about 1.59%. During 2013-14, a total of 68.4 MMT of petroleum products, valued at
3, 71,143 crore INR, was exported against 63.4 MMT, valued at 3, 20,090 crore INR, during
2012-13. Exports of petroleum products during 2013-14 were higher by 7.9 and 16% in terms of
quantity and value respectively, as compared to the previous year.

Significant policy changes and initiatives in oil and gas industry

Initiatives to accelerate exploration and production activities

The policy for geo scientific data generation for hydrocarbons in Indian sedimentary basins was
launched in February 2014 in view of the requirement for generation of high quality geo-
scientific data in a speedy manner in order to make the speculative survey model more attractive
and easier to implement. Under this policy, permission for conducting geo scientific data surveys
will be granted by way of a non-exclusive multi-client survey agreement. This policy replaces
the earlier model of profit sharing after cost recovery with a one-time project fee.

In the area of exploration and production (E&P), the government cleared 31 exploration blocks
from defense and other angles to pave the way for exploration work in those blocks. A high-
powered fast-track mechanism created at the level of Cabinet Committee on Investment (CCI)
facilitated the decision. The government also cleared 95 pending resolutions of Management
Committees of exploration blocks to expedite the E&P activity. Similarly, further exploration
was allowed in the mining lease areas of exploration blocks where discoveries had been made.
This increased the possibility of making more discoveries and one discovery in the KG basin and
one in Rajasthan were made during the year itself. The shale gas and CBM policies were
approved during the year in order to enhance the utilization of new sources of hydrocarbon.
While the new shale gas policy opens up exploration by National Oil Companies, the amended
CBM Policy allows Coal India Ltd. (CIL) and its subsidiaries to undertake the exploration and
exploitation of CBM gas in areas allotted to them under mining leases.

The government also formulated the Draft Uniform Licensing Policy for the award of acreages
for hydrocarbon E&P in the future, covering all categories of hydrocarbons. This is expected to
overcome the bottlenecks caused by different kinds of hydrocarbons found in the same area thus
ensuring smooth operation for enhancing oil and gas production.

In order to enable early monetization of discoveries, a policy was formulated in October 2013
enabling operators to submit an integrated development plan (IDP) consisting of multiple
discoveries, and permitting them to sell petroleum produced from such discoveries pending final
approval of the IDP.

A committee was constituted in December 2013 to codify Good International Petroleum Industry
Practices (GPIP) for the E&P sector for faster decision-making. Codification of these standards
will provide objectivity to the decisions of regulators, operators and other stakeholders.

Programme to enhance oil security

In order to utilize domestic ethanol to supplement fuel availability under the Ethanol Blended
Petrol (EBP) Programme, in July 2013, the CCEA decided that ethanol would be procured only
from domestic sources to achieve the mandatory requirement of blending 5% ethanol with petrol
across the country (except the north-eastern states, J&K, Andaman and Lakshadweep) by
October 2013. The government also decided that OMCs and sugar industry associations may
interact with each other on a regular basis to achieve the target. Another important aspect of the
decision is the implementation of the EBP programme by OMCs as per ethanol quantity
becoming available to achieve the mandatory level. Pursuant to this, OMCs will implement the
programme in 20 notified states and 4 UTs as per the availability of ethanol.

Findings of Economy Analysis

From the Economy Analysis of India, we can say that in last five years, inflation rate and CAD
have declined considerably. The Imports and Exports are increased in last five years. This shows
a favorable situation in Indian economy. In Indian economy GDP has continuously increased. A
huge flow of FDI is also available in India during this period. This shows the possibility of
significant growth of Indian economy in future.

OVERVIEW OF INDIAN REFINERIES SECTOR:
The petroleum refining industry is a vital link in the energy chain in many developing and
industrialized countries as it plays a key role in providing energy for all sectors of any economy.
The structure, economic conditions, and developments in the industry are therefore important
matters of national interest. Rapid economic growth in many developing countries has led to
increased demand for oil products. In recent times, significant changes have taken place in
Indias refining industry with resultant challenges.
Indian refining industry has done exceedingly well in establishing itself as a major player
globally. India is emerging as a refinery hub and refining capacity exceeds the demand. The last
decade has seen a tremendous growth in the refining sector. The countrys refining capacity has
increased from a modest 62 Million Metric Tonnes Per Annum (MMTPA) in 1998 to 215.066
MMTPA at present, comprising of 22 refineries - 17 under Public Sector, 3 under private sector
and 2 in Joint Venture (JV).
Key Drivers
The key demand drivers of this industry are GDP growth, improvement in disposable income,
aspirations of young India, urbanization, etc. These megatrends get translated to increase demand
for healthcare, packaging, white goods, automobiles, agri produce, retail, etc. The margins in the
industry are cyclical and typically follow a 6-8 year period of troughs and peaks
Key Issues
Important aspects of petrochemicals plant include Capital financing and feedstock tie-up. The
industry suffers from high capital and energy costs, shortage of natural gas, lack of skilled
manpower, low focus on value added exports of end products, cyclical nature of business, zero
import duty differentials between polymers and feed stocks.
The prices of petrochemicals are determined on the basis of South East Asia (SEA) prices plus
import duties. Due to relatively free imports and end prices being market driven, the domestic
producers have to price their products in line with the prices prevailing in SEA region,
irrespective of costs of production that leads to different margins for producers having different
feed stocks.
The below figure illustrates the broad market Indexes of diverse sector in NIFTY. The market
index of CNX Energy is 9515.75.

The below figure illustrates the turn over of different refinery companies with respect to overall
energy Industry. The industry turnover was Rs. 1305.95 crores. Reliance Industries Limited has
the highest turnover of Rs. 392.2 crores, followed by ONGC with Rs 342.03 crores.

0.00 5,000.00 10,000.00 15,000.00 20,000.00 25,000.00
BANK NIFTY
CNX AUTO
CNX COMMODITIES
CNX CONSUMPTION
CPSE INDEX
CNX DIVIDEND OPPT
CNX ENERGY
CNX FINANCE
CNX FMCG
CNX INFRA
CNX IT
CNX MEDIA
CNX METAL
CNX MNC
NI15
CNX PHARMA
CNX PSE
CNX PSU BANK
CNX REALTY
CNX SERVICE
Broad Market Indexes
0.00 200.00 400.00 600.00 800.00 1,000.00 1,200.00 1,400.00
CNX ENERGY
NTPC
POWERGRID
TATAPOWER
GAIL
CAIRN
BPCL
RPOWER
RELIANCE
ONGC
IOC
Turn Over (crores)
Sensitivity of Refinery Industry:

The figure illustrates the total return % of refinery industry. The refinery industry is sensitive to
business cycle. The downturn of return in refinery industry in 1990 when the economy was in
recession is notable. The pattern reflects the fact that the total return of industry was not
relatively stable due to various macroeconomic factors like inflation, interest rates and demand
will fall significantly in hard times. The 9th Five-Year Plan (FYP 1997-2002) encouraged private
investment in the refining industry. As a result the total return % has increased during the period
2003 2004.

-100
-50
0
50
100
150
200
250
300
350
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
Total returns %
Excess total returns over NIFTY
Percentage points
Excess total returns over SENSEX
Percentage points
Supply and Demand in India

Oil consumption is estimated to
expand at a CAGR of 3.4 per cent
during FY200816F to 4.0 mbpd by
2016.
Owing to this strong expected growth in
India, Indias dependency on oil
imports is expected to increase further.

Imports and Exports

Indias refining sector underwent a
significant transformation from a net
product importer to a major regional
exporter in one decade. India was a net
importer of oil products until 2001, relying
on imported products for almost 20 to 25%
of total oil demand in 1990s. During this
time, Indias import bill for petroleum
products was nearly USD 3 to USD 4
billion per year. The 9th Five-Year Plan
(FYP 1997-2002) encouraged private investment in the refining industry. With the
commissioning of export oriented refineries of RIL and Essar Oil in Jamnagar, India turned into
a net exporter of petroleum products in 2001.
The 11th Five-Year Plan aimed to promote India as a regional refining export hub, targeting 4.9
mb/d of refining capacity by 2012. The 12th Five-Year Plan aims to increase refining capacity to
6.2 mb/d or 310 million metric tonne per annum (MMTPA) by 2017 (IEA, 2011e). Against the
backdrop of growing domestic demand, export-oriented refineries were converted to domestic
refineries in 2009, which helped to ease a domestic shortage of petroleum products. Some
products, namely kerosene and LPG, are still imported.
It should be noted that the refining industry plays an increasingly important role in the Indian
economy. Its total export value reached nearly USD 40 billion in FY 2010/11, representing 16%
of Indias total exports (DOC EIDB, 2012). This is a remarkable growth from a mere USD 39
million or 0.1% of total exports from FY 1999/2000. Indias top exporting markets are
geographically diverse, and include the United Arab Emirates (UAE) (14%), Singapore (13%),
Netherlands (9%), France (6%) and Japan (5%) in terms of export value in 2010 (UN comtrade,
2012). In FY13, imports accounted for approximately 80 per cent of the countrys total oil
demand. Backed by new oil fields, domestic oil output is anticipated to grow to 1.0 mbpd by
FY16.
Market Share of Indias Refinery Industry
Indias oil refining sector is dominated by state-owned enterprises, though the market share of
private companies has increased of late. The Indian Oil Company (IOC) is the largest state-
owned company, and it operates 10 of Indias 22 refineries. Reliance Industries, a private Indian
firm opened Indias first privately-owned refinery in 1999, and has gained a significant market
share in Indias oil sector. The below figure illustrates the market share of refinery industry.

30%
21%
15%
13%
5%
16%
Market Share
Indian Oil Corpn. Ltd.
Reliance Industries Ltd.
Bharat Petroleum Corpn. Ltd.
Hindustan Petroleum Corpn. Ltd.
Essar Oil Ltd.
Others
FDI inflows in India

Cumulative FDI inflows during April 2000
September 2013 in Indias petroleum and natural
gas sector stood at USD5.41 billion (2.6 per cent
of total FDIs).
Across sectors, cumulative FDI inflows during
April 2000 - September 2013 was USD204.8
billion, with the services sector accounting for
the largest share (18.8 per cent) and followed by
construction development (11.12 per cent) and
telecommunication (6.3 per cent)

Analysis of Industry competition
Supply
So far India has worked towards self-sufficiency in petrochemicals, which has been achieved.
Demand
Demand of the petrochemicals generate from the downstream industries, which in turn are
dependent on the state and growth of the economy which is facing a slowdown.
Threat of new entrants
The petrochemical industry is capital-intensive by nature. The minimum economic size of an
integrated plant is around 1 million tonnes per annum, which in turn calls for huge investments.
Bargaining power of supplier
Moderate to low despite the surplus naphtha production in the country. This is due to the fact that
the suppliers are concentrated. However, with more and more integration happening for the oil
refining companies, it should improve.

Bargaining power of customer
Moderate to low, the downstream user industry is fragmented, which reduces their collective
bargaining power. Import duties on the products have declined significantly over the past and
with additional capacities coming up in the Middle East the bargaining power of the customers
might improve to an extent.
Competition
Competition within the domestic market is limited, as there are only a handful of players with
world-class capacities. However, due to low import duties, there is threat of imports from Middle
East and the Asia Pacific region. Also, the refineries are getting integrated, which will reduce the
industry concentration in terms of market share and in turn fuel competition. While India has
opportunities to benefit from high labor costs in the developed economies, it faces a threat from
GCC (gulf countries) countries that enjoy heavily subsidized feedstock that has also led to
capacity expansions mainly for exports.
Regulatory Overview of the Industry:
FDI Policy: The E&P segments FDI limit is 100%. And the refining segments limit is 49 %.
Coal Bed Methane Policy, 1997: To encourage exploration and production of CBM gas as a
new eco-friendly source of energy.
Petroleum Rules, 1976: Provisions for regulations governing pollution, safety, and other
operating standards.
Oil Industry Development Act, 1974: An act establishing a board to develop the oil industry
and levy excise duty on crude and natural gas.
Petroleum and Minerals Pipeline Act, 1962: Acquisition of users rights by the government
of India on land demarcated for laying pipelines to transport petroleum and other minerals
from one area to another.
Integrated Energy Policy, 2006: Outlines goals for dealing with challenges faced by Indias
energy sector.
Petroleum and Natural Gas Regulatory Board Act, 2006: To regulate refining, processing,
storage, transportation, distribution, marketing and sale of petroleum, petroleum products and
natural gas.
Auto Fuel Policy, 2006: To provide a roadmap to comply with various vehicular emission
norms and corresponding fuel quality upgrading requirements over a period of time.
Freight Subsidy Scheme, 2002: To compensate public sector Oil Marketing Companies
(OMCs) on the freight incurred to distribute subsidized products in far-flung areas.
SWOT Analysis
Strengths

India is the worlds fifth biggest energy consumer and continues to grow rapidly
Major natural gas discoveries by a number of domestic companies hold significant medium to
long-term potential.
Demand for petroleum products
Increase in demand for oil and gas
High exploration portfolio

Weaknesses
The oil and gas sector is dominated by state-controlled enterprises, although the government has
taken steps in recent years to deregulate the industry and encourage greater foreign participation
Increase in oil prices
Inadequate and slowly developing infrastructure
Lack of awareness in safety issues
Environmental issues
Opportunities
Liquefied natural gas (LNG) imports are still set to grow rapidly over the longer term as
domestic consumption expands
India has freed gasoline retail price controls
Untapped domestic oil and gas potential
Strong domestic energy demand growth
High recovery rates from existing projects
Threats
Increased competition within government and private players
Continuing government interference
Changes in national energy policies

Market Capitalization
The private sector has played a critical role in the emergence of Indias refining sector. In FY
2009/10, 90% of Indias refined product exports came from RIL and Essar. Furthermore,
improvement and modernization of the business structure and management in the refining
industry were driven by private companies. RILs second refinery was commissioned in record
time of 36 months and its expansion made RILs total refining capacity of 1.24 mb/d, the worlds
single largest refining capacity and also one of the most complex plants (RIL, 2012). RIL and
Essar Oil produced 40% of Indias throughput in FY 2011/12.

0.00
500,000.00
1,000,000.00
1,500,000.00
2,000,000.00
2,500,000.00
3,000,000.00
3,500,000.00
RIL IOCL BPCL EOL HPCL MRPL CPCL
Market Capitalisation Rs. million
Enterprise value Rs. million
Company Analysis
Company Analysis consists of measuring its performance and ascertaining the cause of this
performance. When some companies have done well irrespective of economic or industry
failures, it implies that there are certain unique characteristics for this particular company that
had made it a success. The identification of these characteristics, whether quantitative or
qualitative, is referred to as company analysis. Quantitative indicators of company analysis are
the financial indicators and operational efficiency indicators. Financial indicators are the
profitability indicators and financial position indicators, analyzed through the income and
balance sheet statement of the company. Besides these, an analysis of future prospects of the
company should also be carried out. The budget and cash flow statement give the investors an
insight in to future functioning of the company. Future profitability and operational efficiency
can be worked out from these statements. Earnings per share (EPS) and Dividend per share
(DPS) are also useful for analysis. Besides these quantitative factors, qualitative factors of a
company also influence investment decision to a larger extent. Qualitative factors are the
management reputation, name of the company, operational plans of the company for the future,
and so on, as revealed in the directors/auditors reports, and also the information revealed by the
management to the media. Ratios for investment purposes can be classified into profitability
ratios, turnover ratios, and leverage ratios. Profitability ratios are the most popular ratios since
investors prefer to measure the present profit performance and use this information to forecast
the future strength of the company. We have considered the following aspects for the Company
Analysis.
Analysis of Earning and Dividend Level
Return on Equity
Book Value per Share
Earnings Per Share (EPS)
Dividend Per Share (DPS)
Dividend Payout Ratio
Debt Equity Ratio
Growth Performance
Compound Annual Growth Rate
Sustainable Growth Rate
Risk Exposure
Beta
Volatility
Estimation of Intrinsic Value

Finally, we have also compared their performance using various ratios for the period under
consideration.
Analysis of Earnings and Dividend Level
Return on Equity (ROE) =Profit after Tax (PAT) / Shareholders Fund
This ratio is also known as Return on Proprietors Fund. This is an important ratio as it shows the
amount of profit available to the shareholders, which determines the rate of dividend.
Calculation ROE for IOCL

Year PAT Equity Share
Capital
Reserves and
Surplus
Shareholders
Fund
ROE Ratio
Mar-2010 10521.72 2427.95 48124.88 50552.83 24.15
Mar-2011 7289.24 2427.95 52904.37 55332.32 24.79
Mar-2012 11383.65 2427.95 55448.75 57876.7 27.53
Mar-2013 4998.87 2427.95 58696.36 61124.31 26.23
Mar-2014 5368.59 2427.95 63564.13 65992.08 28.39

Calculation ROE for Reliance

Capital
Reserves and
Surplus
Shareholders
Fund
ROE Ratio
Mar-2010 15147.57 3270.37 125096 128366.34 42.88
Mar-2011 19615.67 3273.37 142800 146073.32 49.62
Mar-2012 18616.00 3271 159698 162969 54.51
Mar-2013 21003 3229 176766 179995 61.25
Mar-2014 21984 3232 193842 197074 66.78

Calculation ROE for BPCL

Capital
Reserves and
Surplus
Shareholders
Fund
ROE Ratio
Mar-2010 2087.18 361.54 12725.17 13086.71 40.97
Mar-2011 1546.68 361.54 13696.08 14057.62 49.62
Mar-2012 1311.27 361.54 14552.32 14913.86 3.73
Mar-2013 2642.9 723.08 15910.94 16634.02 25.66
Mar-2014 4060.88 723.08 18735.68 19458.76 31.53

Calculation ROE for HPCL

Capital
Reserves and
Surplus
Shareholders
Fund
ROE Ratio
Mar-2010 1582.38 339.01 11218.96 11557.97 37.76
Mar-2011 1367.75 339.01 12206.79 12545.8 40.04
Mar-2012 911.92 339.01 12783.51 13122.52 40.40
Mar-2013 791.32 339.01 13387.39 13726.4 41.82
Mar-2014 1792.14 339.01 14673.15 15012.16 48.57

Calculation ROE for Essar Oil

Capital
Reserves and
Surplus
Shareholders
Fund
ROE Ratio
Mar-2010 1695.32 1218.13 2272.85 3490.98 3.26
Mar-2011 -632.71 1218.13 2302.31 3520.44 1.37
Mar-2012 570.7 1382.27 5155.63 6537.9 4.14
Mar-2013 -48.02 1382.27 798.47 2180.74 0.54
Mar-2014 -1068.96 1382.27 -275.44 1106.83 0.97

From the above graph, we can say that ROE for Reliance was 49.62% in 2010-011. It has
increased to 54.51% in 2011-12. But in 2013-14 it has increased to 66.78%. This shows a
significant growth in shareholders equity and also shows the shareholder value created by the
organization with compared to other four company.

Calculating Book Value per Share

Book Value per Share = Shareholders Fund/ No. of. Outstanding Shares
Book Value per share for IOCL

Year Paid Up
Capital (in Rs.
Cr)
Reserve &
Surplus
(In Rs. Cr.)
Share Holders
Fund
(In Rs, Cr.)
No. of.
Outstanding
Shares
(In. Lakhs)
B.V. Per
Share
(In Rs.)
2010 2427.95 48124.88 50552.83 240.8 209.9370017
2011 2427.95 52904.37 55332.32 240.8 229.7853821
2012 2427.95 55448.75 57876.7 240.8 240.3517442
2013 2427.95 58696.36 61124.31 240.8 253.8384967
2014 2427.95 63564.13 65992.08 240.8 274.0534884
0
10
20
30
40
50
60
70
80
2010 2011 2012 2013 2014
R
O
E

Year
Return on Equity
IOCL
Reliance
BPCL
HPCL
Essar Oil
Book Value per share for Reliance

Year Paid Up
Capital (in Rs.
Cr)
Reserve &
Surplus
(In Rs. Cr.)
Share Holders
Fund
(In Rs, Cr.)
No. of.
Outstanding
Shares
(In. Lakhs)
B.V. Per
Share
(In Rs.)
2010 3270.37 125096 128366.34 327.04 392.5096013
2011 3273.37 142800 146073.32 327.34 446.2434166
2012 3271 159698 162969 327.11 498.2085537
2013 3229 176766 179995 322.87 557.4844365
2014 3232 193842 197074 323.19 609.7775302

Book Value per Share for BPCL

Year Paid Up
Capital (in Rs.
Cr)
Reserve &
Surplus
(In Rs. Cr.)
Share Holders
Fund
(In Rs, Cr.)
No. of.
Outstanding
Shares
(In. Lakhs)
B.V. Per
Share
(In Rs.)
2010 361.54 12725.17 13086.71 36.15 362.0113416
2011 361.54 13696.08 14057.62 36.15 388.8691563
2012 361.54 14552.32 14913.86 36.15 412.5549101
2013 723.08 15910.94 16634.02 72.31 230.0376158
2014 723.08 18735.68 19458.76 72.31 269.1019223

Book Value per share for HPCL

Year Paid Up Capital
(in Rs. Cr)
Reserve &
Surplus
(In Rs. Cr.)
Share Holders
Fund
(In Rs, Cr.)
No. of.
Outstanding
Shares
(In. Lakhs)
B.V. Per
Share
(In Rs.)
2010 339.01 11218.96 11557.97 33.86 341.3458
2011 339.01 12206.79 12545.8 33.86 370.5198
2012 339.01 12783.51 13122.52 33.86 387.5523
2013 339.01 13387.39 13726.4 33.86 405.3869
2014 339.01 14673.15 15012.16 33.86 443.3597

Book Value per Share for Essar Oil

Year Paid Up Capital
(in Rs. Cr)
Reserve &
Surplus
(In Rs. Cr.)
Share Holders
Fund
(In Rs, Cr.)
No. of.
Outstanding
Shares
(In. Lakhs)
B.V. Per
Share
(In Rs.)
2010 1218.13 2272.85 3490.98 120.15 29.0552
2011 1218.13 2302.31 3520.44 120.15 29.3004
2012 1382.27 5155.63 6537.9 136.57 47.8722
2013 1382.27 798.47 2180.74 136.57 15.9679
2014 1382.27 -275.44 1106.83 136.57 8.10449

This ratio shows the value of shareholder equity. Higher ratio indicates the good position of the
company. We can see that book value of the share of Reliance of face value of Rs.10 each in
2010 was Rs.392.50, which has increased continuously. In 2014 Book value of share is
Rs.609.77. This shows the significant growth rate within the time period of 4 years, when
compared to other four companies.

Calculating Earnings per Share
EPS= PAT/ No. of. Outstanding shares
Earnings per share for IOCL

Year PAT
(In RS. Cr)
No. of. outstanding Shares
(In Rs. Lakhs)
EPS
2010 10521.72 240.8 43.69485
2011 7289.24 240.8 30.27093
2012 11383.65 240.8 47.27429
2013 4998.87 240.8 20.75943
2014 5368.59 240.8 22.29481

0
100
200
300
400
500
600
700
2010 2011 2012 2013 2014
B
o
o
k

V
a
l
u
e

Year
Book Value per share in Rs
IOCL
Reliance
BPCL
HPCL
Essar Oil
Earnings per share for Reliance

Year PAT
(In RS. Cr)
(In Rs. Lakhs)
EPS
2010 15147.57 327.04 46.31717833
2011 19615.67 327.34 59.92445164
2012 18616.00 327.11 56.9105194
2013 21003 322.87 65.0509493
2014 21984 323.19 68.02190662

Earnings per share for BPCL

Year PAT
(In RS. Cr)
(In Rs. Lakhs)
EPS
2010 2087.18 36.15 57.73665284
2011 1546.68 36.15 42.78506224
2012 1311.27 36.15 36.27302905
2013 2642.9 72.31 36.5495782
2014 4060.88 72.31 56.15931406

Earnings per share for HPCL

Year PAT
(In RS. Cr)
(In Rs. Lakhs)
EPS
2010 1582.38 33.86 46.73302
2011 1367.75 33.86 40.39427
2012 911.92 33.86 26.93207
2013 791.32 33.86 23.37035
2014 1792.14 33.86 52.92794

Earnings per share for Essar Oil

Year PAT
(In RS. Cr)
(In Rs. Lakhs)
EPS
2010 1695.32 120.15 14.11002913
2011 -632.71 120.15 -5.26600083
2012 570.7 136.57 4.178809402
2013 -48.02 136.57 -0.35161456
2014 -1068.96 136.57 -7.82719485

EPS is one of the determinants of dividend. For Reliance, in 2010-11 EPS of the company was
Rs.59.92, but in 2011-12, EPS has reduced to Rs.56.91. This shows the reduction in the profit of
the company. In 2013-14 EPS has increased to Rs.68.02. This indicates almost double growth in
EPS against year 2010-11. In 2011-12 EPS has reduced by Rs. 3 which shows overall reduction
in the profit of the company.

-20
-10
0
10
20
30
40
50
60
70
80
2010 2011 2012 2013 2014
E
a
r
n
i
n
g
s

p
e
r

s
h
a
r
e

Year
Earnings per share
IOCL
Reliance
BPCL
HPCL
Essar Oil
Calculating Dividend per share

DPS for IOCL
Year Dividend
(In RS. Cr)
No. of. Equity Shares
(In Rs. Lakhs)
DPS
2010 3156.34 240.8 13.10772
2011 1947.85 240.8 8.089078
2012 1019.55 240.8 4.234012
2013 1249.5 240.8 5.188953
2014 1753.33 240.8 7.281271

DPS for Reliance
Year Dividend
(In RS. Cr)
(In Rs. Lakhs)
DPS
2010 2084.67 327.04 6.3743579
2011 2384.99 327.34 7.2859718
2012 2531 327.11 7.7374583
2013 2181 322.87 6.7550407
2014 2318 323.19 7.1722516

DPS for BPCL
Year Dividend
(In RS. Cr)
(In Rs. Lakhs)
DPS
2010 506.16 36.15 14.00166
2011 506.16 36.15 14.00166
2012 340.54 36.15 9.420194
2013 795.39 72.31 10.99972
2014 1032.66 72.31 14.28101

DPS for HPCL
Year Dividend
(In RS. Cr)
(In Rs. Lakhs)
DPS
2010 406.35 33.86 12.00089
2011 397.17 33.86 11.72977
2012 241.13 33.86 7.121382
2013 238.91 33.86 7.055818
2014 435.67 33.86 12.8668

DPS for Essar Oil
Year Dividend
(In RS. Cr)
(In Rs. Lakhs)
DPS
2010 0 120.15 0
2011 0 120.15 0
2012 0 136.57 0
2013 0 136.57 0
2014 0 136.57 0

For BPCL we can see that in 2010 DPS was Rs.14.00, which has reduced by Rs.9.42 in 2012, but
in 2012 & 2013, it has increased to Rs.10.9 & Rs.14.28 respectively.
2010 2011 2012 2013 2014
D
i
v
i
d
e
n
d

p
e
r

s
h
a
r
e

Year
Dividend per share
IOCL
Reliance
BPCL
HPCL
Essar Oil
Calculating Dividend Payout Ratio

Dividend Payout Ratio= Equity Dividend/ PAT

Dividend Payout Ratio for IOCL
Year Dividend PAT Dividend Payout Ratio
(in %)
2010 3156.34 10521.72 29.9983
2011 1947.85 7289.24 26.7223
2012 1019.55 11383.65 8.9563
2013 1249.5 4998.87 24.9956
2014 1753.33 5368.59 32.659

Dividend Payout Ratio for Reliance
(In %)
2010 2084.67 15147.57 13.76241
2011 2384.99 19615.67 12.1586
2012 2531 18616.00 13.59583
2013 2181 21003 10.38423
2014 2318 21984 10.54403

Dividend Payout Ratio for BPCL
(in %)
2010 506.16 2087.18 24.2509
2011 506.16 1546.68 32.7256
2012 340.54 1311.27 25.9702
2013 795.39 2642.9 30`0953
2014 1032.66 4060.88 25.4295

Dividend Payout Ratio for HPCL
(in %)
2010 406.35 1582.38 25.6797
2011 397.17 1367.75 29.0382
2012 241.13 911.92 26.442
2013 238.91 791.32 30.1913
2014 435.67 1792.14 24.31

Dividend Payout Ratio for Essar Oil
(in %)
2010 0 1695.32 0
2011 0 -632.71 0
2012 0 570.7 0
2013 0 -48.02 0
2014 0 -1068.96 0

2010 2011 2012 2013 2014
D
i
v
i
d
e
n
d

P
a
y
o
u
t

R
a
t
i
o

Year
Dividend Payout Ratio
IOCL
Reliance
BPCL
HPCL
Essar Oil
In general, if the firm is paying low dividends, it is resorting to high retentions to take care of the
growth factor. Low dividends may affect the price of the share of the firm. On the other hand, a
high payout ratio may lead to a rise in the market price of the share but it affects the future
financing proramme from internal sources. From the above graph, for IOCL, we can say that in
2010-11 company has paid dividend of 29.9% of the profit, which has reduced to 26.72% in
2011-12. In 2012-13 company has paid the dividend of 8.9% of the profit, which has increased to
32.65% in 2013-14.

Calculating Debt Equity Ratio
D/E Ratio = Long term debt/ Shareholder Equity

D/E Ratio for IOCL

Year Debt
(In RS. Cr)
Equity
(In Rs. Cr)
D/E Ratio
2010 44566.25 50552.83 0.881578
2011 52733.87 55332.32 0.953039
2012 70323.93 57876.7 1.215065
2013 78325.2 61124.31 1.281408
2014 80599.12 65992.08 1.221345

D/E Ratio for Reliance

Year Debt
(In RS. Cr)
Equity
(In Rs. Cr)
D/E Ratio
2010 62494.69 128366.3 0.4868464
2011 67396.68 146073.3 0.4613894
2012 58627.00 162969 0.3597433
2013 54523.00 179995 0.302914
2014 85481.00 197074 0.4337508

D/E Ratio for BPCL

Year Debt
(In RS. Cr)
Equity
(In Rs. Cr)
D/E Ratio
2010 22195.2 13086.71 1.696011
2011 16458.07 14057.62 1.170758
2012 21246.44 14913.86 1.42461
2013 23566.79 16634.02 1.416783
2014 19992.06 19458.76 1.027407

D/E Ratio for HPCL

Year Debt
(In RS. Cr)
Equity
(In Rs. Cr)
D/E Ratio
2010 21302.37 11557.97 1.843089
2011 25021.19 12545.8 1.994388
2012 27479.25 13122.52 2.094053
2013 32458.27 13726.4 2.36466
2014 31930.05 15012.16 2.126946

D/E Ratio for Essar Oil

Year Debt
(In RS. Cr)
Equity
(In Rs. Cr)
D/E Ratio
2010 10031.71 3490.98 2.873608557
2011 10353.73 3520.44 2.941032939
2012 14546.93 6537.9 2.225015678
2013 17361.17 2180.74 7.961137045
2014 23718.94 1106.83 21.4296143

For Essar oil we can see that Debt-Equity ratio in 2010 was 2.87. It implies that for every Rs.100
of outside liabilities, the firm has Rs.34.84 owners capital. In 2013 ratio has increased to 1.28.,
but in 2011 it reduces to 0.06.

Growth Performance
Compound Annual Growth Rate for IOCL
CAGR OF SALES = (Sales for 2014/Sales for 2010) ^1/4 -1
= 0.151195
CAGR OF EPS = (EPS for 2014/ EPS for 2010) ^1/4 -1
= -0.15482
CAGR OF DPS = (DPS for 2014/ DPS for 2010) ^1/4 -1
= -0.13668
Compound Annual Growth Rate for Reliance
CAGR OF SALES = (Sales for 2014/Sales for 2010)^1/4 -1
= 0.193772
CAGR OF EPS = (EPS for 2014/ EPS for 2010) ^1/4 -1 = 0.10
0
5
10
15
20
25
2010 2011 2012 2013 2014
D
/
E

R
a
t
i
o

Year
D/E Ratio
IOCL
Reliance
BPCL
HPCL
Essar Oil
= 0.029923
Compound Annual Growth Rate for BPCL
= 0.2127662
= -0.01
= 0.004951
Compound Annual Growth Rate for HPCL
= 17.45386
= 0.577644
= -0.03535
Compound Annual Growth Rate for Essar Oil
= 13.98863672
= 0
= 0
Sustainable Growth Rate =Average Retention Ratio * Average
Return on Equity

Where, Average Retention Ratio = Average of (1-Dividend Payout Ratio)

Company Sustainable Growth Rate
IOCL 19.75249363
Reliance 48.36
BPCL 20.83
HPCL 30.39949
Essar Oil 1.668245067

RISK EXPOSURE
Beta
Beta is a measure of a stocks volatility in relation to the market. By definition, the market has a
beta of 1 and individual stocks are ranked according to how much they deviate from the market.
A stock that swings more than the market over time has a Beta above 1. If a stock move less than
the market, the stocks Beta is less than 1. High Beta stocks are supposed to be riskier but
provide a potential for higher returns, low Beta stocks pose less risk but also lower returns. Beta
as per the Sharpes Model can be computed as:

Calculated Beta Value
Company Beta Value
IOCL 0.64
Reliance 1.11
BPCL 1.05
HPCL 1.1
Essar Oil 1.68

Volatility of Return on Equity= Range of Return on Equity over n yrs. / Average Return on
Equity over n yrs.

Where, Range = Higher observation of ROE Lower observation ROE

Year IOCL ROE Reliance ROE BPCL ROE HPCL ROE Essar Oil ROE
Mar-2010 24.15 42.88 40.97 37.76 3.26
Mar-2011 24.79 49.62 49.62 40.04 1.37
Mar-2012 27.53 54.51 3.73 40.40 4.14
Mar-2013 26.23 61.25 25.66 41.82 0.54
Mar-2014 28.39 66.78 31.53 48.57 0.97

Year Range
IOCL 0.0424
Reliance 0.24
BPCL 0.38
HPCL 10.80779
Essar Oil 5.12

ESTIMATION OF INTRINSIC VALUE

Following steps are followed:
Estimate the expected earnings per share.
Establish a PE ratio.
Develop a Value anchor and a Value range.

Year Volatility
IOCL 0.161708619
Reliance 0.43
BPCL 1.33
HPCL 25.90554
Essar Oil 306.58682
IOCL EPS Forecast

Particulars 2013-14 (Actual) 2014-2015 (Projected) Assumption
Net Operating Revenue 473210.09 520531.1 Increased by 10%
Cost Of Sales 457507.86 507833.7 Increased by 11%
Reported EBDIT 15702.23 12697.37
Other Recurring Income 3417.29 3485.636 Increased by 2%
Adjusted EBDIT 19119.52 16183.01
Depreciation 5760.09 6336.099 Increased by 10%
EBIT 13359.43 9846.911
Financial Expenses 5084.42 4881.043 Decreased by 4%
EBT 8275.01 4965.868
Tax Charges 2906.42 3197.062 Increased by 10%
PAT (NET PROFIT) 5368.59 1768.806
No Of Equity Shares
Outstanding (Cr.) 242.8 242.8

EPS (in RS) 22.11116145 7.285033

Reliance EPS Forecast

Net Operating Revenue 390117 429128.7 Increased by 10%
Cost Of Sales 359240 398756.4 Increased by 11%
Reported EBDIT 30877 30372.3
Other Recurring Income 8936 9114.72 Increased by 2%
Adjusted EBDIT 39813 39487.02
Depreciation 8789 9667.9 Increased by 10%
EBIT 31024 29819.12
Financial Expenses 3206 3077.76 Decreased by 4%
EBT 27818 26741.36
Tax Charges 5834 6417.4 Increased by 10%
PAT (NET PROFIT) 21984 20323.96
No Of Equity Shares

EPS (in RS) 68.02191 62.88549

BPCL EPS Forecast

EBIT 7308.06 5401.63
EBT 5948.98 4096.913
PAT (NET PROFIT) 4060.88 2020.003
No Of Equity Shares

EPS (in RS) 56.159314 27.93532

HPCL EPS Forecast

Cost Of Sales 218033.6 239837 Increased by 10%
EBIT 4010.24 4333.308
EBT 2673.88 3050.402
PAT (NET PROFIT) 1792.14 2080.488
No Of Equity Shares

EPS (in RS) 52.92794 61.44384

Essar Oil EPS Forecast

Depreciation 0 0 Increased by 10%
EBIT 2354.62 1673.0568
EBT -1068.96 -1613.58
Tax Charges 0 0 Increased by 10%
PAT (NET PROFIT) -1068.96 -1613.58
No Of Equity Shares

EPS (in RS) -7.827194845 -22.31475591

Establish a PE Ratio: The PE Ratio may be derived from the constant growth dividend model,
or cross-section analysis, or historical analysis. This ratio shows the price, the investors are
willing to pay for every rupee of earnings per share.
Constant Growth Dividend Model

Where, Required ROE = Risk-free return + (Beta of Equity)*(Expected market risk premium)

Expected growth rate in dividends = Retention ratio * Return on Equity

Followings assumption have been made to calculate Required ROE

Year Risk Free Rate Beta of stock Expected Market
Risk Premium
Required ROE
IOCL 9% 0.64 8% 14.12
Reliance 9% 1.11 8% 17.88
BPCL 9% 1.05 8% 17.4
HPCL 9% 1.1 8% 17.8
Essar Oil 9% 1.68 8% 22.44

Historical Analysis: PE ratio = Price/Earning

Year PE Ratio
IOCL 0.753336904
Reliance -0.38244
BPCL 1.38
HPCL 1.220284
Essar Oil 1.028053027

The Weighted PE Ratio

Year Weighted PE Ratio
IOCL 4.148441583
Reliance 6.185962
BPCL 5.12
HPCL 4.821915
Essar Oil -40.78985465

Estimation of Intrinsic Value = Projected EPS * Appropriate PE Ratio

Year Intrinsic Value
IOCL 30.22153362
Reliance 389.0072
BPCL 142.98
HPCL 296.277
Essar Oil 910.2156501

Comparison of Five companies

Particulars IOCL Reliance BPCL HPCL Essar Oil
Return on equity 26.218 55 31.96 41.71 2.06
Book value of share 241.59 500.84 332.51 389.63 26.06
Earnings per share 32.85 59.24 45.90 48.07 0.97
Dividend per share 7.58 7.06 12.54 10.15 0
Debt-equity ratio 1.11 0.41 1.35 2.08 7.49
CAGR of sales 0.15 0.19 0.21 0.20 0.23
CAGR of EPS -0.15 0.10 -0.01 0.58 0
CAGR of DPS -0.13 0.03 0 -0.03 0
Sustainable growth rate 19.75 48.36 20.83 30.40 1.7
Beta 0.64 1.11 1.05 1.1 1.68
Volatility 0.16 0.43 1.33 25.90 306.58
Estimated intrinsic value 30.22 389 142.98 296.27 910.21

From the above analysis we can say that compared to Reliance ROE is higher other four
companies. Book value of the share of Reliance is also relatively higher. EPS of Reliance is
59.24% which is more than that of other four companies. This shows earning ability of the
company to generate revenue. DPS of BPCL is more than that of other four companies, this
shows that BPCL has less investment opportunity compared to other four companies. Compound
annual growth rate of sales is more in Essar Oil. This shows that sales of Essor Oil have
increased more than sales of other four companies. Volatility is low in case of IOCL which
means that the risk is less in case of IOCL. Even though the overall performance of Reliance is
better than that of other four companies, but when we look growth rate of sales that Essar oil
performing well, Therefore investment in both reliance and Essar oil seems to be more profitable
than other companies.

Value Range Estimation and Decision Rules for the Investors

As valuation is inherently an uncertain and imprecise exercise, it would be native to put great
faith in a single point intrinsic value estimate because it is based on estimate and existence of
some error is possible. So we feel that defining value range is more appropriate than the single
point value.

Decision Rule for the Investor of Reliance Industry Limited

In view of this, we feel that the value range for intrinsic value of the share of Maruti Suzuki is
Rs.350 to Rs.400. (intrinsic value is Rs.389). Given this value range, decision rule may be as
follows:

Value Range of Intrinsic Value of Reliance Industry Limited

Market price Decision

Less than Rs.350 Buy
Between Rs.350 and Rs.400 Hold
More than Rs.400 Sell
Market Value as on 19 Sept-2014 = Rs. 994.60 It means intrinsic value of Reliance is less than
its market price.

Intrinsic Value < Market Price
Rs.389 < Rs.994.60
The market price of security should be equal to its fair value. But Market price here is higher
than the intrinsic value in case of Reliance. It shows that share is overvalued in market. Hence
the market value is expected to decline in future. So it is better for the investor to sell the share at
current price in the market.

Decision Rule for the Investor of Essar oil
Value range for intrinsic value of the share of Essar oil is Rs.900 to Rs.950. (intrinsic value is
Rs.910.21). Given this value range, decision rule may be as follows:

Value Range of Intrinsic Value of Essar Oil

Market Price Decision
Less than Rs.910.21 Buy
Between Rs.900 and Rs950 Hold
More than Rs.950 Sell
Market value as on 19 Sept-2014 = Rs.119.75. It shows that intrinsic value of Essar Oil is
greater than its market price of share. This is shown as below:
Intrinsic Value < Market Price
Rs.910.21> Rs.119.75

The market price of security should be equal to its fair value. But Market price here is lesser than
the intrinsic value in case of Essar Oil. It shows that share is undervalued in market. Hence the
market value is expected to increase in future. So it is better for the investor to buy the share of
Essar oil at current price in the market.

Limitations
This analysis is fully based on secondary data and hence the accuracy of data is a major concern.
Only Five companies are selected for analysis because of time constraints. Since the annual
reports for 2013-14 for some companies were not available at the time of study, fundamental
analysis is done using the data available till September.

Analysis helps the investor in making investment decisions but not every investment is entirely
dependent on the analysis alone. Results of Technical Analysis as well as other qualitative
factors related to companys performance must also be considered while making an investment
decision. A proper analysis helps in reducing the risks on investment in the share market and
helps in choosing less risky and highly rewarding investment avenue
FUNDAMENTAL ANALYSIS OF MAJOR PLAYERS IN REFINERIES SECTOR:
RELIANCE INDUSTRIES:
Reliance Industries Limited (RIL) is an Indian conglomerate holding company headquartered in
Mumbai, Maharashtra, India. The company operates in five major segments: exploration and
production, refining and marketing, petrochemicals, retail and telecommunications.
The group is present in many business sectors across India including petrochemicals,
construction, communications, energy, health care, science and technology, natural resources,
retail, textiles, and logistics.
RIL is the second-largest publicly traded company in India by market capitalisation and is the
second largest company in India by revenue after the state-run Indian Oil Corporation. The
company is ranked No. 99 on the Fortune Global 500 list of the world's biggest corporations, as
of 2013. RIL contributes approximately 14% of India's total exports.
The shareholding pattern of Reliance Industries is shown below.

45%
24%
20%
9%
2% 0%
0%
Shareholding Pattern of Reliance
Promoters
Others
FII
Insurance
Mutual Funds / UTI
FI / Banks
Government
P/L Statement For Reliance Industries (Rs.Cr)
2010/03 2011/03 2012/03 2013/03 2014/03
Net Operating Revenue 192091.87 248136.06 329932.00 360297.00 390117.00
Cost Of Sales 162122.8 210303.35 296101.00 329510.00 359240.00
Reported EBDIT 29969.07 37832.71 33831.00 30787.00 30877.00
Other Recurring Income 1999.95 2687.98 4557.00 7998.00 8936.00
Adjusted EBDIT 31969.02 40520.69 38388.00 38785.00 39813.00
Depreciation 10496.53 13607.58 11394 9465 8789.00
EBIT 21472.49 26913.11 26994.00 29320.00 31024.00
Financial Expenses 1999.95 2328.30 2668.00 3036.00 3206.00
EBT 19472.54 24584.81 24326.00 26284.00 27818.00
Tax Charges 4324.97 4969.14 5710.00 5281.00 5834.00
PAT (NET PROFIT) 15147.57 19615.67 18616.00 21003.00 21984.00
No Of Equity Shares Outstanding (Cr.) 327.04 327.34 327.11 322.87 323.19
EPS (in RS) 46.32 59.92 56.91 65.05 68.02

Growth Rate Year Over Year:
Net Operating Revenue 29.18% 32.96% 9.20% 8.28%
Reported EBDIT Growth 26.24% -10.58% -9.00% 0.29%
Adjusted EBDIT Growth 26.75% -5.26% 1.03% 2.65%
EBIT Growth 25.34% 0.30% 8.62% 5.81%
EBT Growth 26.25% -1.05% 8.05% 5.84%
PAT Growth 29.50% -5.10% 12.82% 4.67%
Reported EBDIT Margin 15.60% 15.25% 10.25% 8.54% 7.91%
EBIT Margin 11.18% 10.85% 8.18% 8.14% 7.95%
EBT Margin 10.14% 9.91% 7.37% 7.30% 7.13%
Net Profit Margin 7.89% 7.91% 5.64% 5.83% 5.64%

Balance Sheet Of Reliance Industries (Rs.Cr)
2010/03 2011/03 2012/03 2013/03 2014/03
Sources Of Funds
Owned Funds
Equity Share Capital 3270.37 3273.37 3271 3229 3232
Share Application Money 0.00 0.00 0.00 25.00 17.00
Reserves & Surplus 125095.97 142799.95 159698 176766 193842
Loan Funds
Secured Loans 11670.50 10571.21 6969.00 2422.00 10744.00
Unsecured Loans 50824.19 56825.47 51658.00 52101.00 74737.00
Total 190861 213470.00 221596.00 234543.00 282572.00
Uses Of Funds
Fixed Assets
Gross Block 215864.71 221251.97 209552.00 187607.00 194793.00
Accumulated Depreciation 62604.82 78545.50 91770.00 77859.00 85387.00
Less: Revaluation Reserve 8804.27 5467.00 3127.00 0.00 0.00
Net Block 144455.62 137239.47 114655.00 109748.00 109406.00
Capital Work In Progress 12138.82 12819.56 4885.00 19116.00 41716.00
Investments 23228.62 37651.54 54008.00 52509.00 86062.00
Net Current Assets
Current Assets, Loans & Advances 62622.05 91722.78 118550.00 137138.00 130399.00
Less: Current Liabilities & Provisions 51584.08 65963.35 70502.00 83968.00 85011.00
Total Net Current Assets 11037.97 25759.43 48048.00 53170.00 45388.00
Miscellaneous Expenses Not Written Off 0.00 0.00 0.00 0.00 0.00
Total 190861.03 213470.00 221596.00 234543.00 282572.00

Ratios

Net Capital Employed 190861.03 213470.00 221596.00 234543.00 282572.00
Net Worth 128366.34 146073.32 162969.00 180020.00 197091.00
EBIT 21472.49 26913.11 26994.00 29320.00 31024.00
PAT 15147.57 19615.67 18616.00 21003.00 21984.00
ROCE 11.25% 12.61% 12.18% 12.50% 10.98%
ROTA 8.98% 10.28% 9.60% 10.25% 8.91%
ROE 42.88 49.62 54.51 61.25 66.78
Fixed Assets Ratio 0.82 0.70 0.54 0.55 0.53
Interest Coverage Ratio 10.74 11.56 10.12 9.66 9.68
Current Ratio 1.21 1.39 1.68 1.63 1.53
Asset Turnover Ratio (Sales/Asset) 1.01 1.16 1.49 1.54 1.38
Solvency Ratio 1.89 1.91 1.79 1.77 1.87

ESSAR OIL:
Essar Oil is an India-based company engaged in the exploration and production of oil and natural
gas, refining of crude oil, and marketing of petroleum products. It is a part of the Essar Group
based in Mumbai. It operates a major refinery in Vadinar, Gujarat, India, which made it the
second largest non-state refiner in India in 2009.
In July 2009, Essar acquired a 50% stake in Kenya Petroleum Refineries Ltd. In July 2012,
following Gujarat High Court's directions Gujarat Government seized three bank accounts of the
company to recover its tax dues of Rs80 billion.

The shareholding pattern of Essar Oil is shown below.

72%
25%
1% 1%
1%
0% 0%
Shareholding Pattern of Essar Oil
Others
Promoters
FII
FI / Banks
Mutual Funds / UTI
Insurance
Government
P/L Statement For Esssar Oil (Rs.Cr)

2009/03 2010/03 2011/03 2012/03 2013/03

Cost Of Sales 35786.39 36249.52 45452.06 56660.63 86832.28
Reported EBDIT 2319.96 1065.89 2440.32 1676 1745.84
Adjusted EBDIT 3411.44 1276.53 2696.31 2100.76 2354.62
Depreciation 654.85 728.31 730.86 761.94 0.00
EBIT 2756.59 548.22 1965.45 1338.82 2354.62
EBT 1665.11 -632.71 745.21 -48.02 -1068.96
Tax Charges -30.21 0.00 174.51 0.00 0.00
PAT (NET PROFIT) 1695.32 -632.71 570.7 -48.02 -1068.96
EPS (in RS) 14.11 -5.27 4.18 -0.35 -7.83

Net Operating Revenue -2.08% 28.34% 21.81% 51.84%
Reported EBDIT Growth -54.06% 128.95% -31.32% 4.17%
Adjusted EBDIT Growth -62.58% 111.22% -22.09% 12.08%
EBIT Growth -80.11% 258.51% -31.88% 75.87%
EBT Growth -138.00% -217.78% -106.44% 2126.07%
PAT Growth -137.32% -190.20% -108.41% 2126.07%
EBIT Margin 7.23% 1.47% 4.10% 2.29% 2.66%
EBT Margin 4.37% -1.70% 1.56% -0.08% -1.21%
Net Profit Margin 4.45% -1.70% 1.19% -0.08% -1.21%

Balance Sheet Of Essar Oil (Rs.Cr)
2009/03 2010/03 2011/03 2012/03 2013/03
Sources Of Funds
Owned Funds
Equity Share Capital 1218.13 1218.13 1382.27 1382.27 1382.27
Reserves & Surplus 2272.85 2302.31 5155.63 798.47 -275.44
Loan Funds
Secured Loans 9419.15 9470.59 12274.42 17361.17 23652.75
Unsecured Loans 612.56 883.14 2272.51 0.00 66.19
Total 13613.72 15027.38 21084.83 19541.91 24825.77

Uses Of Funds
Fixed Assets
Gross Block 13364.74 13802.5 13974.59 21319.92 25558.02
Net Block 12605.84 12309.35 11744.09 21319.92 21274.15
Investments 103.05 203.00 103.00 103.00 103.00
Net Current Assets
Total Net Current Assets -1009.07 -1803.72 814.70 -3641.48 838.24
Total 13613.72 15027.38 21084.83 19541.91 24825.77

Net Worth 3582.01 4673.65 6537.90 2180.74 1106.83
EBIT 2756.59 548.22 1965.45 1338.82 2354.62
PAT 1695.32 -632.71 570.70 -48.02 -1068.96
ROCE 20.25% 3.65% 9.32% 6.85% 9.48%
ROTA 20.47% 3.65% 8.49% 6.85% 9.48%
ROE 3.26 1.37 4.14 0.54 -0.97
Current Ratio 0.88 0.84 1.07 0.82 1.04
Solvency Ratio 6.16 5.56 5.13 18.38 42.97
INDIAN OIL CORPORATION:
Indian Oil Corporation Limited, or Indian Oil, is an Indian state-owned oil and gas corporation
with its headquarters in New Delhi, India. It is the world's 83rd largest corporation, according to
the Fortune Global 500 list, and the largest public corporation in India when ranked by revenue.
Indian Oil and its subsidiaries account for a 49% share in the petroleum products market, 31%
share in refining capacity and 67% downstream sector pipelines capacity in India. The Indian Oil
Group of companies owns and operates 10 of India's 22 refineries with a combined refining
capacity of 65.7 million metric tonnes per year. In FY 2012 IOCL sold 75.66 million tonnes of
petroleum products and reported a PBT of INR37.54 billion, and the Government of India earned
an excise duty of INR232.53 billion and tax of INR10.68 billion.
The company is mainly controlled by Government of India which owns approx. 79% shares in
the company. It is one of the seven Maharatna status companies of India, apart from Coal India
Limited, NTPC Limited, Oil and Natural Gas Corporation, Steel Authority of India Limited,
Bharat Heavy Electricals Limited and Gas Authority of India Limited.
The shareholding pattern of Indian Oil Corporation is shown below.

69%
24%
4%
2%
1% 0%
0%
Shareholding Pattern of Indian Oil
Corporation
Promoters
Others
Insurance
FII
Mutual Funds / UTI
FI / Banks
Government
P/L Statement For Indian Oil Corporation (Rs.Cr)

2010/03 2011/03 2012/03 2013/03 2014/03

Cost Of Sales 254339.35 318523.82 380034.01 433359.56 457507.86
Reported EBDIT 15098.73 12611.03 18442.62 13736.85 15702.23
Adjusted EBDIT 18419.08 15835.76 21641.67 17251.64 19119.52
Depreciation 3227.14 4546.67 4867.79 5200.99 5760.09
EBIT 15191.94 11289.09 16773.88 12050.65 13359.43
EBT 13619.59 8586.95 11183.34 5641.50 8275.01
Tax Charges 3097.87 1297.71 -200.31 642.63 2906.42
PAT (NET PROFIT) 10521.72 7289.24 11383.65 4998.87 5368.59
EPS (in RS) 43.33 30.02 46.88 20.59 22.11

Net Operating Revenue -12.27% 22.90% 20.34% 12.20% 5.84%
Reported EBDIT Growth 11.64% -16.48% 46.24% -25.52% 14.31%
Adjusted EBDIT Growth 4.98% -14.03% 36.66% -20.29% 10.83%
EBIT Growth 3.60% -25.69% 48.58% -28.16% 10.86%
EBT Growth 27.97% -36.95% 30.24% -49.55% 46.68%
PAT Growth 13.41% -30.72% 56.17% -56.09% 7.40%
EBIT Margin 5.64% 3.41% 4.21% 2.70% 2.82%
EBT Margin 5.05% 2.59% 2.81% 1.26% 1.75%

Balance Sheet Of Indian Oil Corporation (Rs.Cr)
2010/03 2011/03 2012/03 2013/03 2014/03
Sources Of Funds
Owned Funds
Reserves & Surplus 48124.88 52904.37 55448.75 58696.36 63564.13
Loan Funds
Secured Loans 18292.45 20379.65 13045.97 14456.52 17865.99
Unsecured Loans 26273.80 32354.22 57277.96 63868.68 62733.13
Total 95119.08 108066.19 128200.63 139449.51 146591.20

Uses Of Funds
Fixed Assets
Gross Block 71780.60 92696.69 98597.10 104104.83 111730.13
Net Block 41581.07 58187.40 59846.80 60632.73 62948.79
Investments 22370.25 19544.76 18678.46 18671.22 23594.19
Net Current Assets
Total 95119.08 108066.19 128200.63 139449.51 146591.20

Net Worth 50552.83 55332.32 57876.7 61124.31 65992.08
EBIT 15191.94 11289.09 16773.88 12050.65 13359.43
PAT 10521.72 7289.24 11383.65 4998.87 5368.59
ROCE 15.97% 10.45% 13.08% 8.64% 9.11%
ROTA 12.71% 9.25% 13.24% 8.18% 7.13%
ROE 24.15 24.79 27.53 26.23 28.39
Current Ratio 1.19 1.26 1.44 1.50 1.25
Solvency Ratio 2.89 3.17 3.63 3.66 3.82
BHARAT PETROLEUM CORPORATION LTD:
Bharat Petroleum Corporation Limited (BPCL) is an Indian state-controlled oil and gas company
headquartered in Mumbai, Maharashtra. BPCL has been ranked 229th in the Fortune Global 500
rankings of the world's biggest corporations for the year 2013.
BPCL operates in two segments: downstream petroleum, which is engaged in refining and
marketing of petroleum products, and exploration and production of hydrocarbons (E&P). The
Companys refinery units include Mumbai Refinery, Kochi Refinery, Numaligarh Refinery and
Bina Refinery.
The Companys products include gases, which includes poly propylene feed stock, natural gas,
liquefied petroleum gas (LPG) and bharat metal cutting gas; fuels, which includes marine fuels,
white oils and black oils; solvents and special products; bitumen; lubricants, and sulphur.
Its marketing infrastructure includes installations, depots, retail outlets, aviation service stations
and LPG distributors. During the fiscal year ended March 31, 2012 (fiscal 2012), it produced
crude throughput at 26.72 million metric tons. During fiscal 2012, its subsidiary acquired
participating interests (PI) in two onland blocks under the NELP IX Bid round.
The shareholding pattern of Bharat Petroleum Corporation Ltd is shown below.

55%
17%
12%
8%
7%
1% 0%
Shareholding Pattern of Bharat
Petroleum Corporation Ltd
Promoters
Others
FII
Mutual Funds / UTI
Insurance
Government
FI / Banks
P/L Statement For Bharat Petroleum Corporation Ltd (Rs.Cr)

2010/03 2011/03 2012/03 2013/03 2014/03

Cost Of Sales 116732.43 148093.49 208106.12 234008.95 251974.31
Reported EBDIT 3484.65 3545.96 3866.85 6106.80 8086.22
Adjusted EBDIT 5164.20 5167.32 5568.63 7787.03 9554.88
Depreciation 1242.32 1655.40 1884.87 1926.10 2246.82
EBIT 3921.88 3511.92 3683.76 5860.93 7308.06
EBT 2910.93 2394.89 1884.17 4035.69 5948.98
Tax Charges 823.75 848.21 572.90 1392.79 1888.10
PAT (NET PROFIT) 2087.18 1546.68 1311.27 2642.90 4060.88
EPS (in RS) 57.74 42.79 36.27 36.55 56.16

Reported EBDIT Growth -23.26% 1.76% 9.05% 57.93% 32.41%
Adjusted EBDIT Growth -23.00% 0.06% 7.77% 39.84% 22.70%
EBIT Growth -30.36% -10.45% 4.89% 59.10% 24.69%
EBT Growth -15.99% -17.73% -21.33% 114.19% 47.41%
PAT Growth -34.86% -25.90% -15.22% 101.55% 53.65%
EBIT Margin 3.26% 2.32% 1.74% 2.44% 2.81%
EBT Margin 2.42% 1.58% 0.89% 1.68% 2.29%

Balance Sheet Of Bharat Petroleum Corporation Ltd (Rs.Cr)
2010/03 2011/03 2012/03 2013/03 2014/03
Sources Of Funds
Owned Funds
Loan Funds
Secured Loans 10443.87 3021.55 210.11 6090.84 13933.52
Unsecured Loans 11751.33 13436.52 21036.33 17475.95 6058.54
Total 35281.91 30515.69 36160.30 40200.81 39450.82

Uses Of Funds
Fixed Assets
Gross Block 25412.52 29267.37 31640.58 33571.89 38048.55
Net Block 13669.35 15999.33 16612.38 16690.41 19039.51
Investments 12201.32 12037.06 10917.42 12103.00 11846.89
Net Current Assets
Total 35281.91 30515.69 36160.30 40200.81 39450.82

Net Operating Revenue 120217.08 151639.5 211973 240115.8 260060.5
Net Worth 13086.71 14057.62 14913.86 16634.02 19458.76
EBIT 3921.88 3511.92 3683.76 5860.93 7308.06
PAT 2087.18 1546.68 1311.27 2642.9 4060.88
ROCE 11.12% 11.51% 10.19% 14.58% 18.52%
ROTA 8.78% 8.73% 8.60% 11.11% 13.74%
ROE 40.97 42.16 43.88 25.66 31.53
Current Ratio 1.36 1.06 1.26 1.34 1.17
Solvency Ratio 4.15 3.97 4.40 4.03 3.72
HINDUSTAN PETROLEUM CORPORATION LTD:
Hindustan Petroleum Corporation Limited (HPCL) is an integrated oil refining and marketing
company. HPCL operates in two segments: downstream, and exploration and production of
hydrocarbons. The downstream segment is engaged in refining and marketing of petroleum
products.
HPCL operates two refineries in Mumbai (West Coast) and Visakhapatnam. Its products and
services include Refineries, aviation, bulk fuels & specialties, international trade, liquefied
petroleum gas (LPG) (HP gas), Lubes (HP lubes), retail, exploration & production, joint ventures
and alternate energy.
As of March 31, 2012, it held 16.95% interest in Mangalore Refinery & Petrochemicals Ltd. Its
pipelines include Mumbai-Pune-Sholapur pipeline, Vijayawada-Secunderabad pipeline and
Mundra-Delhi pipeline achieved combined throughput of 13.62 million metric tons during the
fiscal year ended March 31, 2012 (fiscal 2012). During fiscal 2012, HPCL acquired interest of
ICICI Group and HDFC in Prize Petroleum Company Limited.
The shareholding pattern of Hindustan Petroleum Corporation Ltd is shown below.

51%
16%
13%
12%
8%
0%
0%
Shareholding Pattern of Hindustan
Petroleum Corporation Ltd
Promoters
Others
FII
FI / Banks
Mutual Funds / UTI
Insurance
Government
P/L Statement For Hindustan Petroleum Corporation Ltd (Rs.Cr)

2010/03 2011/03 2012/03 2013/03 2014/03

Cost Of Sales 103988.68 129890.72 174204.48 202469.60 218033.60
Reported EBDIT 3311.89 3323.07 4131.34 4261.66 5237.73
Adjusted EBDIT 4422.90 4386.71 5156.93 5364.02 6212.18
Depreciation 1164.40 1406.95 1712.93 1983.52 2201.94
EBIT 3258.50 2979.76 3444.00 3380.50 4010.24
EBT 2348.53 2092.72 1219.73 1361.17 2673.88
Tax Charges 766.15 724.97 307.81 569.85 881.74
PAT (NET PROFIT) 1582.38 1367.75 911.92 791.32 1792.14
EPS (in RS) 46.73 40.39 26.93 23.37 52.93

Reported EBDIT Growth 0.63% 0.34% 24.32% 3.15% 22.90%
Adjusted EBDIT Growth -17.72% -0.82% 17.56% 4.02% 15.81%
EBIT Growth -25.84% -8.55% 15.58% -1.84% 18.63%
EBT Growth 1.67% -10.89% -41.72% 11.60% 96.44%
PAT Growth -22.20% -13.56% -33.33% -13.22% 126.47%
EBIT Margin 3.04% 2.24% 1.93% 1.64% 1.80%
EBT Margin 2.19% 1.57% 0.68% 0.66% 1.20%

Balance Sheet Of Hindustan Petroleum Corporation Ltd (Rs.Cr)
2010/03 2011/03 2012/03 2013/03 2014/03
Sources Of Funds
Owned Funds
Loan Funds
Secured Loans 1375.88 3657.68 2652.06 3874.82 4262.57
Unsecured Loans 19926.49 21363.51 24827.19 28583.45 27667.48
Total 32860.34 37566.99 40601.77 46184.67 46942.21

Uses Of Funds
Fixed Assets
Gross Block 24985.96 29648.39 33329.40 36849.52 42287.19
Net Block 15304.26 18644.53 20849.65 22548.70 25912.24
Investments 11387.22 11335.02 10370.50 10626.93 10859.87
Net Current Assets
Total 32860.34 37566.99 40601.77 46184.67 46942.21

Net Worth 11557.97 12545.80 13122.52 13726.4 15012.16
EBIT 3258.5 2979.76 3444 3380.5 4010.24
PAT 1582.38 1367.75 911.92 791.32 1792.14
ROCE 9.92% 7.93% 8.48% 7.32% 8.54%
ROTA 7.58% 6.00% 7.72% 6.09% 6.66%
ROE 37.76 40.04 40.40 41.82 48.57
Current Ratio 1.12 1.17 1.16 1.26 1.18
Solvency Ratio 4.47 4.81 5.42 5.55 5.17

RATIO COMPARISON BETWEEN REFINERY SECTOR COMPANIES FOR ENDED
FISCAL:
RETURN BASED PROFITABILITY RATIOS:
Particulars Reliance Essar Oil IOC BPCL HPCL I. Avg
ROCE 10.98% 9.48% 9.11% 18.52% 8.54% 10.7%
ROTA 8.91% 9.48% 7.13% 13.74% 6.66% 8.6%
ROE 66.78 -0.97 28.39 31.53 48.57 39.82

The return on capital employed (ROCE) ratio, expressed as a percentage, complements the return
on equity (ROE) ratio by adding a company's debt liabilities, or funded debt, to equity to reflect a
company's total "capital employed". This measure narrows the focus to gain a better
understanding of a company's ability to generate returns from its available capital base. Almost
all the companies are making the best use of their capital but BPCL is miles ahead of everyone.
The return on assets (ROA) ratio illustrates how well management is employing the company's
total assets to make a profit. The higher the return, the more efficient management is in utilizing
its asset base. The ROA ratio is calculated by comparing net income to average total assets, and
is expressed as a percentage.
Based on the Industry average BPCL makes the best use of its assets.
The return on equity ratio (ROE) measures how much the shareholders earned for their
investment in the company. The higher the ratio percentage, the more efficient management is in
utilizing its equity base and the better return is to investors.
Everything aside investors look only for the returns they get from the firms and in that aspect
Reliance leads the way followed by HPCL.

LEVERAGE RATIOS:
Fixed Assets Ratio 0.53 0.96 0.66 0.56 0.65 0.60
Interest Coverage Ratio 9.68 0.69 2.63 5.38 3.00 4.03
Asset Turnover Ratio
(Sales/Asset)
1.38 3.57 3.23 6.59 4.76 2.66
Solvency Ratio 1.87 42.97 3.82 3.72 5.17 2.74

0.00% 5.00% 10.00% 15.00% 20.00%
Reliance
Essar Oil
IOC
BPCL
HPCL
I. Avg
Profitability Ratios
ROTA
ROCE
(10.00) - 10.00 20.00 30.00 40.00 50.00 60.00 70.00
Reliance
Essar Oil
IOC
BPCL
HPCL
I. Avg
ROE
ROE
While carrying a modest amount of debt is quite common, highly leveraged businesses face
serious risks. Large debt payments eat away at revenue and, in severe cases, put the company in
jeopardy of default. Some organizations may carry what looks like a significant amount of debt,
but they generate enough cash to easily handle interest payments. In Interest Coverage ratio,
higher numbers are seen as favourable. In general, a ratio of 3 and above represents a strong
ability to pay off debt, although here, too, the threshold varies from one industry to another.
Hence Reliance leads others in their ability to service debt and Essar, IOC should improve their
condition.
The Asset Turnover ratio is the amount of sales or revenues generated per dollar of assets. It is
an indicator of the efficiency with which a company is deploying its assets. Generally speaking,
the higher the ratio, the better it is, since it implies the company is generating more revenues per
dollar of assets. But since this ratio varies widely from one industry to the next, comparisons are
only meaningful when they are made for different companies in the same sector. The Asset
Turnover ratio is also a key component of DuPont Analysis, which breaks down Return on
Equity into three parts, the other two being profit margin and financial leverage.
BPCL and HPCL fare better than others, Reliance has a low asset turnover ratio but it may be
due to the high investment in the fixed assets.

- 2.00 4.00 6.00 8.00 10.00
Reliance
Essar Oil
IOC
BPCL
HPCL
I. Avg
Leverage Ratios
Asset Turnover Ratio
(Sales/Asset)
Interest Coverage Ratio
Fixed Assets Ratio

LIQUIDITY RATIOS:
Current Ratio 1.53 1.04 1.25 1.17 1.18 1.30
Quick Ratio 1.03 0.57 0.63 0.58 0.56 0.72

The current ratio is a popular financial ratio used to test a company's liquidity by deriving the
proportion of current assets available to cover current liabilities. The concept behind this ratio is
to ascertain whether a company's short-term assets are readily available to pay off its short-term
liabilities. In theory, the higher the current ratio, the better.
Reliance seems to be having a good current ratio and IOC seems ok but others have to improve.
The quick ratio or the quick assets ratio or the acid-test ratio is a liquidity indicator that further
refines the current ratio by measuring the amount of the most liquid current assets there are to
cover current liabilities. The quick ratio is more conservative than the current ratio because it
excludes inventory and other current assets, which are more difficult to turn into cash. Therefore,
a higher ratio means a more liquid current position.
Here too Reliance is in a good position followed by IOC.
- 10.00 20.00 30.00 40.00 50.00
Reliance
Essar Oil
IOC
BPCL
HPCL
I. Avg
Solvency Ratio
Solvency Ratio

SALES BASED PROFITABILITY RATIOS:
Operating Profit
Margin
7.91% 1.97% 3.32% 3.11% 2.35% 3.7%
EBIT Margin 7.95% 2.66% 2.82% 2.81% 1.80% 3.6%
EBT Margin 7.13% -1.21% 1.75% 2.29% 1.20% 2.2%
Net Profit Margin 5.64% -1.21% 1.13% 1.56% 0.80% 1.6%

Operating Profit Margin is calculated by subtracting selling, general and administrative (SG&A),
or operating, expenses from a company's gross profit. Management has much more control over
operating expenses than its cost of sales outlays. Thus, investors need to scrutinize the operating
profit margin carefully. Positive and negative trends in this ratio are, for the most part, directly
attributable to management decisions. A company's operating income figure is often the
preferred metric (deemed to be more reliable) of investment analysts, versus its net income
figure, for making inter-company comparisons and financial projections.
Net Profit Margin is often referred to simply as a company's profit margin; the so-called bottom
line is most often mentioned when discussing a company's profitability. While undeniably an
important number, investors can easily see from a complete profit margin analysis that there are
several income and expense operating elements in an income statement that determine a net
profit margin.
- 0.50 1.00 1.50 2.00
Reliance
Essar Oil
IOC
BPCL
HPCL
I. Avg
Liquidity Ratios
Quick Ratio
Current Ratio
Apart from Reliance, other firms are struggling to match the industry average itself and should
try to improve.

Conclusion
-2.00% 0.00% 2.00% 4.00% 6.00% 8.00%
Reliance
Essar Oil
IOC
BPCL
HPCL
I. Avg
Net Profit Margin
Operating Profit Margin

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EQUITY RESEARCH ON REFINERY INDUSTRY COMPANIES

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