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PROJECT REPORT

ON
EVALUATION OF CASH MANAGEMENT AT INDIAN OIL
CORPORATION ALONG WITH A FINANCIAL STATEMENT
ANALYSIS
Project Report submitted towards partial Fulfillment of
Master of Business Administration
2013-2015

SIKKIM MANIPAL UNIVERSITY

DIRECTORATE OF DISTANCE

EDUCATION

SUBMITTED TO:
SUBMITTED BY:
MR. AMIT KUMAR GUPTA
( FACULTY GUIDE)

SIKKIM MANIPAL UNIVERSITY

JAYSHREE ADWANI
MBA 2nd Year
ROLL NO. 1302000124

[ NIMACT, 36 Khandari, Agra]


L.C. Code- 01802

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DECLARATION
I, Jayshree Adwani, hereby declare that this research project report entitled:

Evaluation of Cash Management at Indian Oil Corporation along with a financial


statement analysis
With special reference to IOCL has been prepared by me on the basis of research and personal observation
during the course of my third semester of MBA programmed under the supervision of Mr. Amit Kumar
Gupta, faculty of Sikkim Manipal University. This research project report is my beneficial work and has
not been submitted in any form to any university or institute for the award of any degree or diploma prior
to the under mentioned date. I bear the entire responsibility of submission of this project.

Date:

JAYSHREE ADWANI
ROLL NO. 1302000124

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SIKKIM MANIPAL UNIVERSITY


DIRECTORATE OF DISTANCE

EDUCATION

Certificate

This is to certify that Project Report entitled

Evaluation of Cash Management at Indian Oil Corporation along with a financial


statement analysis Submitted in partial fullfilment of the requirements for the degree of Master of
Business Administration of Sikkim Manipal University of Health,Technology,Science. Jayshree Adwani
has worked under my supervision of under guidance and no part of this report has been submitted for the
award of the degree, diploma, fellowship or other similar titled project and work has been published in any
journal of magazine.

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ACKNOWLEDGEMENT

THE BEST WAY TO MAKE YOUR DREAMS COME TRUE IS TO WAKE UP


AND WORK
It is great pleasure for me to acknowledge all those who have contributed towards the conception, origin
and nurturing of this project. First I would like to thank my faculty guide Mr. Amit Kumar Gupta who
has helped me in my project report.
Last but not least; I would like to thanks to my Family, Friends etc., their constant encouragement,
kind advice and support as a guide throughout our work. Their extensive knowledge, unfailing optimism
and easy nature have made this project an exciting and enjoyable experience which will definitely shape
our future in a better manner. I am very happy to express my deepest gratitude to everybody who spared
their valuable time and helped me a lot in the preparation of this Project report.

JAYSHREE ADWANI
ROLL NO. 1302000124

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Table of contents
S No.

Topics

Page No.

Declaration

Certificate From University

Acknowledgement

Executive Summary

Introduction Of Company or IOCL Co. Analysis

Objectives

24

Research Methodology

25

Financial Analysis

Detail Report- A. Cash Management

8-23

26-40
41-53

B. E- Collection

54-59

C. LPG Plant Analysis

60-69

10

Conclusion

11

Suggestion

71

12

Reference

72

13

Annexure

73-80

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Executive Summary
This project seeks to evaluate the Cash Management at Indian Oil Corporation along
with a financial statement analysis in understanding the profitability, liquidity &
efficiency of the firm.
The company uses system called Cash Management Product (CMP) to get information
related to its cash information. This system performs the required function of
speeding up the cash receipts and payments as well as provides for greater
accountability which enables the management at the top to take efficient decisions in
regards of the liquidity available.
State Bank of India (SBI) is one of the main bankers of Indian Oil and provides various
facilities. IOC is one of the main customers of SBI. HDFC is also among the bankers to
Indian Oil and its customers. Though most of IOCs customers cater to the services of
SBI, there are a few who prefer to carry out their transactions from HDFC bank.
Hence Indian Oil Corporation has appointed HDFC as their second banker which also
helps them during contingencies.
Indian Oil has around 500 locations around India which serve as an outlet for the
finished products. Payments are made to these locations on a day to day basis. This
project provides an understanding to the facilities provided by SBI to Indian Oil at
various locations.
During the year 2007, Indian Oil started the concept of Electronic Collections (e
Collections) facility with a view of speeding up the payment procedures for the
purchasing party wherein the delivery of the product can be taken within 15 30
minutes whereas in the case of physical payment, the delivery would take place only
after clearing of the particular instrument.
And lastly, a financial statement analysis of the firm so as to identify its financial
strengths and weaknesses based on a ratio analysis model.

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INTRODUCTION OF INDIAN OIL


CORPORATION:
AS INDUSTRY ANALYSIS
Literature Review::
BRIEF HISTORY OF OIL INDUSTRY IN
INDIA
In 1881, Assam Railway & Trading co. began
laying of tracks in Assam.
They used elephants in place of cranes.
One day, one of the elephants wandered away,
to come back with its feet smeared by slimy oil.
Backtracking led to the discovery of oil in Borbhil,
near present day Digboi.
A Canadian driller, Willey Leove hollered at
native boys, Dig boy dig.
Oil was struck and the name Digboi stuck.

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Beginning of
Petroleum
Refining in India
Digboi became the birth place of
Indis oil industry
In 1890s, crude oil distillated at Margherita, 16 km away from Digboi, in cast
iron pans, called Stills
Digboi Refinery of Assam Oil Company (AOC) commissioned
location in 1901 with 500 bbl/day capacity

at its present

AOC nationalized and its Refining and Marketing functions merged with IOC in
October, 1981
Digboi refinery is one of the oldest refinery in the world that is still working.

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Companies in the industry


At present, there are three PSUs namely, IOC, HPC, and BPC marketing oil
products in country. In addition, some private players like Reliance, Essar and
Shell have also marketing rights for transportation fuels. The company wise
market share in sales table below:

Retail

Market
share

IOCL
group

46.2

BPCL

18.6

HPCL

16.5

OTHERS

2.2

Figures as on 1st Nov 2012


Total number of retail outlets 29380

Market size
India has total reserves of 775 million metric tons (MMT) of crude oil and 1074
billion cubic meters (BCM) of natural gas accordingly as on April 1, 2010, as per
the basic statistics released by ministry of petroleum and natural gas.
Petroleum exports during 2009-10 were US$ 26.2 billion. In the eighth round of
NELP, 1.62 Sq Km area will be covered comprising 70 Blocks. Out of 70 Blocks,
36 Blocks have been awarded under NELP VIII, according to economic survey
2010-11.
Today there are about total 18 Refineries in the country comprising 17 in the
Public sector, one in Private Sector. There are 17 public sector refineries
located at Guwahati, Barauni, Haldia, Mathura, Digboi, Koyali, Panipat,
Vishakapatnam, Chennai, Nagapatinam, Kochi, Bongaigoan, Numaligarh,
Mangalore, Tatipaka and two other refineries in Mumbai. The Private Sector
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Refinery Built in Reliance Petroleum Ltd. Is in Jamnagar is the Biggest oil


Refinery in Asia.

Legal/ Regulatory issues


The Political and Legal environment for the whole oil industry is very essential.
In India the entire oil industry is been governed by OIL Ministry and OIDB a
Govt. body. These two institutes are responsible for all the decision related to
the price, Quantity Specification etc. Beside this the international politics also
affect this international commodity OIL a lot and also its Companies. Any
Company Operated in India had to work according to the norms and on the
prices specified earlier by Govt. bodies.

Overall Cost Leadership:


As per the Government regulations, all the players in downstream petroleum
sector have to maintain same Prices, in fact subsidize the mail commodities
like Motor Spirit, High Speed diesel, Kerosene and LPG. In this way IOCL has
Overall Cost Leadership vis-a-vis private Players.

Differentiation

Indian oil is pioneer in launching state -of- the art petrol stations with digital
dispensers, modern canopies, standardized signage and effective lighting system
way back in the mid-1990s. The new retail-branding template introduced by indian oil
set in motion a revolution in the petroleum retail business in the country. Following
are the evidence of differentiation by IOCL.

Indian Oils XTRA care E branded full service petrol stations is a result of a
series of processed in retail design, product and service up gradation ,
capability training, automation, Loyalty Programs, retail site management
techniques, all bench marked to global Standards. Today Xtra Care Petrol
stations are synonymous in India with world class Petroleum retailing.
IOCL has formed a promotional alliance with Kisan Seva Kendras for Promotion
in Rural areas. IOCL presents sport scholarship awards to nurture talented
young sport persons across all the streams.
Indian Oil has also setup the Indian Oil Foundation (IOF) as a non Profit Trust to
Protect, Preserve and promote national Heritage Monuments. IOCL provide
Merit-Cum-Means Scholarship to bright student selected on Merit-Cum-

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Means Basis. For each academic year, 450 Scholarship covering the first year
students of 10+/ITI, Engineering, MBBS and MBA.

Technology
In todays dynamic business environment, innovation through a sustained
process of research and development (R&D) is the only cutting edge tool for
organizations to thrive. Indian oil has, till date, invested close to Rs. 1000 crore
in setting up world-class facilities at its R&D center and it plan to invest about
Rs. 500 crore during the period of 2007-12 to maintain its leadership in
downstream R&D in the hydrocarbon sector. This is the reason, thats why IOCL
have the Indias first experimental H-CNG (Hydrogen-Compressed natural Gas)
dispensing units at the R&D centre campus at Faridabad and has been in the
forefront of technology development for Bio-Diesel production from various
edible and non-edible oil and its application in vehicles. Pioneering studies by
Indian oils R&D centre established that Bio-diesel produced from Jatropha
seeds were at par with the produced from vegetable oils.

Other Environmental Factors


The company IOCL is very much concern about the environmental policies of it
and also very strictly follows every small norms of it. The mission of the
company is very clear; To develop techno-economically viable and
environment-friendly products. All because of this company wins SCOPE
Meritorious Awards for Environmental Excellence and Sustainable Development
and Good corporate governance.

Competition Analysis
Product Differentiation
Indian oil is pioneer in launching state -of- the art petrol stations with digital
dispensers, modern canopies, standardized signage and effective lighting system
way back in the mid-1990s. the new retail-branding template introduced by indian
oil set in motion a revolution in the petroleum retail business in the country.
Following are the evidence of differentiation by IOCL.
Xtra Care

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Indian Oils XTRA care E branded full service petrol stations is a result of a series
of processed in retail design, product and service up gradation , capability
training, automation, Loyalty Programs, retail site management techniques, all
bench marked to global Standards. Today Xtra Care Petrol stations are
synonymous in India with world class Petroleum retailing. While the industry
standard is to take samples on quarterly basis, Indian Oil has moved several steps
ahead by introducing fortnightly random sampling with specific importance given
to RON (Research Octane Number) sampling which is truly the definitive test for
quality and quantity. The surveillance audits by BV are being done on a more
comprehensive basis. The Scale and Spread of Xtra care pumps is also an Industry
record. Another vital differentiator in the Indian Oil Xtra Care is the importance
given to the frontline customer attendants. They are trained at three levels of
competencies customer service, Personal Hygiene/grooming and customer
complaint redressers. Xtra Care Dealers also undergo extensive training on Retail
Sale Business Management.

Comparative Valuation: Competitors

Size and Scope of Business

IOCL has much opportunity ion the present market conditions. This is because the
petroleum products are become a need for everyone and still contains a lot of scope
for customization. The various opportunities are listed below

Since the company has the maximum number of outlets and also the maximum
no. of refineries in India, it can very easily go for extension at any point of time,
and can introduce any new products, which will get from its huge market
network.

The company can make the buying process easier for the customers, by
implying many more schemes in the range of XTRAPOWER AND
XTRAREWARDS.

The company can think over the issue to build its own pipelines, so that it will
be an independent players and it will also support its aviation fuel supply.

Company has a great scope in E&P. It is already involves in E&P but only in a
very Limited Scale.

Industry/products/market Analysis
Product
1. SERVO
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With over 42% market share and 450 grades, the SERVO range of lubricants
is used in almost every application covering automotive, industrial and
marine sectors.
2. INDANE LPG GAS
Indian oil Indane LPG Gas is used in 40 Million homes as cooking fuel and
commands over 48% market share in India.
3. INDIAN OIL AVIATION SERVICE
Indian oil aviation service has a market share of 65% with a network of 95
Aviation Fuel station meets complete Aviation fuel requirements of the
Defense Services.
4. AUTO GAS
It has been introduced in Hyderabad, Bangalore and Mumbai markets.
5. PREMIUM FULES
XtraPremium is the only petrol in India with 91 Octane.
XtraMile, High Speed Diesel with world-class additives has taken a
leadership.
6. XTRA POWER
It facilitates cashless purchase of fuel & lubes for designated retail of Indian
oil.
7. swagat HIGHWAY FLAGSHIP RETAIL OUTLET
Non-fuel offers through Best-in-class alliance on exclusive basis wherever
possible.
8. XTRA CARE
Its a series of plans in retail design, product and service up gradation,
capability training, loyalty programme, retail site management technique all
benchmark to global standards.

Price
As per the Government regulations, all the players in downstream petroleum sector
have to maintain same prices, in fact Subsidize the mail commodities like Motor
Spirit, High Speed diesel, Kerosene and LPG. For the subsidized products government
allots Oil bonds to PSUs in order to partially compensate for the under-recoveries
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and to some extent upstream Oil Companies (ONGC, Oil). In This way IOCL has
overall cost leadership vis--vis private players.

SWOT ANALYSIS
Strength
1. Indias higest ranked Fortune 500 Company and a market leader with 50%
share of production products.
2. IOCL controls 10 refineries by virtue of which it has total share of round 34% of
Indias overall refining capacity.
3. There are more than 35600 sales point all over India which is 55%.
4. Strong brand name for its products for example SERVO which covers 42%
market shares.
5. Excellent credibility and international cooperate image for raising funds.

Weakness
1. The functioning of IOCL is influenced by Government policy as govt. have 82%
stake of the company. So, there is always a risk of its proposal being rejected
as there is uncertain political environment prevailing in the country.
2. The advertisement strategy is not effective.

Opportunities
1. Distribution of alternative products through existing retail network can be
chalked out.
2. With gas emerging as an alternative fuel due to twin benefits of pollution
and better economics.
3. Enhancement of distribution network must be made especially in the
deficit regions.
4. Improvements of customer management service at the retail end

Threats
1. Increase in number of players, specialization in lube market.
2. Introduction of CNG in some metro cities can reduce the demand of
petrol and diesel in the near future.
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3. Demographic issue is also poising some threats to IOCL. IOCLs north


coast operations continue to suffer from certain constraints.

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Indian Oil Corporate History


At the time of independence, Indias oil industry was fully controlled by
international oil cartel.
In 1956, Industrial Policy Resolution was passed, which laid the foundation of
national oil industry.
The resolution stated Oil is of vast importance in the world today. A country
that does not produce its own oil is in a weak position. From the point of view of
defense, the absence of oil is a fatal weakness.
Exploration & production was put into Schedule A, meaning thereby that
only state would operate in this field.
Soon thereafter, ONGC was formed for oil exploration and drilling.
Indian Oil Refineries were formed in 1958 for refining and manufacturing of
petroleum products, with Shri Feroze Gandhi as its Chairman.
This was followed by the formation of Indian Oil Co. in 1959, for marketing and
distribution of petroleum products.
In 1960, Indian Oil Co. signed a historic agreement with soviet Union for import
of 1.5 MMT of SKO, HSD, and ATF over a period of 4 years on rupee payment
basis. This initiated the end of to the monopoly of foreign oil companies.
On 1st September 1964, as a step towards achieving improved efficiency,
Indian Refineries and Indian Oil Co. were merged. Indian Oil Corporation Ltd.
(IOC) was born.

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MERGER
Indian Refineries Ltd.
1958

Indian Oil Company Ltd.


1959

Indian Oil Corporation


Ltd.
st
1 September 1964

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COMPANY OVERVIEW
INDIAN OIL CORPORATION LTD
IOC (Indian Oil Corporation) was formed in 1964 as the result of merger of Indian Oil
Company Ltd. (Estd. 1959) and Indian Refineries Ltd. (Estd. 1958).
Indian Oil Corporation Ltd. is currently India's largest company by sales with a
turnover of Rs. 408924.03 Crore, and profit of Rs. 4225.98 Crore for fiscal 2012.
Indian Oil Corporation Ltd. is the highest ranked Indian company in the prestigious
Fortune Global 500. It is ranked at 83 rd position in 2010. It is also the 20th largest
petroleum company in the world.
Indian Oil and its subsidiaries today accounts for 49% petroleum products market
share in India.
Indian Oil group has sold 59.29mn tonnes of Petroleum including 1.74mn tonnes of
natural gas in the domestic market and exported 3.33mn tonnes in the yr 2011-12.
IOCL GROUP
IOCL Group consists of Indian Oil Corporation Ltd. and the following subsidiaries:

Lanka IOC Ltd


Indian Oil (Mauritius) Ltd.
IOCL Middle East FZE
Indian Oil Technologies Ltd.
Chennai Petroleum Corporation Ltd. (CPCL)
Bongaigaon Refinery & Petrochemicals Ltd (BRPL)

VISION OF IOCL
A major diversified, transnational, integrated energy company, with
national leadership and a strong environment conscience, playing a
national role in oil security & public distribution.

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MISSION OF IOCL
IOCL has the following mission:

To achieve international standards of excellence in all aspects of energy and


diversified business with focus on customer delight through value of products
and services and cost reduction.

To maximize creation of wealth, value and satisfaction for the stakeholders.

To attain leadership in developing, adopting and assimilating state-of- the-art


technology for competitive advantage.

To provide technology and services through sustained Research and


Development.

To foster a culture of participation and innovation for employee growth and


contribution.

To cultivate high standards of business ethics and Total Quality Management for
a strong corporate identity and brand equity.

To help enrich the quality of life of the community and preserve ecological
balance and heritage through a strong environment conscience.

VALUES OF IOCL
Values exist in all organizations and are an integral part of any it. Indian Oil nurtures
a set of core values:

CARE
INNOVATION
PASSION
TRUST

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OBJECTIVES OF INDIAN OIL


IOCL has defined its objectives for succeeding in its mission. These objectives are:

To serve the national interests in oil and related sectors in accordance and
consistent with Government policies.

To ensure maintenance of continuous and smooth supplies of petroleum


products by way of crude oil refining, transportation and marketing activities
and to provide appropriate assistance to consumers to conserve and use
petroleum products efficiently.

To enhance the country's self-sufficiency in crude oil refining and build


expertise in laying of crude oil and petroleum product pipelines.

To further enhance marketing infrastructure and reseller network for providing


assured service to customers throughout the country.

To create a strong research & development base in refinery processes, product


formulations, pipeline transportation and alternative fuels with a view to
minimizing/eliminating imports and to have next generation products.

To optimize utilization of refining capacity and maximize distillate yield and


gross refining margin.
To maximize utilization of the existing facilities for improving efficiency and
increasing productivity.

To minimize fuel consumption and hydrocarbon loss in refineries and stock loss
in marketing operations to effect energy conservation.

To earn a reasonable rate of return on investment.

To avail of all viable opportunities, both national and global, arising out of the
Government of Indias policy of liberalization and reforms.

To achieve higher growth through mergers, acquisitions, integration and


diversification by harnessing new business opportunities in oil exploration &
production, petrochemicals, natural gas and downstream opportunities
overseas.

To inculcate strong core values among the employees and continuously


update skill sets for full exploitation of the new business opportunities.

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To develop operational synergies with subsidiaries and joint ventures and


continuously engage across the hydrocarbon value chain for the benefit of
society at large.

Major Divisions of IOCL:

IOCL

Indian Oil Corporation Limited (Indian Oil) owns and operates a network of crude oil
and petroleum product pipeline in India. It has two divisions: Refineries Division and
Marketing Division. The Refineries Division is focused on managing the public sector
refineries and the Marketing Division is focused on distribution not only the entire
production of public sector refineries but also the deficit products imported. It is
organized in two segments: sale of petroleum products, and other businesses, which
comprises sale of imported crude oil, sale of gas, petrochemicals, explosives and
cryogenics, wind mill power generation and oil and gas exploration activities jointly
undertaken in the form of unincorporated joint ventures. The Digboi Refinery of
Assam Oil Division processed 0.623 million metric tons (MMT) of crude oil during the
year. The Division sold about 1.067 MMT of products. IBP Division comprises the
explosives and cryogenics business.
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BUSINESS MODEL OF IOCL:


IOCL has its presence in all spheres of downstream operations.

PRODUCTS OFFERED BY IOC


Indian Oil is not only the largest commercial enterprise in the country it is the
flagship corporate of the Indian Nation. Besides having a dominant market share,
Indian Oil is widely recognized as Indias dominant energy brand and customers
perceive Indian Oil as a reliable symbol for high quality products and services. Major
Products of IOCL are:
Auto LPG
Aviation Turbine Fuel
Bitumen
High Speed
Diesel
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Industrial Fuels
Liquefied Petroleum Gas

Lubricants & Greases


Marine Fuels
MS Gasoline
Petrochemicals
Crude Oil
Superior Kerosene Oil

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ORGANIZATIONAL STRUCTURE
The whole of Indian Oil Corporation (IOC) works under Corporate Office located at
New Delhi. It follows hierarchical structure where the decision flows from top to
bottom and the data flows from bottom to top. Under the corporate office there are 5
divisions namely- Pipelines, Refineries, R&D, Marketing & Assam oil division. The
Marketing division located at Mumbai co-ordinates with the regional offices i.e. North,
South, East & West Region office, the other Divisional Offices & SBI for decisions
regarding investments. The Regional offices co-ordinates with respective state office
that in turn co ordinates with respective location offices.

Corporate
Office
New Delhi

R&D

Pipeline
s
Division
Noi

Division

Marketi
ng
Division

Refinerie
s Division
New Delhi

NR

ER

WR

SR

New
Delhi

Kolkata

Mumbai

Chennai

Assam
Oil
Division

Respective State Offices

Respective Location Offices

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OBJECTIVES

To get an exposure of the actual working environment within a multi-national.

To thoroughly understand the cash flow management and various aspects


related to banking at Indian Oil.

To study and analyze all the details of Cash Management Product (CMP) facility
provided by SBI.

To understand the benefits of electronic solutions in banking functions.

To evaluate the contents of IOCL Financial Statements.

To Measure IOCLs Profitability, Efficiency & Liquidity position.

To Study of Operation Processes in LPG Bottling Plant Etawah.

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RESEARCH METHODOLOGY
The study conducted is investigative in nature that is to say it probes into the cash &
banking department at Indian Oil figuring out its major functions with the help of
secondary sources of data available from the department itself.
The major parameters of the methodology include:

Data Collection (Cash Flow Statements, Income Statements, Balance Sheets


etc)

Analyzing and interpreting the information available in the financial statements


and drawing meaningful conclusions from them.

Brainstorming with the personnel in cash department in applying various tools


and techniques to bring out the various results.

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FINANCIAL ANALYSIS OF INDIAN OIL


CORPORATION LTD.

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Financial statement analysis is defined as the process of identifying financial


strengths and weaknesses of the firm by properly establishing relationship between
the items of the balance sheet and the profit and loss account.
There are various methods or techniques that are used in analyzing financial
statements, such as comparative statements, schedule of changes in working capital,
common size percentages, funds analysis, trend analysis, and ratios analysis.
Financial statements are prepared to meet external reporting obligations and also for
decision making purposes. They play a dominant role in setting the framework of
managerial decisions. But the information provided in the financial statements is not
an end in itself as no meaningful conclusions can be drawn from these statements
alone. However, the information provided in the financial statements is of immense
use in making decisions through analysis and interpretation of financial statements.
The technique of financial statement analysis used by me in this project is ratio
analysis.

Ratio Analysis
The ratios analysis is the most powerful tool of financial statement analysis. Ratios
simply mean one number expressed in terms of another. A ratio is a statistical
yardstick by means of which relationship between two or various figures can be
compared or measured. Ratios can be found out by dividing one number by another
number. Ratios show how one number is related to another.

Profitability Ratios:
Profitability ratios measure the results of business operations or overall performance
and effectiveness of the firm. Some of the most popular profitability ratios are as
under:

Gross profit ratio


Net profit ratio

Operating ratio

Expense ratio

Return on shareholders investment or net worth

Return on equity capital

Dividend payout ratio

Earnings Per Share Ratio

Price earning ratio

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Liquidity Ratios:
Liquidity ratios measure the short term solvency of financial position of a firm. These
ratios are calculated to comment upon the short term paying capacity of a concern or
the firm's ability to meet its current obligations. Following are the most important
liquidity ratios.

Current ratio
Liquid / Acid test / Quick ratio

Activity Ratios:
Activity ratios are calculated to measure the efficiency with which the resources of a
firm have been employed. These ratios are also called turnover ratios because they
indicate the speed with which assets are being turned over into sales. Following are
the most important activity ratios:

Inventory / Stock turnover ratio


Debtors / Receivables turnover ratio

Average collection period

Creditors / Payable turnover ratio

Working capital turnover ratio

Fixed assets turnover ratio

Over and under trading

Long Term Solvency or Leverage Ratios:


Long term solvency or leverage ratios convey a firm's ability to meet the interest
costs and payment schedules of its long term obligations. Following are some of the
most important long term solvency or leverage ratios.

Debt-to-equity ratio
Proprietary or Equity ratio

Ratio of fixed assets to shareholders funds

Ratio of current assets to shareholders funds

Interest coverage ratio

Capital gearing ratio

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Over and under capitalization

Limitations of Financial Statement Analysis:


Although financial statement analysis is highly useful tool, it has two limitations.
These two limitations involve the comparability of financial data between companies
and the need to look beyond ratios.

Advantages of Financial Statement Analysis:


There are various advantages of financial statements analysis. The major benefit is
that the investors get enough idea to decide about the investments of their funds in
the specific company. Secondly, regulatory authorities like International Accounting
Standards Board can ensure whether the company is following accounting standards
or not. Thirdly, financial statements analysis can help the government agencies to
analyze the taxation due to the company. Moreover, company can analyze its own
performance over the period of time through financial statements analysis.

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PROFITABILITY RATIOS FOR THE YEAR ENDING 31ST MARCH


Gross Profit Ratio:
Indicates the relationship between net sales revenue and the cost of goods sold
Gross Profit
Net Sales
Ratio
IOCL

BPCL
HPCL

2012

2011

2010

3.45

2.71

4.76

0.93

2.32

2.89

1.19

1.14

1.2

The gross profit margin has fallen marginally from last year due to the rise
in the cost of expenditure incurred.

Net Profit Ratio:


A measure of net income Rupees generated by each Rupee of sales.
Net Income *
Net Sales
* Refinements to the net income figure can make it more accurate than this ratio
computation. They could include removal of equity earnings from investments, "other
income" and "other expense" items as well as minority share of earnings and
nonrecurring items.
Ratio

2012

2011

2010

IOCL

1.02

2.22

3.74

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BPCL

0.39

1.01

1.26

0.50

1.14

1.20

HPCL

The Net profit margin has fallen considerably due to the fall in gross profit
margin and fulfillment of other obligations by IOCL.

Return on Equity:
Measures the income earned on the shareholder's investment in the business.
Net Earnings
Shareholders Equity

Ratio
IOCL
BPCL
HPCL

2012

2011

2010

10.17

13.45

20.22

10.49

13.24

11.00

12.26

11.74

11.25

A business that has a high return on equity is more likely to be one that is
capable of generating cash internally. For the most part, the higher a
company's return on equity compared to its industry, the better. The
Industrial ROE is placed at 5%. Indian Oil is performing at below the
industrial trends, which means that in order to generate higher wealth,
they need to generate higher ROE.

Return On Capital Employed:


Measures the income earned on the invested capital.
Net Earnings
Long-term Liabilities + Equity
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Ratio
IOCL
BPCL
HPCL

2012

2011

2010

12.83

10.32

15.83

9.03

9.84

11.11

6.37

7.93

9.20

The ROCE is higher than the rate of borrowings by the company so this
does not pose any serious threat to the shareholders earnings.

LIQUIDITY RATIOS FOR THE YEAR ENDING 31ST MARCH


Current Ratio:
The current ratio measures the ability of the company to meet its short term
obligations i.e. to pay off short term debts.
Current Assets
Current Liabilities
Ratio
IOCL
BPCL
HPCL

2012

2011

2010

1.25

0.80

0.76

0.74

0.72

0.72

0.79

0.77

0.74

The ideal current ratio for any firm is 2:1. Indian Oil carries a big risk of not
having enough cash reserves for meeting its short term obligations.

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Acid Test ratio:


A measurement of the liquidity position of the business. The quick ratio compares the
cash plus cash equivalents and accounts receivable to the current liabilities. The
primary difference between the current ratio and the quick ratio is the quick ratio
does not include inventory and prepaid expenses in the calculation. Consequently, a
business's quick ratio will be lower than its current ratio. It is a stringent test of
liquidity.
Cash + Marketable Securities + Accounts Receivable
Current Liabilities
Ratio
IOCL
BPCL
HPCL

2012

2011

2010

0.71

0.51

0.45

0.59

0.51

0.68

0.14

0.44

0.43

The ideal Quick ratio for any firm is 1:1. Indian Oil fails to achieve that
target by a huge margin.

Before moving forward with the concept of Activity and leverage ratios, it
is vital to understand the concept of debt management at Indian oil.
Debt Management at Indian Oil Corporation:

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OBJECTIVES:

Meet funds requirement on time


Flexibility in capital structure to leverage market opportunities
Provide exit routes
Optimize cost

Indian Oil Corporation uses innovatively designed loan structure which would help
them manage their working capital requirement in the most efficient manner. The
loans are linked MIBOR, pre-payment options, interest resets, CBLO, Cross-currency
swapping.

Features of debt management at Indian Oil:

Post deregulation of the oil sector foreign currency risk is to be borne by IOC.
Interest differential between Cash credit facility and other working capital loans
have increased considerably.
Endeavor to minimize utilization of CC limit while also avoid surplus balances.
Maximize utilization of FE loans in view of appreciating rupee and low interest
rates.
Accurate cash flow projections for optimum utilization of funds.

Borrowing limits approved by Indian Oils Board of Directors:

Rupee:Rs. 38000 crore


Foreign Currency: US$ 4.5 billion
RBI limit for foreign currency borrowings Short Term USD 2.90 billion

Resource mobilization options available for Indian Oil:

DOMESTIC
Short term
Cash credit/overdraft
MIBOR, T-Bill
linked
loans
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OVERSEAS
Short term
Buyers credit
Suppliers credit
Revolving lines of credit
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Access to CBLO market


Commercial paper
Fixed loan from banks
Inter corporate deposits
Export packing credit
Repo (on Oil Bonds)
Long term
Term Loans
Bonds

FCNR (B)
Long term
Term Loans - Bilateral
Syndicated Term Loan
Bonds
Export credit backed financing
Long term Notes in Overseas
Market (USPP)

PRESENT SCENARIO IN DOMESTIC FINANCING:

Domestic interest rates at high levels essentially due to policy to rein in


inflation.
Rise in Short-term interest rates, with Reverse Repo Rate at 3.75% & Repo rate
at 5.25%.
Benchmark long-term interest rates following the Northward trend.

PRESENT SCENARIO OF INTERNATIONAL FINANCING:

LIBOR stabilized at low levels, having followed southward trend till March 12.
Having decreased the rates gradually, Fed maintaining status-quo of late.
High inflation & large capital market outflows causing the rupee to depreciate
against US$

The main objective of Indian Oils debt management module is the minimization of
the debt cost. For this purpose the follow certain strategies which help them
achieving this target:

Long Term rupee borrowings to be a judicious mix of fixed, floating & semifixed.
Tapping domestic and international market for maintaining optimum proportion
of FE & rupee loans as well as fixed/floating interest rates taking advantage of
interest and exchange rate movements.

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Raising loans of various maturities to avoid bunching up of loan repayments


during any particular period.
Availing FE and rupee facilities of significant amounts with put and call option
on daily basis as per requirement.
Development of Broad & Diversified sources of Funding - Recently tapped US
market for raising fixed rate unsecured long-term foreign currency loan.

ACTIVITY RATIOS FOR THE YEAR ENDING 31ST MARCH


Inventory Turnover Ratio:
This rate measures how fast the merchandise is moving. Indian oil requires huge
working capital requirement (mainly in the form of inventory) for running the
business as well as for maintaining countrys oil security.
Net sales
Average inventory
Ratio
IOCL
BPCL
HPCL

2012

2011

2010

6.86

7.56

8.37

10.35

10.76

11.09

8.52

8.68

9.13

This figure indicates a high rate of inventory turnover. Indian Oils Sales are
booming.

Debtors Turnover Ratio:


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Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of
debt collection of a firm. In simple words it indicates the number of times average
debtors (receivable) are turned over during a year.
Credit Sales
Average Debtors
Ratio
IOCL
BPCL
HPCL

2012

2011

2010

42.58

45.15

45.91

53.39

56.63

58.81

51.81

52.33

45.87

This figure shows how rapidly IOCL collects its receivables. Since IOCL deals
with thousands of big customers both within and outside the country, the
days of receivables collections are different. Such a high ratio is indicative
of shorter time lag between credit sales & cash collection.

Fixed asset Turnover Ratio:


Measures the capacity utilization and the quality of fixed assets
Net Sales
Net Fixed Assets
Ratio
IOCL
BPCL
HPCL

2012

2011

2010

3.61

3.78

4.98

5.16

4.75

5.98

4.53

4.29

6.22

Analysis
High trend is maintained by the BPCL and HPCL during the initial
year but eventually it decreases towards the end.

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IOCL has the lowest fixed asset turnover ratio which shows
inefficiency.

LONG TERM SOLVENCY OR LEVERAGE RATIOS FOR THE YEAR


ENDING 31ST MARCH 2012
Debt to Equity Ratio:
It is a measure of a company's financial leverage calculated by dividing its total
liabilities by stockholders' equity. It indicates what proportion of equity and debt the
company is using to finance its assets.
Total Liabilities
Shareholders Equity
Ratio
IOCL
BPCL
HPCL

2012

2011

2010

1.24

0.95

0.88

1.69

1.35

1.70

2.87

1.99

1.84

Interest Coverage ratio:


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A ratio used to determine how easily a company can pay interest on outstanding
debt. The interest coverage ratio is calculated by dividing a company's earnings
before interest and taxes (EBIT) of one period by the company's interest expenses of
the same period.
EBIT
Interest
Ratio
IOCL
BPCL
HPCL

2012

2011

2010

2.62

5.23

9.03

1.71

1.76

1.53

3.17

2.95

2.02

Looking at this figure form the point of view of lenders of IOCL, the larger
the coverage, the greater is the ability of the firm to handle fixed charge
liabilities and more assured is the payment of interest to them. However,
too high a ratio may imply unused debt capacity. In contrast, a low ratio is
a danger signal that the firm is using excessive debt and does not have the
ability to offer assured payment of interest to the lenders. On making a
comparison with the industrial average figure of 2.65, IOCLs interest
coverage ratio seems to foot the bill exactly.

Earning Per Share:


A ratio used to determine the amount of profit available to each share holder. It is
calculated by the profit available after tax to all the shareholders.
Profit after Tax
Number of shares
Ratio
IOCL
BPCL

2012

2011

2010

16.29

30.67

42.10

36.27

42.78

42.53

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HPCL

26.92

45.45

38.43

Analysis
IOC has lowest amount of EPS during the mentioned year except in 2010, might
be due to the reason that it has up going market shares prices as it is
concerned.
So IOCL in 2012 has not able to attain much good response from investors in
term of return.

RISK MANAGEMENT AT INDIAN OIL CORPORATION

Post deregulation of oil sector- Indian Oil has been exposed to


currency and interest rate risk.
Indian Oil has adopted a risk management policy duly approved by the
board of directors.
Primary objective of the policy is to limit exposures to tolerable levels
under selective hedging.

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INTEREST RATE RISK MANAGEMENT AT INDIAN OIL:

To optimize interest rate risks and costs following parameters are applied to
each FC loan separately
Floating rates: minimum 25% of outstanding loans
Fixed rates: minimum 25% of outstanding loans
Balance amount: fixed/floating depending on views
Long term rupee borrowings to be a judicious mix of fixed, floating & semi-fixed
Policy to be constantly reviewed by Indian Oils consultants.

OTHER RISK MANAGEMENT FUNCTIONS:

Weekly monitoring of exposures and finished goods inventory levels


Monthly report on risk management put up to Director (Finance)
Quarterly report to Board of Directors on operations of risk management policy

STRATEGIES RECENTLY ADOPTED FOR EXCHANGE RATE


MANAGEMENT:

Selective hedging of long term foreign currency loans in addition to short term
To increase hedging of total foreign currency loans exposure in case of sharp
appreciation of rupee with the approval of Director(F)
To hedge through forwards & options
Hedging considering overall cost of loan including forward/option premium
within cost of rupee loan

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THE PROJECT
CASH MANAGEMENT & BANKING SYSTEM

Cash management: What is it?

Cash Management involves management of the liquidity of the firm in order to


maximize cash availability and interest income on idle funds. At one end, the function
starts when the customer writes a check to pay the accounts receivable and ends
when the funds are realized the funds on an account payable and accrual. On the
other hand, the payment of bills involves accounts payable and accrual
management.
Efficient cash management processes are pre-requisites to execute payments, collect
receivables and manage liquidity. Managing the channels of collections, payments
and accounting information efficiently becomes imperative with growth in business
transaction volumes. This includes enabling greater connectivity to internal corporate
systems, expanding the scope of cash management services to include full-cycle
processes (i.e., from purchase order to reconciliation) via ecommerce, or cash
management services targeted at the needs of specific customer segments. Cost
optimization and value-add services are customer demands that necessitate the
creation of a mechanism to service the various customer groups.
Banks are increasingly becoming innovative and anticipating the needs of corporates
towards standardization, ERP integration, reconciliation, real-time reporting,
providing an end-to-end view of cash management value chain besides offering the
ability to reach and be reached by their own customers. The mounting pressure from
competitors forces the Banks to look for an Information Technology vendor who can
offer better solutions and services in Cash Management and Internet Banking.

The goals of cash management include:

To minimize idle balances


To minimize borrowings and interest costs
To maximize yields on surplus liquidity

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To reduce internal administrative cost


To control foreign exchange and interest rate exposure risks

HISTORY OF CASH MANAGEMENT AT INDIAN OIL


An organizations cash operating cycle is the complete process of utilizing its
resources and converting them into income through trading activities. Prior to the
establishment of the Cash Management Product module, the Indian Oil transactions
took place through the conventional methods of Regional Cash Credit module. In the
RCC module the SBI branches of various states dispersed over various locations
would send the information of remittance of funds to the Regional office of SBI and
they in turn would then forward that information to the SBI head office.
However, in this module the lead-time on an average was 4-10 days depending on
the accessibility of the location. The delay included 2-7 days for the transfer between
the location and State Office SBI Branch to the Regional Office SBI Branch, and
another 2-3 days from the Regional Office to the Head Office SBI Branch. Therefore,
though a collection may be made on the 10 th of any month the credit of such a
collection may reflect only on the 14th - 20th of that month.
It is clearly evident that from such a long lead time in the transfer of funds, the cash
requirements of Indian Oil and the interest figure in the income statement are
affected directly by the length of the cycle.
Hence to tackle this problem, Indian Oils primary banker, SBI, introduced the CASH
MANAGEMENT PRODUCT (CMP) module which helped the personnel to determine the
fund position (Receipts & Applications) of all the locations in all the 4 regions on the
very same day, thus making it easier to project cash flow requirements or
investments more accurately.

CASH FLOW SYSTEM AT INDIAN OIL: TODAY


Indian Oil, being a huge organization, has numerous transactions taking place
throughout the country. On an average at least 5000 transactions take place within
one working day with an amount equivalent to Rs.500 crore. All of these transactions
take place through banks and since SBI is the primary banker to IOC, it has
established various facilities to oversee that the transitions take place smoothly.
Since Indian Oil is the biggest customer of SBI, they enjoy certain value added
services provided by the bank. Corporate Accounts Group (CAG) central office of SBI
at Andheri, Mumbai is the controlling office of SBI, having Sanctioning Authority for
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the various credit facilities and the other banking needs of the corporation. CAG of
SBI operates with network of branches called "CAG Branches" in all the Metro Cities.
The co-ordination between SBI and IOC is done from the HO-Marketing Mumbai.
The Credit Facilities provided by SBI to Indian Oil can be summarized as follows:

FUND BASED FACILITY


It is the amount of overdraft obtained from the Bank. At present the total overdraft
limit of the corporation is controlled through the Main Cash Credit Facility. Other
accounts opened at various branches and other places are just the extension of this
limit. It gets renewed from time to time.

NON FUND BASED FACILITY


These facilities are for pure banking convenience provided by the bank, so that the
Corporation can carry out the Business transactions. Various Non Fund-Based
facilities available include:

Performance/ Financial Bank Guarantee Facility


Letter of Credit Facility - Inland
Letter of Credit Facility - Import

HOW TRANSACTIONS TAKE EFFECT:


Undertaking the transactions at more than 500 places and giving
account of Mumbai branch is a very complicated process which
supervision and most importantly to administer the various kind of
with SBI to run its operations. Each and every account has its
towards company.

effect in a single
involves a lot of
accounts IOC has
own advantages

CASH BUDGET: PREPARATION AND MANAGEMENT

Compilation of monthly dollar/rupee cash flow statements from inputs received


from all the divisions.
Cash flow is monitored on a daily basis

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Debt availment / repayment decided based on cash flow projections daily/monthly/yearly


Variance analysis of actual v/s budgeted cash flow on an ongoing basis.

CASH FLOW FORECASTING OVERVIEW


A key

element of treasury management involves projections of inflows and outflows of cash


the corporation. It also requires its constant updation on day to day basis for
ensuring effective fund management.
Projection is done in two stages:

Monthly --- by 7th of every month


Rolling --- by 22nd of every month for 15 days of next month

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For effective forecasting, managers at Indian oil require credible information from
multiple sources. The sources of information for daily updation of accruals and
refinement of projections can be given as follows:

Cash Management Product- Through downloading data from CMS Service


Providers.
Web-banking / emails from banks.
Regional Collection Centers - through emails / telephone from:

All 4 regions of marketing division


Refinery division
Pipeline division
Assam oil division

Information is received from networks spread all over India.


SBI

570 collection centers with SBI in 250 locations most of the centers have CMP
(Cash Management Product) facility.

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460 total withdrawal account with SBI about 150 special withdrawal account
with the facility of
transferring the balance at the end of the day to the
centralized cash credit account with SBI, Mumbai.

HDFC (Initiative for Alternate Banking Arrangement)

30 collection centers in North India. All the centers have CMP (Cash
Management Product) facility
1 withdrawal Account in Delhi

The major problem or bottleneck faced by the cash management department is the
huge variance between the budgeted receivables and the actual accruals. The prime
reasons why variances occur are:

Debtors failing to make a payment on time.


Delay in clearance of payment from banks.
Over estimation of receivables.
Problems of clearance through the electronic modes of payment.
Extra Ordinary state of affairs.

CASH MANAGEMENT PRODUCT (CMP):


All the conventional methods and controls outlined by Indian Oil in todays world
have become obsolete. With the growing availability of relatively inexpensive
computer systems, it has encouraged the firm to introduce a greater level of control
and forward planning. The justifications for introducing a computer system are:

High volume data processing that would otherwise be prohibitively expensive,


difficult to manage, and too slow.
Complex task that would otherwise be either impossible or unjustifiably
expensive.

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Keeping the above considerations in mind, SBI, Indian oils primary banker,
introduced a module known as CASH MANAGEMENT PRODUCT or CMP. CMP is a
facility provided by SBI, whereby the collections and withdrawals from the branches
all over India are transferred via electronic mode to the Cash Credit Account in
Mumbai.
The CMP facility can be divided into two Main Modules:

The Credit Module of CMP: This Module deals with the Collection
Proceeds.
The Debit Module of CMP: This Module deals with the Withdrawals.

Under CMP, no new account is opened. On receipt of the request for a new account
for a particular location, the HO Finance gets a separate client code allotted to the
location through CMP Cell Mumbai. Such Client code is unique for each location.
The CMP Charges are divided into 3 broad categories:
0.01 / 100 for all the Metros i.e. A Class City
0.05 / 100 for all the B Class Cities (that includes mainly Capital Cities)
0.12 / 100 for all the C Class Cities (this includes all the other locations not included
in the above 2 categories)
The CMP Module provides convenience to the Company in the sense that all the
decentralized information flows to the company in a centralized manner through very
fast modes and accordingly the company can have precise information of where the
funds are and how to utilize them more efficiently.

ACCOUNTS AND FACILITIES PROVIDED BY CMP MODULE


In designing the CMP module, SBI established various accounts that would operate
under it and also set up various amenities for the ease of transactions.
These facilities include:

Collection Account
Special Current (Withdrawal) Account

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Current Imprest Account


Letter of Authority Facility
Railway Credit Note Facility
Regional Cash Credit Account
Cash Credit Account

COLLECTION ACCOUNT:
This account is opened at all the branches / locations/ depots etc. or at any place
from where IOC collects its money from customers or other parties.

Important Terms:
DCR (Daily Collection Report): IOC has a completely different system of
depositing their cheques into bank. Instead of filling in bank slip book they make
their own DCR and deposit it into bank where respective SBI person will check all
entries and then credit the amount in the accounts of IOC at his/her respective
branch.

DDP Limit (DD Purchase): A facility provided by SBI from all the branches (where
IOC has their Collection Account) in which they purchase all outstation cheques and
gives immediate credit, to IOC against these. It has to be fixed for every location
depending upon the outstation cheques collection requirement of the Company. Once
the DDP limit is granted to a location, the overall cash credit limit is reduced to that
extent by the SBI. Therefore it is necessary for the location to ensure that the DDP
limit is not fixed too high so as to remain unutilized, at the same time it should be
sufficient to meet the outstation cheques requirements for 15 days.

Day Zero / One / Two Centers: Depending upon the clearing house arrangement
for local banking instrument these centers are identified, in which credit and transfer
of funds is given to IOC on same day in Day Zero center, on next day in Day One
center and on second day of deposit in Day Two center provided by instruments are
deposited with CMP into the branch before cut-off time.

If an instrument is not cleared within 15 days of depositing follow-up action is


taken against party or customer.

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If it has been 60 days to deposit an instrument and then it got dishonored, SBI
cannot debit the amount without prior intimation; even in case of Loss in
transit same is applicable.
There should not be a balance of more than Rs. 1,000 in a branch at the time of
day closing; it should be transferred to regional office.
The overdue interest for delayed realization of outstation instruments
recovered from the Corporation should not be more than 47 days. Such
overdue interest should be at SBI's Prime Lending Rate at that period. Overdue
interest is applicable only in respect of outstation instruments drawn by the
Corporation drawn on a Bank other than SBI and the Branch on which it is
drawn is situated at a place where the SBI does not have a Branch.

SPECIAL CURRENT (WITHDRAWAL) ACCOUNT


This account is opened at all Regions and State Offices for the purpose of withdrawal.
The locations having monthly payments of more than Rs. 1 crore have the facility of
this account, for this purpose locations are to assess their fund requirements and put
up the proposal for opening it as this will result in avoidance of blockage of funds.

Features:

No pre-funding of this account is done.


All payments made are centrally funded from the corporation's Main Cash
Credit Account at Mumbai.
Daily balances are transferred through Regional Cash Credit Account to Main
Cash Credit Account at Mumbai.
Monthly expenditures should be around Rs. 1 crore, not less.

Important:

There is a fixed monthly limit for this account and it should not exceed, if so,
duly approval from Regional Head should be taken.
No deposit of any instrument is permitted in this account.

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Only computerized cheque books printed by IOC should be used with "Accountpayee only" printed on.
On every day basis a bank reconciliation statement is taken and a report on
same is submitted to region on a fixed interval basis.

CURRENT (IMPREST) ACCOUNT:


This account is generally opened at all locations of IOC. Main purpose of the account
is to meet day-today expenses of respective locations. Its transactions are not
transferred to the main account of Mumbai via CMP.

Features:

This account has to be pre-funded by State/Region Office.


Its safe because locations cannot make payments more than the credit
available in the account.
It is an independent account and therefore its transactions are not transferred
to State/Region Offices.
On every day basis a bank reconciliation statement is taken and a report on
same is submitted to region on a fixed interval basis.
No deposit of instrument is permitted in this account except instruments
received from State/ Region Office towards Salary and other payments.
Only computerized cheque books printed by IOC should be used with "Accountpayee only" printed on.

LETTER OF AUTHORITY FACILITY:


At every location of IOC some special type of payments are made, e.g. Customs and
Excise Authorities or Payment to Port Trust Authorities or Payment to other refineries
for cost of product etc. With the help of this facility payments can be made to these
authorities from respective locations.
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Features:

Various payments to only one authority can be made via this facility.
For payments to different authorities from one branch only there should be
approval for this from IOC as well as SBI and then a new facility for new
authority payment is made.
Finance In-charge of the Region has the power to increase or decrease the limit
of facility.

Important:

For the payment of Excise duty, only three LA's in a month can be issued not
more than that.
For the payment of others e.g. Customs / Port Trust etc. no such restriction is
imposed.
On 12th of every month a bank reconciliation statement is taken and a report
on it is submitted to Region.
LA facility can be opened in only such branches, which is authorized to collect
Central Excise/ Customs revenue.
If in that center the authorized revenue-collecting bank is other than SBI, then
the SBI branch from where the transfer of funds to the other bank is possible in
the quickest time is chosen.

RAILWAY CREDIT NOTE FACILITY (RCN):


This is a special facility provided by SBI in which IOC's all locations can make
payments for Railway freight. All locations, under this facility are authorized to make
payment of Railway freight, shunting charges etc.
Three ways of making payment under this facility:

By having a special current (withdrawal) account of the location.


By issuing cheques of special current (withdrawal) account maintained at the
RCC branch.
By issuing Railway Credit Note (RCN).

Important: -

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Any other payment accept from RCN is not permitted under this facility by the
bank.
Locations need to have pre-printed cheque books with the name of Railway.
Authority to which payment is made.
SBI cannot charge any charges for accepting IOC's cheques presented by the
Railway's banker.
If it is paid by account of RCC, separate cheque book should be given to each
location, and at the time of issuing new cheque book all cross checks for old
one should be done.

REGIONAL CASH CREDIT ACCOUNT (RCC):


Each Regional Office of the Marketing and other Divisions of the corporation
individually operates a Regional Cash Credit (RCC) Account.

Features:

In this account, pooling of Debits and Credits from various accounts other than
the Current (Imprest) Account operated by the locations is effected.
Debit entries to the RCC Account is from the following three accounts:

Special Current (Withdrawal) Account


Letter of Authority payments made
Railway Credit Notes issued.

Credit entry to the RCC Account is from the Collection Account.


Separate code numbers are allotted to identify each type of transactions in the
RCC. They are:

For
For
For
For

Collection (01)
Withdrawal (02)
LA debits (04)
RCN debits (05)

Net balances pooled in the RCC accounts have to be transferred daily to the main
Cash Credit Account at Mumbai. A separate code number (19) identifies this transfer
amount. No Balance is retained in this account.
Daily transfer of funds to the cash credit account should be communicated to the HO
marketing division on a daily basis.
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CASH CREDIT ACCOUNT:


Cash credit Account is the principle Account operated by the HO Marketing
Division.
Features:

Transfer of funds from all other accounts like the Collection Account, Special
Current (Withdrawal) Account etc. except the Current Imprest Account are to
the Cash Credit Account.
Apart from Transfer entries all payments handled by HO like purchase of foreign
currencies, repayment of loan availed, and etc. is directly debited to the Cash
Credit account.
Loans availed for Working Capital purpose and other major receipts handled by
HO are mostly credited to Cash Credit Account directly.
Interest payable to the bank are based on daily "Value Dated" balances in the
CC Account and is calculated every quarter by applying the prevalent PrimeLending rate and interest amount is debited to Cash Credit Account.
The bank balance of Cash Credit Account is monitored on daily basis to ensure
that the over draft balances do not exceed the sanctioned limit and also no
surplus balances are kept idle. This is done with the help of daily Cash Flow
Forecast Statement that is explained below:

For the purpose monthly cash flow projection statement is prepared by


17th of the previous month for the next month by the HO.
In accordance with the resource gap thus ascertained (cash inflows-cash
outflows), additional finance/ borrowing is planned in order to ensure that
balances remain within the overall sanctioned limit and no fund problem
is faced on any given day in the month. Incase of any surplus situation on
any day, the repayment of short-term borrowing is arranged to obviate
the avoidable interest cost.

Important:

Only the Board of Directors can open a Cash Credit Account upon passing a
resolution to that effect.
Since the fund-based limit is against hypothecation of Stock-in-Trade, Debtors
etc. a quarterly report of debtors outstanding, stock of raw material, finished
goods held etc are to be submitted to the bank by HO Marketing Division.

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SUMMARY
BANKING FUNCTIONS OF INDIAN OIL CORPORATION
LIMITED
Collection
(85-90%
CMP)

Withdrawals

Current Imprest
Account

Letter of
Authority

(Pre Funded)

Railway
Credit
Note

Regional Cash Credit Account


(RCC)
(ALL FOUR REGIONS)

Cash Credit Account (Head Office SBI CAG Branch Mumbai)

UNDER CASH MANAGEMENT PRODUCT (CMP)

Collections Cash credited directly in Cash Credit Account.


Withdrawals - Cash debited directly in Cash Credit Account.

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Letter of Authority - Cash debited directly in Cash Credit Account.


Railway Credit Note - Cash credited directly in Cash Credit Account.

ELECTRONIC COLLECTIONS
Internet banking or banking via the Internet can be considered a remarkable
development in the banking sector. The ability to carry out banking transactions
through the Internet has empowered customers to execute their financial
transactions within the comfort of their homes. Besides this, the benefits of Internet
banking are not limited to a particular group of people, as it benefits both bankers
and customers alike.
Thanks to the information technology and the upgrades in our banking sector and
thanks to Reserve bank of India (RBI) for introducing the paperless work called
electronic funds transfer (EFT) mechanism.
Conventional banking has always been slow and time consuming, so much so that
sometimes you need to wait several hours to process a simple transaction like
clearing a check. But, Internet banking has tremendously reduced the time required
to process banking transactions, thereby making banking faster and convenient. For
both the banker (SBI) and the corporate (IOCL), this system is cost-effective, as it has
considerably reduced the administrative costs and paperwork related to the
transactions. Besides, banks can also cater to the needs of thousands of customers
at the same time. All these factors have significantly increased the profit margins by
lowering their operating costs.
With the Internet banking facility, multinationals like IOCL, can bank on the
opportunities like:

Immediate arrangement of Funds


Reduced float period
Centralized control
Almost nil Cost

With Internet banking becoming a necessity in todays business world, Indian Oil
along with the help of its bankers has been able to introduce the concept of ECOLLECTIONS within its working environment so as to reap all the benefits coming
out of it.

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e Collection Models
E Collection uses the internet banking facility by adapting to the latest technology in
use. Some of the important concepts coming under it are:

Electronic Funds Transfer (EFT)


Real Time Gross Settlement (RTGS)
National Electronic Funds Transfer (NEFT)

Electronic Funds Transfer (EFT)


Electronic Funds Transfer (EFT) is a method in which the money is transferred from
one bank account to other bank account in without the paper cheque and paper
money. The transaction is done at bank ATM or using Credit Card or Debit card. In
RBI-EFT system you authorize the bank to transfer money from your bank account to
other bank account that is called as beneficiary account. However, this facility is
restricted only to the 15 RBI defined cities such as Mumbai, New Delhi, Chennai, etc.
Funds transfers using this service can be made from any branch of a bank at these
centres to any other branch of any bank at these cities, both inter-city and intra-city.
RBI remains intermediary between the sender's bank called as remitting bank and
the receiving bank and affects the transfer of funds. Using this method, funds are
credited into the receivers account either on the same day or within a maximum
period of 4 days, depending upon the time at which the EFT instructions are given
and the city in which the beneficiary account is located. Usually the transactions
done in first half of the day will get first priority of transfer than the transaction done
in second half.

National Electronic Funds Transfer (NEFT)


This is a better version of RBI-EFT system. In RBI-EFT there is a limit in location,
whereas in NEFT there is no geographical location problem and only requires both the
bank to be NEFT enabled system. Under NEFT, the transfer takes place either on the
same day or on the next day, depending on the time of instructions given. NEFT is on
net settlement basis that is to say that it processes transaction in batches. NEFT
involves four settlement cycles a day 9.30 am, 10.30 am, 12 pm and 4 pm. Thus if a
customer has given instruction to its bank to transfer money through NEFT to
another bank in the morning hours, money would be transferred the same day, but if
the instruction is given later during the day, money would be transferred next day.

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NEFT transactions are mostly avoided at Indian Oil. They have their preference more
towards Internet banking and Real Time Gross Settlement.

Real Time Gross Settlement (RTGS)


RTGS is an instantaneous funds-transfer system, wherein the money is transferred on
a real time basis and hence, happens in a real time mode. With this system you can
transfer money to other bank account with maximum 2 hours. In this system there is
a limit that you have to transfer money only above Rs 1 lakh and for money below Rs
1 Lakh transactions, banks are instructed to offer the NEFT facility to their customers.
This is because; RTGS is mainly used for high value clearing. As of now, customers
can use the RTGS facility only up to 3.30 pm and inter-bank transactions are possible
up to 5 pm.

Here we outline the major advantages that RTGS has over Core Banking facilities:
DD / Pay Order / Other Instruments

RTGS

Customers arrange for instruments in


advance

Immediate Arrangement

Banks enjoy the float till funds are not


cleared

Float of 2 3 days phased out

Decentralized Control

Centralized Control

Funds credited in IOC A/c after 2-3 days


subsequent to clearing by bank

Funds credited on the same day


if transaction done within the
RTGS time span

Cost to IOCL
Instrument Collection
DCR Generation & Checking
Depositing at Branch
Follow Up

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No such cost

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No Chances of Dishonour as its a


Chances of Dishonour

Confirmed mode of Realization of


Collections

The RTGS solution at Indian Oil has been implemented by its primary banker i.e. SBI.
The main parameters behind choosing SBI as their RTGS vendor are:

A Primary & Lead Banker


Has long term Business Relation with IOCL
Flexible in the past to accommodate IOCL requirements
Zero day float of funds
Besides customer code detail, also provides product details by generating them
in the MIS and then for posting it in SAP
CMP annual charges currently incurred shall be reduced once replaced by RTGS
having nil cost
In March 08 during severe liquidity crisis in market RTGS collections were
received in IOC A/c after 5 6 hours from the time of remittance. Also there are
delayed settlements due to high volume of transactions at RBI end on next
working day of any holiday all such instances will lead to loss of float in case
BNP or HDFC are explored
RTGS with one banker is recommended as customer should not have choice to
select banks in which case there may be no control over collections

PROCEDURE OF RTGS COLLECTION AT INDIAN OIL


Being able to transact with IOCL through RTGS system, its customers need to register
themselves with SBI by mapping in their details. This just a onetime process which
will enable IOCLs customers to get their username and ID created and involve in
electronic transactions with Indian Oil.
To summarize the role of the user we can say that:

A Username is created for making payments in his own ID on day to day basis.
Access rights as AUTHORIZER are assigned to the User.
The role is submitted to the bank branch for approval and follow up is done.
IOCL-RTGS is mapped as supplier.
Liaison with IOCL state office for approval.

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Once the account is operational, the user is authorized to make payments to IOCL in
the following fashion:
Customer provides following details during remittance at his bank branch.

Customers account number, beneficiary bank, beneficiary customer name,


IFSC code of receiving branch, amount and IOCL account number.
IOCL A/c No. An 18 digit Code & Unique for each Customer
First 11 digits IOCL SBI RTGS A/c No.
12th Digit Alpha & Variable [A - Y ] denotes CCA code (PRODUCT In Transit)
Last 6 digits SAP code of Customer

The remitting bank branch of customer processes the transaction and transmits to
RBI which in turn processes the transaction on real time basis and sends it to the
Beneficiary Bank i.e. SBI.
SBI on Receipt of Incoming RTGS affords credit to IOCL RTGs A/c reading the first 11
digits and simultaneously generates MIS using 12 th digit as product code description
and 13-18th digit as SAP Code of remitting customer.
MIS is sent through E-mail by SBI CMP section which is uploaded in SAP for crediting
customers account under respective CCA.
The client who has made the payment can take his delivery as soon as possible as
and when the details appear in SAP.

Custom
ers
Bank

Options

Charges

Timings

State

Internet Banking

No Charges

24 x 7 hours

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0.1 % of Transaction
Core Banking

Amount

During Bank Hours


only

[Max : Rs. 1250]


Bank of
India

Custom
ers
Bank

State
Bank of
India
Associa
tes
Banks

Any
Bank

RTGS transfer
in IOCL 18 digit
A/c no with BNP
Paribas

Options

Online RTGS

RTGS in 18 digit
A/c no.

Max. Rs. 25 per


Transaction for transfers
9am 4.30 pm [MonRs.1-5 lakh
Fri]
Max. Rs. 50 per
9am 12.30 am [Sat]
Transaction for transfers
above Rs.5 lakh

Charges

Timings

9am 4.30 pm [MonFri]

Max. Rs. 25 per


Transaction for transfers 9am 12.30 am [Sat]
Rs.1-5 lakh
Max. Rs. 50 per
Transaction for transfers
above Rs.5 lakh

9am 4.30 pm
[Mon-Fri]
9am 12.30 am
[Sat]

RTGS [IOCL SBI


Max. Rs. 25 per
9am 4.30 pm [MonA/c] in 18 digit A/c Transaction for transfers
Fri]
no.
Rs.1-5 lakh
9am 12.30 am [Sat]
Max. Rs. 50 per
Transaction for transfers

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above Rs.5 lakh

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Steps Involved In Process

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CONCLUSION
1) Keep an eye on the leading indicators for IOCL and be aware of changing
economic conditions. Prepare cash flow projections for the next year. This will
help IOC to see what changes need to be made and when. If such-and-such
happened and IOC predicted cash flow dropped x%, what could IOC do?
2) Managing IOCs customers' credit is an important part of cash flow management.
Weed out unprofitable customers, those that cost more to maintain than they
add to the bottom line. Flag those who have a history of slow payment.
Remember that you do not have to extend credit to anyone. If a customer has
a history of slow payment, changing the credit terms or even eliminating credit
entirely may be necessary.
3) First, invoice promptly. Putting off invoicing gives the customer the impression that
you don't care how long it takes to get your money. Second, take measures to
encourage prompt payment, such as clearly stating payment due dates and
sending overdue notices. Use Invoices That Encourage Action gives more
suggestions. Use collection services when necessary. Getting the money if you
can is always better for your cash flow than a bad debt.
4) On the other side of the coin, check on the credit terms that IOCs small business's
suppliers allow. Most suppliers allow thirty days to pay but IOC may be able to
get them to extend that term to sixty or even ninety days, allowing IOC to keep
the money in cash flow pipeline longer.
The outflow part of cash flow is never a problem; money will always run out
of your business easily. Keeping the money coming in on a regular,
sustained basis is the tricky part of cash flow management.

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SUGGESTIONS
For Cash Management
Indian Oil needs to make sure that they have a clear view of the true cash position at
any point of time. Since they deal with multiple banks, it may get difficult to know the
true cash standings. For this purpose they need to have better internal controls so
that the flow of information among all the departments is smooth.
They need to have better visibility of the cash standings so that they can effectively
disburse their surpluses and deal with negative cash balances. An obvious place to
start is to sweep any surpluses into deposit accounts or investing in short-term
money markets. Where loans exist or accounts are overdrawn, cash can be more
productively used to offset these, thus minimizing interest payments.

The other areas in which cash has to be efficiently managed include:

Explore centralizing cash and treasury management.


Review market counterparties, such as banks, on a regular basis.

Proactively plan to reduce debt levels.

Ensure treasury and cash management systems are up to date.

Consider outsourcing services to free up time to be spent on core treasury


activity.

Since IOC has large cross border trade so there should be parallel convergence in
international trade towards open account, electronic payment and the automation of
information flows. It should adopt the latest solutions to digitize paper wherever it
persists. This will reduce the time of the transaction and will enhance the safety and
authenticity.

For e-Collection

Integrate system so details of customers directly appear in SAP, so middleman


can be avoided.
Still a number of people using e-banking is not significant, so create awareness
among customers by telling them advantages of system.

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Giving them assurance about security of payment can increase number of


users.
Indian Oil and its bankers should drive for the convergence towards electronic
payments and collections to better integrate money and information flows. This
will help the treasurers to exactly determine the cash position of the company
on the real time basis.

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BIBLIOGRAPHY

Managerial Finance - Weston and Copeland Pg.


Multinational Financial Management Alan C Sharipo
Cash Management R.N. Joshi
Financial Management - Khan and Jain
Financial Management - I.M. Pandey

WEBLIOGRAPHY

http://www.iocl.com/aboutus.aspx
http://www.iocl.com/products.aspx
http://www.iocl.com/services.aspx
www.moneycontrol.com
www.yahoofinance.com
http://www.iocl.com/MediaCenter/News.aspx?NewsID=2802
Indian oil news
www.hpcl.com
www.bpcl.com

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ANNEXTURE:
BALANCE SHEET FOR THE YEAR ENDED 31ST MARCH
Particulars

(Amount in
Crore)
2012

2011

2010

2427.95

2427.95

2427.95

57945.35

55147.21

50034.38

60373.30

57147.26

52462.33

0.06

1943.74

1993.03

1832.97

18310.40

17342.53

19343.17

5970.20

7028.82

5417.00

c) Other Long Term Liabilities

409.84

414.49

30129.29

d) Long Term Provisions

300.73

223.63

24991.17

25009.47

54889.46

a) Short Term borrowings

56304.49

37706.51

b) Trade Payable

32253.18

29313.19

20699.89

c) Other Current Liabilities

28859.24

26272.92

14465.85

d) Short Term Provisions

15102.04

6731.56

10407.71

132518.95

100024.18

45573.45

219827.22

184601.18 154758.21

EQUITY AND LIABILITIES


Shareholders Fund:
a) Share Capital
b) Reserve and
Surplus

Share Application Money Pending


Allotment
Minority Interest
Non Current Liabilities
a) Long Term Borrowing
b) Deferred Tax Liabilities

Current Liabilities

Total
ASSETS
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Page 79

Non Current Assets


a) Fixed Assets
i)

Tangible Assets

63600.69

61582.55

44938.39

ii)

Intangible Assets

960.82

1048.03

497.24

iii)

Dismantled Capital
Assets

19.41

27.25

41.78

iv)

Capital Work in Progress

15172.38

10546.52

21938.37

v)

Intangible Assets under


Development

277.26

319.65

829.40

80030.56

73524.00

68245.18

3813.09

3643.39

3493.05

0.64

0.62

0.10

9960.66

5117.88

20.44

5.84

18.49

93825.39

82291.73

71756.82

24.39

23.49

22.42

a) Current Investments

13774.83

15003.53

17936.73

b) Inventories

63851.04

54906.02

41076.51

c) Trade Receivables

11551.80

7684.62

5606.15

821.95

1537.83

1598.43

33659.55

21632.33

15253.28

2318.27

1522.34

1507.87

125977.44

102286.67

82978.97

219827.22

184601.89 154758.21

b) Non Current Investments


c) Deferred Tax Assets
d) Long Term Loans and
Advances
e) Other non Current Assets

Goodwill on Consolidation
Current Assets

d) Cash and Bank Balances


e) Short term Loans and
Advances
f) Other Current Assets

Total

INCOME STATEMENT FOR THE YEAR ENDED 31ST MARCH


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Page 80

(Amount in Crore)
Particulars

2012

2011

2010

Income
Revenue from Operations (Gross)
Less: Excise Duty

438023.76
29099.73

Revenue from Operations (Net)


Other Income

408924.03
3187.13

Total Revenue

340657.97 259379.20
30860.95

26050.02

309797.02 233329.18
3447.69

24250.02

412111.16

313244.71 257579.20

Cost of Material Consumed

207631.98

150041.71 141751.50

Purchase of Stock-in-Trade

157250.81

127653.99 100720.61

Expenditure

Change in Inventory

(3470.95)

(5613.77)

(5386.86)

Employee Benefit Expenses

5300.09

6734.24

Financial cost

5894.65

2985.70

1726.16

5156.48

4793.14

3481.00

152.78

139.48

74.16

5309.26

4932.62

3555.16

22762.43

16325.36

77.86

Depreciation and Amortization on:


Tangible Assets
Intangible Assets

Other Expenses
Total Expenses
Profit before Prior Period,
Exceptional Items and Taxes

400678.27

303059.85 242444.44

11432.69

10184.86

15134.76

270.25

(70.88)

86.16

Profit before Exceptional Items and


Taxes

11703.14

10113.98

15048.60

Exceptional Items

(7707.82)

3995.32

10113.98

15048.60

Income / (Expenses) pertaining to


Prior Years (Net)

Profit before Tax


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Page 81

Tax Expenses:
Current Tax

790.36

1715.56

4652.97

(1.03)

(1298.42)

52.09

1.13

(1059.28)

1611.22

552.09

4265.27

8085.62

10998.68

39.29

254.90

285.49

4225.98

7830.72

10713.19

Basic

17.41

32.25

44.12

Diluted

17.41

32.25

44.12

MAT Credit Entitlement


Fringe Benefit Tax
Deferred Tax
Profit/ (Loss) for the period
Less: Share of Minority
Profit/ (loss) of the Group

Earning per Equity Share:

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH


Particulars

(Amount in Crore)
2012

2011

2010

A. Cash Flow From Operating Activities


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Page 82

1. Profit before Tax

3995.32

10113.98

15048.60

2. Adjustments for :
Depreciation

4983.87

4952.89

3567.68

2.47

25.23

164.35

18.87

26.56

539.52

Reversal of Impairment
Loss

(12.14)

Amortization on Capital
Grants

(1.19)

(1.16)

(1.20)

Amortization on
Premium on Forward
Contracts

89.66

132.45

133.92

Provisions for Provable


Contingencies (Net)

37.78

38.24

22.20

Provision For Loss on


Investments (Net)

418.15

78.74

1499.48

Loss / (Profit) on Sale of


Assets (Net)
Loss/ (Profit) on
Investments (Net)

Provision for Loss of


Cost of Investments
Written Back

(718.91)

Provision for Doubtful


Debts, Advances, Claims
and Obsolescence of
Stores (Net)

(229.51)

118.99

(58.62)

Provision for Dimunition


in Receivable From
Trust

(513.21)

(96.86)

(265.91)

Provision for MTM Loss


on Interest rate Swap

110.26

(1171.94)

(1307.46)

(1643.12)

(780.53)

(981.96)

(636.92)

Interest income on
Investments
Dividend income on

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Page 83

Investments
Interest Expenditure

(5901.61)

3. Operating Profit before


Working Capital Changes
(1+2)

2988.65

1726.31

8866.29

5974.31

4316.64

12861.61

16088.29

19365.24

4. Change in Working
Capital:
Trade and Other
Receivables

(16271.77)

(8960.93)

(10198.6
4)

Inventories

(8962.51)

(13656.74)

(12691.3
2)

Trade and Other Payables

12013.86

17351.42

4645.32

(13220.42)

(5266.25)

Change in Working
Capital

5. Cash generated from


Operations (3+4)
6. Less: Taxes Paid
7. Net Cash Flow From
Operating Activities (5-6)

(18244.64)

(13220.42)

(5266.25)

(358.81)

10822.04

1120.60

406.61

4003.17

2729.57

(765.42)

6818.87

(1608.97)

B. Cash Flow From Investing Activities


Sale/ Transfer of Assets
Sale/ Maturity of
Investments
Interest Income on
Investments

1372.78

293.80

250.84

790.74

2950.71

15940.07

1189.94

1659.94

1738.90

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Dividend income on
Investments
Purchase of Assets
Investment in Long term
Investments/others
Expenditure on
construction work in
progress

780.53

981.96

636.92

(3482.98)

(3103.65)

(1711.12)

(168.76)

(260.48)

(1148.36)

(13535.42)

(10612.72)

(12112.4
5)

Net Cash generated or


used In investing
Activities:

(13053.17)

(8090.44)

3594.80

C. Net Cash flow from financing Activities:


Proceeds from/
(Repayment of) Long
term Borrowings

3654.53

(90.00)

3106.86

Proceeds from/
(Repayment of) Short
term Borrowings

18618.27

8455.15

(981.16)

Interest paid

(6364.30)

(3341.79)

(2427.55)

Dividend/Dividend Tax
Paid

(2805.12)

(3812.38)

(1090.65)

Net Cash generated/


(used) From financing
activities:

13103.38

1210.98

(1392.50)

D) Net Change in Cash


And Bank
Balance(A+B+C)

(715.21)

(60.59)

593.33

E) 1) Cash and Bank


Balances as at end of the
year
Add: Impact of
Exchange Variation
Taken to Reserve

821.95

0.67

SIKKIM MANIPAL UNIVERSITY

1537.83

822.62

0.01

1598.43

1537.84

0.08

1598.51

Page 85

Less: 2) Cash & Bank


Balances as at the
beginning of Period

1537.83

1598.43

1005.18

NET CHANGE IN
CASH AND BANK
BALANCE (E 1-2)

(715.21)

(60.59)

593.33

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