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Security analysis and port folio

Bharat Petroleum Corp. Ltd


Bharat petroleum corporation ltd.

Burmah-Shell Refineries Limited (BSR) was incorporated on 3.11.1952 as a Company under the
Indian Companies Act, 1913, at Mumbai, with the Authorized Capital of Rs. 25 crore. A refinery
was set up by this Company at Mahul, Mumbai. Secondly, the Burmah-Shell Oil Storage &
Distributing Company of India Ltd (BSM), a foreign Company, established in England in 1928,
was carrying on in India the business of Distributing & Marketing petroleum products & for that
purpose established places of business at Mumbai & other places in India.
Pursuant to the agreement dated 23.12.1975 between the Government of India (GOI), the
Burmah-Shell Oil Storage and Distributing Company of India Ltd. (BSM) and the Burmah Shell
Refineries Ltd. (BSR), the GOI acquired 100 per cent equity share holding (paid up value Rs.
1453.83 lakhs) of BSR on 24.01.1976, for a consideration of Rs. 925 lakh. Simultaneously,
through `The Burmah Shell acquisition of Undertakings in India Act, 1976’, the GOI also
acquired the right, title and interest and liabilities of BSM in relation to its undertakings in India
for a consideration of Rs. 2775 lakhs and by notification dated 24.1.76, vested the same in BSR
without any specific consideration payable by BSR. The name of BSR was changed to Bharat
Refineries Limited (BRL) and subsequently to Bharat Petroleum Corporation Limited.
Out of the total investment of Rs. 3700 lakhs (Rs.925 + 2775 lakhs) made by the GOI as stated
above, the Government treated an amount of Rs. 1128 lakhs as a repayable loan to BPCL. The
net investment made by the Government thus amounted to Rs. 2572 lakhs (Rs.3700 - 1128
lakhs). In January 1984, the GOI made further investment of Rs. 203.57 lakhs in BPCL towards
payment of Partly Paid Equity Shares bringing the paid up capital to Rs. 1657.40 lakh (1453.83 +
203.57 lakhs).

Subsequently, during 1985-86, the reserves of BPCL to the extent of Rs. 1127.94 laths were
capitalized for making Partly Paid shares as Fully Paid shares, as also to Issue bonus shares to
the GOI. Thus the paid up capital was increased to Rs. 2785.34 lakhs without further investment
by the GOI. Again in 1990, the Reserves of BPCL to the extent of Rs. 2214.66 laths were
capitalized to issue Bonus Shares to the GOI and thereby increased Paid up Capital to Rs. 50
Crores without further investment by the GOI.

Thus, with the investment of Rs. 2775.57 lakhs (i.e. 2572 lakhs +203.57 lakhs), the GOI’s
holding in BPCL increased to Rs. 50 crores (i.e. 5 crores equity shares of Rs. 10/- each).
Out of the above, the GOI sold 1.5 crores equity shares of Rs. 10/- each to Financial
Institutions/Mutual Funds etc. during 1991-92 and 1992-93 and 18,99,990 equity shares to
employees during 1993-94. For the above disinvestment the GOI received about Rs. 680 crores.
As a result of the above disinvestments the Share holdings of the GOI in the Corporation was
reduced to 3, 31, 00,010 shares (66.20%) as on 31.3.1994.

During 1994, BPCL declared Bonus shares in the ratio of 2:1 by way of capitalization of reserves
to the extent of Rs. 100 crore. The GOI therefore, received 6, 62, 00,020 Bonus Equity Shares of
Rs. 10/- each. Accordingly, GOI’s holding increased from 3,31,00,010 shares of Rs. 10 each to
9,93,00,030 equity shares of Rs. 10/- each amounting to Rs.99,30,00,300/-.

During 2000-01, BPCL declared Bonus shares in the ratio of 1:1 by way of capitalization of
reserves to the extent of Rs. 150 crores. The GOI, therefore, received 9, 93, 00,030 Bonus Equity
Shares of Rs. 10/- each.

Accordingly, GOI’s holding increased from 9,93,00,030 shares of Rs. 10 each to 19,86,00,060
equity shares of Rs. 10/- each amounting to Rs.198,60,00,600/- as on 31.3.2008. Pursuant to the
merger of Kochi Refineries Ltd with BPCL, vide Order dated 18.8.2006 from Ministry of
Company Affairs, the total paid up share capital of BPC had increased to 36,15,42,124 equity
shares of Rs. 10 each and the percentage of shareholding of the GOI has reduced from 66.20% to

Bharat Petroleum Corporation Limited (BPCL) is one of India largest PSU companies, with
global fortune 500 rank of 287 (2008). Its corporate office is located at Ballard Estate, Mumbai.
As the name suggests, its interests are in petroleum sector. It is involved in then refining and
retailing of petroleum products.

Refinery Industry

Indian refineries have in general been able to improve their performance over the past 5 years
despite the challenges of the installation of new energy intensive processing units at the same
time as distillation capacity has expanded by over 75%. Further gains are possible, as indicated
by the large efficiency gap between the EIL benchmark values for each processing unit and the
range of actual performance found during the 1995/96 survey. In total, savings of 20% are
possible in the process units at public-sector refineries, while savings of 15-43% are possible in
the steam and utilities systems.

Fundamental Analysis
Fundamental analysis is the examination of the underlying forces that affect the interests of the
economy, industrial sectors, and companies. It tries to forecast the future movement of the
capital market using signals from the economy, industry and company.
Fundamental analysis requires an examination of the market from a broader perspective. The
presumption behind fundamental analysis is that a thriving economy fosters industrial growth
which leads to development of companies.

There are two analyses:

1. Economic Analysis.
2. Industry Analysis.

Economic analysis

It implies the examination of GDP, government financing, government borrowing,

consumer durable goods market, non-durable goods and capital goods market, savings
and investment pattern, interest rates, inflation rates, tax structure, foreign direct
investment and money supply.

Role of Oil and Natural Gas Industry in India GDP-


India is the 6th largest consumer of petroleum .By the year 2010, India is expected to rank 4th in
terms of consumption of energy
The contribution of the Indian Oil and Natural Gas Industry is nearly US$ 13.58 billion
• All of the oil refineries in India, apart from two are operated by the states
• The total refinery output in the period 2005-06 was 130.11 million tonnes

• The growth rate of the refinery output was increased by 2.1 % in the year 2005-06

• The crude oil output at the end of 2006-07 was 33.98 million tonnes

• The growth rate of the crude oil output was increased by 5.6% in the year 2006-07

• The production of natural gas in the year 2006-07 was 31.55 billion cubic meters

• Indian petroleum demand depends highly on import of oil and natural gas

• Around 70% of the demands are fed by the imports of oil and natural gas

• The security pertaining to energy has become one of the primary concerns of the Central
• Presently India is trying to grab a share of the oil and gas fields from Central Asia to
Myanmar and Africa
• The area of interest for the Indian Oil and Natural Gas Industry is to search for petroleum in
both offshore and onshore blocks.
2.) Government expenditure

From a modest beginning with the capacity of 0.25 million tonnes per annum when
planning began, the Indian petroleum-refining industry has come of age with an annual
capacity of 45.55 million tonnes at the end of the sixth Five-Year Plan. The rapid
expansion of refining capacity has enabled the country to achieve a considerable degree
of self-sufficiency in petroleum products and has encouraged the creation of fertilizer,
petrochemical, and tertiary downstream industries.

3.) FDI’s role in industry

The government has taken several progressive steps to attract investment into the
industry. Among other measures, it is allowing 100% foreign direct investment (FDI) in
private companies and 26% in government-owned companies. 100% FDI is also possible
in exploration, gas pipelines, petroleum products, and marketing, thus effectively offering
investment opportunities in various avenues.

India’s energy industry will provide investment opportunities of around $150 billion over
the next five years. This will happen when FDI, s will investment in India.

4.) Revenues

The latest India Oil & Gas Report from BMI forecasts that the country will account for
11.23% of Asia Pacific regional oil demand by 2013, while providing 10.85% of supply. Asia
Pacific regional oil use of 21.40mn barrels per day (b/d) in 2001 reached 25.68mn b/d in 2007. It
should average 26.32mn b/d in 2008, and then rise to around 29.65mn b/d by 2013. In terms of
natural gas, in 2007 the region consumed 421bn cubic meters (bum), with demand of 595bcm
targeted for 2013. Production of 336bcm in 2007 should reach 483bcm in 2013, but implies net
imports rising from 85bcm per annum in 2007 to 111bcm in 2012. This is in spite of many Asian
gas producers being major exporters. India's share of gas consumption in 2007 was 9.55%, while
its share of production was 8.98%. By 2013, its share of gas consumption is forecast to be
10.22%, with the country accounting for 10.34% of supply.

The country sits well ahead of the Philippines and Pakistan, and just three points behind
Vietnam. The country is still second behind China in the league table in BMI's updated
Downstream Business Environment rating, reflecting its status as a high-growth energy market
with strongly positive population and demand trends, plus a low level of retail site intensity. It is
just ahead of Singapore, with scope to pull away from the more mature Asian energy economy.

5.) Import Duty

The government is considering to slash import duties on industrial fuels like furnace oil, low
sculpture heavy stock (LSHS), naphtha, high speed diesel (HSD) and liquefied natural
gas (LNG) from 10% to 1%, a move that would help cap domestic prices as they are linked to
import parity levels, ICC said.
The council also recommended reducing basic customs duty on spare parts and components of
membrane cell plants in the color alkali industry from 10% to 5%.
The government must also fix inverted duty structures for products where the raw material
attracts a higher import tariff than the finished goods, it said.
While the basic import duty for propylene trimmer, tetramer and isobutylene is 10%, their
alkylated phenols derivatives attract a 7.5% duty.

This will help to decrease the market share and prices of the refinery products.

7). Inflation rate

The average inflation rate is expected to be around 5.63%.Due to low inflation rate the buying
power of consumer will increase. They will buy more products of this industry. The sale will
increase and the share value of share will also increase.

8). Interest rate

In September it is around 12%.Though there are positive expectations on inflation front,

companies don’t anticipate any increase in interest rate at this juncture. Almost 60% of all
respondents now pay annual interest rate around 12% for long term investment funds while
another one fourth are borrowing money at 16% despite reduction in lending rates in recent

If the interest rate increases so the industry will take low funds for investor, due to high interest
rate, their profit will be low. But if there is low interest rate, the industry will demand of funds,
so that they can expand their business and earn more profits. This will increase the market value
of share.

9). Exchange rate

The rupee is currently at around Rs 47.5-48 per dollar.

In this time period industry’s import will cheap. And industry can buy raw materials in bulk.
This will increase the profit and value of share in stock market. But in this case if company sells
products through exports, company’s profit will be low due to less value of rupee against dollar,
which will decrease the profit and value of share.

10). Cash Reserve Ratio: Current CRR ratio is 5%

Affect on share position of company

Decrease CRR ratio has several implications including - Increase the overall growth in the
company; this effectively means that money supply has been increased and company can get
easy loan to government. Apart from the fact that overall growth is impacted, companies take a
hit on account of lower interest costs. since some investors tend to leverage and invest in the
stock markets, because if company has start new project after get the loan to government then
profit will be also increase and share value will also be increase.

11). Statutory Liquidity Ratio

CURRENT Statutory Liquidity Ratio is 24%. The main objectives for the company in respect to
Statutory Liquidity Ratio are the following:
Statutory Liquidity Ratio is maintained in order to control the expansion of Bank Credit. By
changing the level of Statutory Liquidity Ratio, Reserve bank of India can increase or decrease
bank credit expansion. If increase the bank rate then company can’t get the cheapest rate loan to
government if company can’t start the new project then the growth of the company is not
possible and this will effect on the profit on the company and share market position.

Industry Analysis

Industry life cycle:

Flow chart of refinery industry

Refining capacity, as measured by primary distillation capacity, has expanded rapidly in recent
years. At the end of the 1998/99 fiscal year, refining capacity stood at 67.5 million tons (met),
compared to 119 met at the beginning of the 2003/04 fiscal year, a rise of over 75% in five years.
Many existing refineries were expanded over this period, but more than half the increase was
accounted for by the commissioning of the 27 met Reliance grassroots refineries at Jamnagar in
1999. India now has 19 refineries, owned among five major corporate groups, the largest of
which is Indian Oil Corporation. Since 2001, a number of smaller refining companies have been
consolidated into the Indian Oil Group and Bharat Petroleum Corporation. In 2003, the Oil and
Natural Gas Corporation, India’s major upstream oil and gas producer, entered the downstream
market though the acquisition of the majority shares of the 9.7 met Mangalore refinery. India’s
refineries are relatively simple. Comparing the ratio of primary upgrading capacity to crude
distillation (“cracking to distillation ratio”), most large Indian refineries have a cracking-to-
distillation ratio of less than 40%; only the new large Reliance refinery meets the average of the
U.S. refining industry (56%).
Company Performance

During the year 2008-09, BPCLs Mumbai Refinery achieved a crude throughput of 12.26 MMT
as compared to 12.75 MMT achieved during the last year. Kochi Refinery also saw the crude
throughput decline to 7.68 MMT in 2008-09 from 8.20 MMT in 2007-08. The lower throughputs
for the two refineries were on account of the planned shutdowns during the year. However, the
market sales of the company increased from 25.79 MMT in 2007-08 to 27.16 MMT in the
current year.

Porter five forces model:

Michael Porter has identified five forces which determine the long-run attractiveness of a market
segment. Hence this model can be studied keeping the BPCL in mind
1. Threat of intense segment rivalry-

This BPCL has got many strong competitors such as Hindustan petroleum, Indian oil etc. So it
faces stiff competition from them but regardless of this it is in the growth stage.

2. Threat of new entrants-

This refinery industry requires a huge investment and therefore not many entrants jump into this
market. After reliance there is not too much companies are looking forward to jump in this sector
so company has an advantage in it.

3. Threat of substitute products-

There is a many substitute product available in market. Like HP, Indian oil etc. So the company
has to take many careful steps to manufacturing the product.

4. Threat of buyer’s growing bargaining power-

The price of petroleum products is generally decided by government due to the expenditure and
subsidies provided by government. So consumer will only attract towards the special products
such as speed, power etc. so company has to do innovations to have a brand loyalty but no
bargaining problem will be there.

5. Threat of supplier’s growing bargaining power-

Role of supplier is very crucial. We can take the example when crude oil prices were 124$ per
barrel. In India the price was about to make Rs100/liter but due to government subsidies it was
available at Rs55/liter. So bargaining power is very impotent in this sector.
Corporate information

Stock Data: Recent Stock Performance:

1 Week 0.0% 13 Weeks 7.2%

Current Price (9/11/2009): 559.80
(Figures in Indian Rupees) 4 Weeks 34.3% 52 Weeks 62.1%
Bharat Petroleum Corporation Limited Key Data

Ticker: BPCL Country: INDIA

Oil, Gas, Coal & Related

Exchanges: BOM Major Industry:

Oil Refiners &

Sub Industry:

2009 Sales Employees: 14,021
(Year Ending Jan 2010).

Currency: Indian Rupees Market Cap: 202,391,281,015

Fiscal Yr Ends: March Shares Outstanding: 361,542,124

Share Type: Ordinary Closely Held Shares: 237,996,845

Bharat petroleum corporation ltd was incorporated on 3.11.1952 as a Company under the Indian
Companies Act, 1913 at Mumbai with the Authorized Capital of Rs. 25 crore.

To analysis the company current position we have taken the data of last five years. After
analyzing the data we came to know that company sales has increased from 57,877.40 (2005/03)
to 134,073.43(2009/03) but the profit margin of the company has declined to 735.90 In
comparison to 2007/03 where it was highest 1,805.48. By analyzing this we can say
that just watching the sales of the company we can’t predict that company is earning profit. To
the actual position of the company we have to different analysis. The financial health of a
company is dependent on a combination of profitability, short-term liquidity and long term

Fundamental analysis is the examination of the underlying forces that affect the interests of the
economy, industrial sectors, and companies. It tries to forecast the future movement of the
capital market using signals from the economy, industry and company.

By doing fundamental analysis we came to know different perspective of the company. After
doing analysis we came to know that now day’s company profit has decreased, but important
news is that company is going to launch few new projects in next 4-5 months, that can help
company in increasing their profit, and can come from the loses that they have suffered in last
two-three years. The different projects are
1 Bina Dispatch Terminal 639.11 410.00 156.00 the project is scheduled for completion in
November 2009
2 Bina Kota Pipeline Project 405.82 190.00 175.00 the project is scheduled for completion in
October 2009

3 Capacity Expansion cum Modernization Phase II at Kochi 3941 125700 1650.00 the project is
scheduled for completion in December 2009

4 Short term low cost modification to produce Euro IV Auto Fuels from Mumbai Refinery
390.00 64.00 185.00 the project is scheduled for completion in January 2010

5 Hydrocracker revamp and new Continuous Catalytic Regenerative Reformer (CCR) unit at
Mumbai refinery 825.00 3.00 180.00 the project is scheduled for completion in September 2011

6 Central India Refinery Project (Implemented by Bharat Oman Refineries Ltd.) BPCL's Equity
Investment. 1996.00 1375.5 300.00 the project is scheduled for completion in December 2009.

After hearing this news people can believe that company can improve their condition and
company can overcome the slum. But the news from the company is that it has a loss of 1300
crore in the year 2003-04 because of subsidy given by the company and it’s very difficult to
overcome from that loss.

Company has earned about 600crore up to 30june as against the loss of about 1100crore, so
according to the current situation, we can say that company is going to earn profit in next few

According to the graph we can say that companies profitability has come down up to the end of
2008 and starting of 2009 but after that graph shows that companies profitability has increased.

In the end we can say that fundamental analysis is a kind of base to know about the company’s
financial position and about the other aspects like the study of market.

Security analysis and portfolio management by

Shashsi k.gupta and Rosy joshi