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DECLARATION
| hereby declare that the project report titled “CAPITAL STRUCTURE ANALYSIS OF INDIA
OIL CORPORATION LIMITED” submitted in partial fulfillment of the requirement for the
award of the degree of MASTER OF BUSINESS ADMINISTRATION at Department of
Management Studies, Pondicherry University is an original piece of work and not
submitted for award of any other degree, diploma, fellowship, or any other similar title or
prizes.
As per my knowledge and belief, the substance in the report does not form the part of any
other business or research work. Also, this report has never
been submitter earlier or used for any academic purpose.
Date-29.08.14 Kangkan deka Place- Guwahati Regn no. 13397039 MBA, 3 semester
Pondicherry University
GUIDE'S CERTIFICATE
Certified that this report entitled “CAPITAL STRUCTURE ANALYSIS OF INDIAN OIL
CORPORATION LIMITED” is submitted in partial fulfillment for the award of MBA is record
of independent research work carried out by KANGKAN DEKA under my guidance and no
part of this corporate Exposure Training has
been previously submitted earlier for the award of any degree/diploma.
Professor & Head Faculty Guide:
Dr. T .Nambirajan Dr.M.Basheer Ahmed Khan Department Of Management Department Of
Management Studies Studies
Pondicherry University Pondicherry university
ACKNOWLEDGEMENTS
This project, though an individual project, wouldn’t have been possible without the
constant help and guidance of a few individuals whose support
has been vital to the completion of the project.
At the outset, | would like to thank Mr. Hitesh Barman (Manager — Vigilance department)
for providing me the opportunity to do a project at Indian Oil
Corporation limited.
This research project would not have been possible without the support of many people. |
wish to express my gratitude to my supervisor, Mr. Vishal Maheshwari, who was
abundantly helpful and offered invaluable assistance, support and guidance. Deepest
gratitude are also due to the members of the finance department, Ms. Rina Choudhary, Mr.
Munin Baradakai without
whose knowledge and assistance this study would not have been successful.
would also like to convey my thanks to my college faculty, Prof. M. Basheer
Ahmed Khan.
And finally | wish to express my love and gratitude to my beloved family; for
their understanding & endless love through the duration of my internship.
Place: Guwahati Kangkan deka MBA 2” year
Pondicherry University
TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION TO THE PROJECT 1.1: Introduction to the topic
1.2: Objective of the study CHAPTER 2: PROFILE OF THE COMPANY AND THE MARKET
SCENARIO
2.1: Origin of oil industry in India.
2.2: About IOCL and Guwahati refinery.
2.3: Vision, Mission and values. CHAPTER 3: RESEARCH METHODOLOGY
3.1: Research design.
3.2: Data source and collection.
3.3: Capital structure analysis. CHAPTER 4: DATA INTERPRETATION AND ANALYSIS
CHAPTER 5: CONCLUSION
5.1: FINDINGS
5.2: SUGGESTIONS
5.3: LIMITATIONS
5.4: CONCLUSION
CHAPTER 6: BIBLIOGRAPHY
financed by debt poses greater risk, as this firm is relatively highly levered. The long term
creditors would judge the soundness of the firm on the basis of the long term financial
strength measured in terms of ability to pay the interest regularly as well as repay the
installment of the principal on due dates or in one lump sum at the time of maturity.
Accordingly, there are two different, but mutually dependent and interrelated, types of
leverage ratio First Ratio which are based on the relationship between borrowed funds and
owner’s capital. In this Paper, researcher explain the different leverage ratio as also how
they can be used to draw inferences regarding the financial
soundness of the firm.
COMPANY OVERVIEW
INDIAN OIL CORPORATION LTD
IOCL (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. 2 441 329 600, and profit of Rs. 25 994 000 for fiscal 2009.
Indian Oil Corporation Ltd. is the highest ranked Indian company in the prestigious Fortune
‘Global 500’. It is ranked at 109th 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 2008-09.
IOCL GROUP IOCL Group consists of Indian Oil Corporation Ltd. and the following
subsidiaries:
Lanka lOC Ltd
Indian Oil (Mauritius) Ltd.
lIOCL Middle East FZE
Indian Oil Technologies Ltd.
Chennai Petroleum Corporation Ltd. (CPCL)
Bongaigaon Refinery & Petrochemicals Ltd (BRPL) 11
—z — €---« Cureee
WE eee Wh ese a
12
Legend indianOlSubsidiary Refinery Proposed IndianOil Refinery Proposed Other
Rofinories IindianOll Crude Oil Pipeline IndianOll Product Pipeline IndianOll On-
geing/Propesed Crude Oil Pipeline IndianOll On-going/Proposed Product Pipeline
IndlanOll On-going R-LNG Pipelines “
Product Pipetine - Others : Crude Oil Pipeline - Others i 5 (OC Marketing Set-up at Head
Office: Mumbai |
Regional Offices: Chennai, Kolkata, Mumbai & Mew Delhi
State Offices: Ahmedabad, Bangalore, Bhopal, Bhubaneswar, Chandigarh, Chennal,
Guevehati, Jaipur, Kochi, Kolkata, Lucknow, Mumbai, New Delhi, Patna & Secunderabad *
Corporate Office of IBP Co. Limited J
The current Refining capacity stands at 55.01 million ton per annum.
Yet another refinery is being set up on the East Coast at Paradip (Orissa). The outlay
includes provision for Expansion of Barauni Refinery, Quality improvement for HSD at
Haldia, Gujarat, Mathura, Grass Root Refinery in Eastern Sector, Residue Up gradation at
Gujarat, and Implementation of Lube Quality
improvement at Haldia etc.
The company is mainly controlled by the Government of India which owns approx.. 79%
shares in the company. It is one of the Maharatna status companies of India apart from Coal
India Limited, NTPC Limited, Oil and Natural Gas Corporation, Steel Authority of Indian
Limited, Bharat Heavy Electricals Limited
and Gas Authority of India Limited.
Indian Oil Corporation Limited operates a network of 11,214 km long crude oil, petroleum
product and gas pipelines with a capacity of 77.258 million metric tonnes per annum of oil
and 10 million metric standard cubic meter per day of gas. Cross-country pipelines are
globally recognized as the safest, cost-effective, energy-efficient and environment friendly
mode for transportation of crude oil and petroleum products. Indian Oil has one of the
largest petroleum marketing
and distribution networks in Asia with over 35,000 marketing points.
13
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.
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.
14
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
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
15
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.
18
RESEARCH DESIGN
A research design is the specification of method and procedure for accruing the
information needs. It is overall operational pattern of frame work of project that
stipulates what information is to be collected for source by the procedures.
Descriptive Research design is appropriate for this study.
Descriptive study is used to study the situation. This study helps to describe the situation. A
detail description about present and past situation can be found out
by the descriptive study.
DATA SOURCE AND COLLECTION
This research is based on secondary data. This means the data are already available, i.e. the
data which have been already collected and analyzed by
someone else.
Secondary data are used for the study of ratio analysis of this company and also its
competitors. To collect the data, company annual report, internet websites has
been used.
Analyzing and interpreting the information available in the financial statements
and drawing meaningful conclusions from them.
20
CAPITAL STRUCTURE
A mix of a company's long-term debt, specific short-term debt, common equity and
preferred equity . The capital structure is how a firm finances its
overall operations and growth by using different sources of funds.
Debt comes in the form of bond issues or long-term notes payable, while equity is classified
as common stock, preferred stock or retained earnings. Short-term debt such as working
capital requirements is also considered to be part of the capital structure. But the IOCL
does not issue the preference
shares and debenture to the public of the company
COMPONENTS OF CAPITAL STRUCTURE:
CAPITAL STRUCTURE I 1 Shareholder’s funds Borrowed funds -equity capital -debenture
(Nil) -preference capital (Nil) -Term loan
zl
SHARE CAPITAL
@ Authorised Capital (CR)
Hi Issued Capital (CR)
|
2014 2013 2012 2011 #42010
AUTHORISED CAPITAL: The maximum equity capital a company can
raise, which is mentioned in the Memorandum of Association and Articles of Association of
the Company. However, share premium is excluded from the
definition of authorized capital.
SSUED CAPITAL: capital is the amount of nominal value of share held by the shareholders.
It is the face value of the shares that have been issued to the shareholders. Issued share
capital and share premium represent the amount invested by the shareholders in the
company. It is also
known as the subscribed capital or subscribed share capital.
Analysis: But here, IOCL issued very less share capital IN Previous years if |
compared to Authorized capital. IOCL is only issued the limited share to the
shareholders 23
Paid up capital
From - To Instrument Shares(nos) Face value Capital
2013 2014 Equity share 2427952482 10 2427.95 2012 2013 Equity share 2427952482 10
2427.95 2011 2012 Equity share 2427952482 10 2427.95 2010 2011 Equity share
1192374306 10 119237 2009 2010 Equity share 1192374306 10 1192.37 2008 2009
Equity share 778674809 10 778.67
Paid up capital:
The amount of a company's capital that has been funded by shareholders, Paid-up capital
can be less than a company's total capital because a company may not issue all of the
shares that it has been authorized to sell. Paid-up
capital can also reflect how a company depends on equity financing.
Here, from 2011 to 2013, the company’s Paid up capital remain same. Its means the IOCL
collected average funded by shareholders and they have to
issue more share capital to shareholders in future periods.
24
TOTAL DEBT
The IOCL has only two debts:
Secured loan Unsecured loan
Total debt means here included debenture, Bonds, Long term loans, short term loan etc.
But Indian Oil Corporation limited (IOCL) did not issued
debenture, bonds etc. Secured loan:
Secured loans are those loans that are protected by an asset or collateral of some sort. The
item purchased, such as a home or a car, can be used as collateral, and a lien is placed on
such item. The finance company or bank will hold the deed or title until the loan has been
paid in full, including interest and all applicable fees. Other items such as stocks, bonds, or
personal property can be put up to secure a loan as well.
Secured loans are usually the best (and only) way to obtain large amounts of money. A
lender is not likely to loan a large amount with assurance that the money will be repaid.
Putting your home or other property on the line is a fairly safe guarantee that you will do
everything in your power to repay the
loan.
25
Secured loans usually offer lower rates, higher borrowing limits and longer repayment
terms than unsecured loans. As the term implies, a secured loan means you are providing
"security" that your loan will be repaid according to the agreed terms and conditions. It's
important to remember, if you are unable to repay a secured loan, the lender has recourse
to the collateral you
have pledged and may be able to sell it to pay off the loan.
Unsecured loan:
On the other hand, unsecured loans are the opposite of secured loans and include things
like credit card purchases, education loans, or personal (signature) loans. Lenders take
more of a risk by making such a loan, with no property or assets to recover in case of
default, which is why the interest rates are considerably higher. If you have been turned
down for unsecured credit, you may still be able to obtain secured loans, as long as you
have something of value or if the purchase you wish to make can be used as collateral.
When you apply for a loan that is unsecured, the lender believes that you can repay the
loan on the basis of your financial resources. You will be judged based on the five (5) C's of
credit -- character, capacity, capital, collateral, and conditions — these are all criteria used
to assess a borrower's creditworthiness. Character, capacity, capital, and collateral refer to
the borrower's willingness and ability to repay the debt. Conditions include the borrower's
situation as
well as general economic factors.
26
SECURED LOAN
25000 7
20000 +
15000 +
10000 + (CR)
50007
0- 2014 | 2013 | 2012 | 2011 | 2010
@ (CR) | 17866 | 13046 | 20380 | 18292 | 17565
Analysis:
In 2014 the secured loan proportion is high than 2013. The India oil corporation limited
(IOCL) has try to reduce the secured loan because secured loan effect the assets of the
company and it will be effect on future periods so the IOCL Increasingly firms are moving
from secured debt to
unsecured debt in order to free their assets.
Secured loans have the largest positive impact on Company’s credit when they are repaid.
If company have never taken a secured loan, company’s
credit may be low despite your good record of repayment.
27
UNSECURED LOAN
70000 60000 50000 40000
30000 20000 10000
2014 2013 2012 2011 2010
Wi (CR) |62733.1| 57278 |32354.2|26273.8|27406.7
Analysis:
Here unsecured loan is constantly high from 2010 to 2013. Indian oil corporation limited (
|OCL).Unsecured loan is more better than secured loan Because secured loan will be affect
the assets of the company in future period of time so the IOCL has increasing the unsecured
loan for reducing the risk of the company . Most of the company has preferred the
unsecured
debt which will not affect any assets of the company.
In some cases, IOCL may be able to reduce IOCL unsecured debts by negotiating with
creditors for a lower balance. Either IOCL can talk to
creditors on IOCL own, or IOCL can solicit the help of a credit counseling
28
organization. In some cases, credit counselors can negotiate with creditors better than
debtors can. However, if |OCL choose to work with a credit
counselor make sure the organization is reputable.
EARNING BEFORE INTEREST AND TAX
Earnings before interest and tax A measure of a Indian oil corporation limited (IOCL)
earning power from ongoing operations, equal to earnings before deduction of interest
payments and income tax. EBIT excludes income and expenditure from unusual, non-
recurring or discontinued activities. In the case of a IOCL with minimal depreciation and
amortization activities, EBIT is watched closely by creditors, since it represents the amount
of cash that such a company will be able to use to pay off creditors. also called operating
profit.
As you can re-arrange the formula to be calculated as_ follows:
EBIT Revenue - COGS-
= Operating Expenses
Also known as Profit before Interest & Taxes (PBIT), EBIT equals Net
Income with interest and taxes added back to it.
EBIT was the precursor to the EBITDA calculation, which includes
depreciation and amortization expenses.
29
LEVERAGE
The degree to which an investor or business is utilizing borrowed money. Companies that
are highly leveraged may be at risk of bankruptcy if they are unable to make payments on
their debt; they may also be unable to find new lenders in the future. Leverage is not
always bad, however; it can increase the shareholders ' return on investment and often
there are tax advantages
associated with borrowing. Components of leverage are:
LEVERAGE
Financial leverage Operating leverage
Financial leverage:
Financial leverage is a leverage created with the help of debt component in the capital
structure of a company. Higher the debt, higher would be the financial leverage because
with higher debt comes the higher amount of interest that needs to be paid. Leverage can
be both good and bad for a business depending on the situation. If a firm is able to generate
a higher return on investment (ROI) than the interest rate it is paying, leverage will have its
positive effect shareholder’s return. The darker side is that if the said
34
situation is opposite, higher leverage can take a business to a worst situation like
bankruptcy. the Degree of Financial Leverage (DFL) can be calculated
with the following formula:
DFL = % Change in EPS / % Change in EBIT
Where EPS is the Earnings per Share and EBIT is the Earnings before interest
and Taxes.
Operating leverage:
Operating leverage, just like the financial leverage, is a result of operating fixed expenses.
Higher the fixed expense, higher is the operating leverage. Like the financial leverage had
an impact on the shareholder’s return or say earnings per share, operating leverage
directly impacts the operating profits (Profits before Interest and Taxes (PBIT)). Under
good economic conditions, due to operating leverage, an increase of 1% in sales will have
more than 1%
change in operating profits.
The formula used for determining the Degree of Operating Leverage or DOL
is as follows:
DOL = % Change in EBIT / % Change in Sales
So, Indian oil corporation limited (IOCL) need to be very careful in adding any of the
leverages to your business viz. financial leverage or operating
leverage as it can also work as a double edged sword.
a5
CHAPTERS: CONCLUSION
FINDINGS
IOCL has issued less shares capital to the shareholders, constantly from 2010 to 2014. IOCL
does not fulfill the of authorized share capital which is
mention in memorandum of association. IOCL, Preference share and Debenture not
existent in the industry.
The return on investment ratio of IOCL is the lowest among its competitors which imply
that the degree of efficiency of IOCL in utilizing the funds entrusted by shareholders and
long term creditors is lower than its
competitors.
IOCL has maximum no of total debts in the period of 2014, if | compared
with previous years. In 2014, unsecured loan is constantly higher than previous years.
In 2014, lOCL has maintained the secured loan amounts. Which is mostly
remain same with previous years. EBIT is very less in 2014; it is constantly decreasing from
2010 to 2014.
In 2014, earning per share (EPS) value is Rs 28.91, which is higher than 2013
but overall five years, IOCL shareholders has earned minimum EPS in 2014.
IOCL has Degree of operating leverage almost same with last five years.
lIOCL having a good position in future period of time.
40
In 2014, degree of financial leverage is very high than previous years, IOCL incurs a debt
that must be paid. But, this debt is paid in small installments
over a relatively long period of time.
The overall efficiency of IOCL is higher than those of its competitors in
previous years of comparison.
SUGGESTIONS
The company should utilize the debt funds more efficiently to maximize
shareholders’ return.
Increasingly firms are moving from secured debt to unsecured debt in order
to free their assets.
For IOCL, to issue maximum number of share to the public and they have to reduce the
share price is minimum. And IOCL try to fulfill the limit of
authorized share capital.
IOCL have to reduce total debts of the company against of issuing more
share to the public.
IOCL, Need to minimize the degree of financial leverage .otherwise which
will be affect in future period of time.
The company should try to increase the profit before interest and tax so that the
Investments in the firm are attractive as the investors would like to
invest only where the return is higher.
41
e The company can invest in marketable securities to improve its cash position. e |OCL can
try to reduce the secured loan because secured loan can be affect
the assets of the company in future.
LIMITATIONS OF THE STUDY
e The scope of the study is limited to Guwahati Refinery. e Time taken to complete the
study is very limited.
e The analysis of the analysis of the companies and suggestion totally
depends upon the information shared.
e Non-monetary aspects are not considered making the results unreliable.
CONCLUSION
From the above discussion it can be concluded that Indian Oil Corporation limited running
with low debt fund. Therefore, they may increase it to get benefits of low cost capital. It has
found that IOCL largely employing shareholders funds in their as sets it has crossed even
100% in the first two years. Moreover EOL is on high degree financial risk. Therefore, they
may reduce the debt capital and employ more equity fund. The study undertaken has
brought in to the light of the following conclusions. According to this project | came to
know that from the analysis of capital structure analysis it is clear that Indian Oil
Corporation Ltd have been doing a satisfactory job. But the firm has certain areas to ponder
upon like capital employment. So the firm should focus on getting of profits in the coming
years by taking care internal as well as external factors. And with regard to
resources, the firm is take utilization of the borrowed fund in a right place.
42
BIBLIOGRAPHY
WEBSITE REFERENCES:
e* www.moneyco ntrol.com
e www.iocl.com
BOOKS REFERENCES:
e K.R Das, Priti chandna B.B Dam, & Anju Kakoty 1° Edition
(2013):Financial Statement Analysis.
THANK YOU
Note Page Particulars (8) Current sesets “4 «70 (a) Current invectmente 7 #86174 (b)
inventones 8 839174 (c) Trade receivables 0 175 (¢) Gach and Bank Balaneee 6S 17 (e)
Short-term loans and advancec 86173 (f} Other current acoete TOTAL 1 158 Principles of
Goncoldation and Significant Accounting Policies 2-7 130 Notes on Financial Statements i
Sd (R. 6. Butola) (PK. Goyal) Chairman Director (Finance) A per our attached Report of even
date For B.M. GHATRATH & GO. For DASS GUPTA & ASSOCIATES Gharterec Accountants
Chartered Accountants (Firm Ran. No. 3010776) (Firm Ragn. No. 000112N) S- Sd (CA. PR.
(GA. Raja Jindal) Parner Partner M. No. 051675 M. No, 504711 Place : New Dehi Date : 30°
May, 2073
46
13,056.95
12,499.51
37,324.97
3192.92
(* in Grove)
March-13 = March-12 13,7483 63,851.04 11,557.30 a21.95 32.91470 2332.25 1349845 ©
12525207 771093 | 20827.22 Sd- (Raju Ranganathan) Company Secretary For PARAKH &
CO. Chartered Accountants (Firm Regn. Na.0014750) Sd (CA. Thalendra Sharma) Pertne M.
No. 076236
STATEMENT OF PROFIT AND LOSS for the Year Ended 31* March 2013
Note Page Particulars
20
21
a4
175
176
i
177
7
178
178
180
(i) Revenue:
(a) Flevenue from operations (Groce) 480.380 86
Lees: Excice Duty 27,610.19
Revenue from operstione (Net) (b) Other income Total Revenue (2) Expenses: (a) Coct of
matenale consumed (b) Purchaee of Stock-in-Trade (c) Changes in Inventory (2) Employee
benefit expences (e) Finance coct (f| Depreciation, Depleton and Amortication on : a)
Tangible Accets b) Intangible Acvete
|8
(g) Other expencee
Total expences (3) Profit before Prior Period, Exceptional Items and Tax (4) Income /
(Expences) pertaining to Pror Yeare (Net) (5) Profit before Exceptional Items and Tax (6)
Exceptions heme (7) Profit before Tax (8) Tax expence:
Curent tax [includes ® (25.71) crore (2012 : © ($07.08) crore) relating to prior yesre]
Mat Credit Entitlement
Deferred tax [includes © MIL (2012 : € 150.53 crore) relating to prior yeere]
47
3,511.64
(t in Grove} March-12
438,022.73
29,000.73
408,023.00
3,188.16 472,111.16
243,000.28 121.210.90 (3,470.05) 3,208.98 5,804.85
5,156.48 152.78 5,308.26
22,768.14
400,678.27 11,432.80
is 11,703.14 (707 82)
3,905.32
700.36
(1.03) (1,059.28)
(11) Profit / (lots) for the Growp 33 188 (12) Earning per Equity Share (*}:
(12) Basic
(13) Diksted Face Value Per Equity Share (2) 1 158 Principle: cf Concolidstion and
Segnificam Accounting Pobzer 2-37 150 Notes on Financial Statements