THE IMPACT OF COMMODITY PRICES ON STOCK

MARKET.

PROJECT REPORT

SUBMITTED BY

ARJUN M L B

Reg No: 2009201010

Under the guidance of

Prof. Prem Raj,

Assistant Professor, Anna University, Chennai.

Submitted in partial fulfillment of the requirement for the award

of the degree of

MASTER OF BUSINESS ADMINISTRATION

OF ANNA UNIVERSITY, CHENNAI

MAY 2011
LIST OF EXHIBITS

LIST OF TABLES

CHAPTER TITLE PAGE NO

1 INTRODUCTION

2 REVIEW OF LITERATURE

3 OBJECTIVES OF THE STUDY

4 RESEARCH METHODOLOGY

5 LIMITATIONS OF THE STUDY

6 ANALYSIS AND DISCUSSION

7. FINDINGS

8. SUGGESTIONS

9. CONCLUSION

BIBLIOGRAPHY

APPENDICES*

1. INTRODUCTION
1.1. INTRODUCTION

The rise in commodity investing that started in 2003, many have asked whether commodities
now move more in sync with traditional financial assets. Using monthly data over 5 years,
this article provides evidence largely to the contrary. First, dynamic conditional correlation
and recursive co-integration techniques are applied to the prices of, and the returns on, key
investable commodity and National Stock Exchange equity indices. Compared to the 2005–
2010 period, both short- and long-term relationships between passive commodity and equity
investments are generally weaker after 2008. Even though the correlations between equity
and commodity returns increased sharply in the fall of 2008, during a time of extraordinary
economic and financial turbulence, they remained lower than their peaks in the previous
years. Second, the co-movements between equity and commodity returns in periods of
extreme returns are analyzed. There is little evidence of a secular increase in spillovers from
equity to commodity markets during extreme events. Overall, the results suggest that while
commodities provide substantial diversification benefits to passive equity investors, those
benefits are weaker precisely when they are needed most. In this article we would be seeing
the impact of energy price and metal sector stocks due to the price movement in crude oil
price and metals.

1.2 COMMODITY MARKET

The trading of commodities consists of direct physical trading and derivatives trading.
Exchange traded commodities have seen an upturn in the volume of trading since the start of
the decade. This was largely a result of the growing attraction of commodities as an asset
class and a proliferation of investment options which has made it easier to access this market.

The global volume of commodities contracts traded on exchanges increased by a fifth in

2010, and a half since 2008, to around 2.5 billion million contracts. During the three years up
to the end of 2010, global physical exports of commodities fell by 2%, while the outstanding
value of OTC commodities derivatives declined by two-thirds as investors reduced risk
following a five-fold increase in value outstanding in the previous three years. Trading on
exchanges in China and India has gained in importance in recent years due to their emergence
as significant commodities consumers and producers. China accounted for more than 60% of
exchange-traded commodities in 2009, up on its 40% share in the previous year.
Commodity assets under management more than doubled between 2008 and 2010 to nearly
$380bn. Inflows into the sector totalled over $60bn in 2010, the second highest year on
record, down from the record $72bn allocated to commodities funds in the previous year. The
bulk of funds went into precious metals and energy products. The growth in prices of many
commodities in 2010 contributed to the increase in the value of commodities funds under
management.

Spot trading

Spot trading is any transaction where delivery either takes place immediately, or with a
minimum lag between the trade and delivery due to technical constraints. Spot trading
normally involves visual inspection of the commodity or a sample of the commodity, and is
carried out in markets such as wholesale markets. Commodity markets, on the other hand,
require the existence of agreed standards so that trades can be made without visual
inspection.

Forward contracts

A forward contract is an agreement between two parties to exchange at some fixed future
date a given quantity of a commodity for a price defined today. The fixed price today is
known as the forward price.

Futures contracts

A futures contract has the same general features as a forward contract but is transacted
through a futures exchange.

Commodity and futures contracts are based on what’s termed forward contracts. Early on
these forward contracts — agreements to buy now, pay and deliver later — were used as a
way of getting products from producer to the consumer. These typically were only for food
and agricultural products. Forward contracts have evolved and have been standardized into
what we know today as futures contracts. Although more complex today, early forward
contracts. In essence, a futures contract is a standardized forward contract in which the buyer
and the seller accept the terms in regards to product, grade, quantity and location and are only
free to negotiate the price.
Hedging

Hedging insures against a poor harvest by purchasing futures contracts in the same
commodity. If the cooperative has significantly less of its product to sell due to weather or
insects, it makes up for that loss with a profit on the markets, since the overall supply of the
crop is short everywhere that suffered the same conditions.

Delivery and condition guarantees

In addition, delivery day, method of settlement and delivery point must all be specified.
Typically, trading must end two (or more) business days prior to the delivery day, so that the
routing of the shipment can be finalized via ship or rail, and payment can be settled when the
contract arrives at any delivery point.

Regulation of commodity markets

Commodities' spot and forward prices are solely dependent on the financial return of the
instrument, and do not factor into the price any societal costs, Nonetheless, new markets and
instruments have been created in order to address the external costs of using these
commodities such as man-made global warming, deforestation, and general pollution. In the
United States, the principal regulator of commodity and futures markets is the Commodity
Futures Trading Commission but it is the National Futures Association that enforces rules
and regulations put forth by the CFTC. In India, the important market for commodity trading
is MCX and NCDEX.

Oil

Building on the infrastructure and credit and settlement networks established for food and
precious metals, many such markets have proliferated drastically in the late 20th century. Oil
was the first form of energy so widely traded, and the fluctuations in the oil markets are of
particular political interest.

Some commodity market speculation is directly related to the stability of certain states, e.g.
during the Persian Gulf War, speculation on the survival of the regime of Saddam Hussein in
Iraq, Gaddafi of Libya, Hosni Mubarak of Egypt.
The oil market is an exception. Most markets are not so tied to the politics of volatile regions
- even natural gas tends to be more stable, as it is not traded across oceans by tanker as
extensively.

Commodity markets and protectionism

Developing countries (democratic or not) have been moved to harden their currencies, accept
IMF rules, join the WTO, and submit to a broad regime of reforms that amount to a hedge
against being isolated. China's entry into the WTO signalled the end of truly isolated nations
entirely managing their own currency and affairs. The need for stable currency and
predictable clearing and rules-based handling of trade disputes, has led to a global trade
hegemony - many nations hedging on a global scale against each other's anticipated
protectionism, were they to fail to join the WTO.

Commodity Exchanges:

Exchange Country
CME Group USA
Tokyo Commodity Exchange Japan
NYSE Euronext EU
Dalian Commodity Exchange China
Multi Commodity Exchange India
Intercontinental Exchange USA, Canada, China, UK

1.3 DEVELOPMENTS IN COMMODITY MARKET

Organized commodity derivatives in India started as early as 1875, barely about a decade
after they started in Chicago. Many feared that derivatives fuelled unnecessary speculation
and were detrimental to the healthy functioning of the markets for the underlying
commodities. As a result, after independence, commodity options trading and cash settlement
of commodity futures were banned in 1952. A further blow came in 1960s when, following
several years of severe draughts that forced many farmers to default on forward contracts
(and even caused some suicides), forward trading was banned in many commodities
considered primary or essential. Consequently, the commodities derivative markets
dismantled and remained dormant for about four decades until the new millennium when the
Government, in a complete change in policy, started actively encouraging the commodity
derivatives market. Since 2002, the commodities futures market in India has experienced an
unprecedented boom in terms of the number of modern exchanges, number of commodities
allowed for derivatives trading as well as the value of futures trading in commodities, which
might cross the $ 1 Trillion mark in 2006. However,there are several impediments to be
overcome and issues to be decided for sustainable development of the market.
After the Indian economy embarked upon the process of liberalization and globalisation in
1990, the Government set up a Committee in 1993 to examine the role of futures trading. The
Committee recommended allowing futures trading in 17 commodity groups. It also
recommended strengthening of the Forward Markets Commission, and certain amendments
to Forward Contracts (Regulation) Act 1952, particularly allowing options trading in goods
and registration of brokers with Forward Markets Commission. The Government accepted
most of these recommendations and futures trading was permitted in all recommended
commodities. Finally a realization that derivatives do perform a role in risk management led
the government to change its stance. The policy changes favouring commodity derivatives
were also facilitated by the enhanced role assigned to free market forces under the new
liberalization policy of the Government. Indeed, it was a timely decision too, since
internationally the commodity cycle is on the upswing and the next decade is being touted as
the decade of commodities.
Need for Commodity Derivative:
India is among the top-5 producers of most of the commodities, in addition to being a major
consumer of bullion and energy products. Agriculture contributes about 22% to the GDP of
the Indian economy. It employees around 57% of the labor force on a total of 163 million
hectares of land. Agriculture sector is an imposrtant factor in achieving a GDP growth of 8-
10%. All this indicates that India can be promoted as a major center for trading of
commodity derivatives. It is unfortunate that the policies of FMC during the most of 1950s to
1980s suppressed the very markets it was supposed to encourage and nurture to grow with
times. It was a mistake other emerging economies of the world would want to avoid.
However, it is not in India alone that derivatives were suspected of creating too much
speculation that would be to the detriment of the healthy growth of the markets and the
farmers. Such suspicions might normally arise due to a misunderstanding of the
characteristics and role of derivative product. It is important to understand why commodity
derivatives are required and the role they can play in risk management. It is common
knowledge that prices of commodities, metals, shares and currencies fluctuate over time. The
possibility of adverse price changes in future creates risk for businesses.
Derivatives are used to reduce or eliminate price risk arising from unforeseen price changes.
A derivative is a financial contract whose price depends on, or is derived from, the price of
another asset. Two important derivatives are futures and options.
(i) Commodity Futures Contracts: A futures contract is an agreement for buying or selling a
commodity for a predetermined delivery price at a specific future time. Futures are
standardized contracts that are traded on organized futures exchanges that ensure
performance of the contracts and thus remove the default risk. The commodity futures have
existed since the Chicago Board of Trade (CBOT, www.cbot.com) was established in 1848
to bring farmers and merchants together. The major function of futures markets is to transfer
price risk from hedgers to speculators. For example, suppose a farmer is expecting his crop
of wheat to be ready in two months time, but is worried that the price of wheat may decline
in this period. In order to minimize his risk, he can enter into a futures contract to sell his
crop in two months’ time at a price determined now. This way he is able to hedge his risk
arising from a possible adverse change in the price of his commodity.
(ii) Commodity Options contracts: Like futures, options are also financial instruments used
for hedging and speculation. The commodity option holder has the right, but not the
obligation, to buy (or sell) a specific quantity of a commodity at a specified price on or
before a specified date. Option contracts involve two parties – the seller of the option writes
the option in favour of the buyer (holder) who pays a certain premium to the seller as a price
for the option. There are two types of commodity options: a ‘call’ option gives the holder a
right to buy a commodity at an agreed price, while a ‘put’ option gives the holder a right to
sell a commodity at an agreed price on or before a specified date (called expiry date). The
option holder will exercise the option only if it is beneficial to him; otherwise he will let the
option lapse.

1.4 NEED FOR THE STUDY

Most casual stock market investors do not pay too much attention to the current price of the
various different commodities such as oil, gold and copper, for example. However these
current prices can have a major bearing on the value of the main stock market indices.
Just take a look at the NIFTY companies. This is a weighted index meaning that the
companies with the largest market capitalisation such as Reliance, Tata Steel have more of an
impact on the value of the NIFTY than the smaller ones.

We can see that the company with the highest market capitalisation is Reliance, whose share
price is obviously heavily influenced by the price of crude oil.These are all mining companies
whose share price is determined to a large extent by the price of the various commodities.

At the moment the price of various commodities including copper, gold, lead, nickel and
silver are all trading at very high levels on both a yearly and historical basis. As a result the
share prices of the major mining companies have been driven higher because they obviously
make more money selling these commodities when the price is higher.

The knock-on effect of this is that the NIFTY,which includes many of these mining
companies, and indeed is heavily influenced by them because they all have significant market
capitalisation values, has been driven higher as a result of this. If commodity prices were to
drop sharply, you would undoubtedly see the value of both the individual mining stocks and
the FTSE 100 as a whole fall sharply as well because they are very closely correlated.

So the point I want to get across in this article is that it is very important that you keep your
eye on commodity prices because they have a major impact on the main stock market indices.
When commodity prices are high, the main stock market will also generally be trading at high
levels as well, whilst the reverse is true when commodity prices are at very low levels. For
long term investors the bargains are to be had when commodity prices are low, but that seems
a long way off at the moment

1.5 COMPANY PROFILE- ACUMEN CAPITAL MARKET PVT LTD.

Dream Plan Achieve

Acumen believes that life is all about dreaming a big dream, planning how to make that dream come
true and then working towards achieving it. That is the driving force. And that is what they help thier
clients and associates to do.

The Dream
Cut to 1996: The Indian markets were still very small, largely unorganized, and more or less a closed
&opaque market. A group of professional stockbrokers dreamed of changing that. The dream was to
spread the equity market cult across the country and making investing a pleasant experience. The Idea
was to take the markets to the investors instead of the investors having to come to the markets and to
give them fair, transparent efficient & time bound services. It was with this dream that the Acumen
group was born.

The Plan
A lot of planning was required to achieve the lofty dreams that the promoters had. The 5 most
important areas were identified :

• Great Human resource

• Entire range of financial products
• Great Technology
• Great Research and awareness programmes

• Great Infrastructure & Reach

Once the fundamentals were identified, we set about the putting the plan into action. A good team was
put in place, and HR policies were chalked out to fairly reward and retain our human talents.

Memberships of all the leading exchanges, both in the capital markets (BSE & NSE for both Cash and
futures segment), commodities markets (MCX, NCDEX and NMCE) and currency markets (NSE &
MCX SX) were taken, as was that of NSDL for depository operations, and portfolio management
license for managing client portfolios. We also took membership of DGCX, an international commodity
and currency exchange based in Dubai. We are also members of the MCX SX.
We now offer all financial products to our clients :

• Equity trading
• Commodity trading
• Currency Futures
• Interest Rate Futures
• Depository Services
• Mutual funds
• Insurance

• IPO

Acumen Group, formerly Peninsular Group is a pioneer player in the Indian capital market, since 1996,
promoted by a group of professional stockbrokers. Group having Security Market membership in NSE,
NSE Derivatives, BSE, NSDL and Commodity Market membership in MCX, NCDEX, NMCE and
DGCX.

At Acumen, we promise to keep to rediscovering ourselves & redefining our services to ensure that we
deliver what we dreamt and promised to deliver :
• Online Trading in NSE, BSE cash and Derivatives segments

• Web Trading in all segments

• Daily Pre-Market outlook over e-mail
• Intra-day Market Commentary
• Trading Tips and Breaking news over SMS

• Personalised Investment Advises

Commitments:

Quality Policy : We commit ourselves to deliver services that best meet our clients’ satisfaction;
protection to our clients’ money maximizing the opportunities and minimizing the risk. We further
commit to get things right, the first time, to deliver the best value for money & time to our customers.
We will continuously invest in our people and technologies and keep our people abreast with the latest
changes & developments, information and technologies. to deliver quality & unparalleled service.
 Excellent Customer Service : We strive to provide our customers with the best and the most reliable
service while offering the best in today’s market environment.

Multiple Trading Platforms : We offer some of the best trading platforms available today. With
platforms ranging from the most user friendly to the latest technology best, like trade in all exchanges
through a single VSAT on a single computer etc.

Expertise : Acumen is dedicated to provide you with the exceptional commodity future trading expertise
from trade inception to execution. Our team of commodity professional’s work round the clock to
provide you the best solutions for your trade.

Education & Communication: We place high priorities on client education, awareness &
communication.
COMMODITIES

History of Commodity Futures

Pages from world history say that Commodity Futures was first introduced to the world by a Wheat
farmer in Chicago in 1820, and by 1840 the organised Commodity Futures Exchange was formed in
Chicago by the Wheat Farmers. In India, Commodities trading began with cotton in 1845. Over the last 5
years, with the launch of tech savvy National Commodity Exchanges, having reach all over the country
and dealing in almost all commodities, trading has exploded. Commodities have now emerged as a
separate asset class, helping investors to diversify their portfolios.
Farmers can now sell their produce whenever they feel that the price is right, even before they actually
harvest the crop. To the traders, exporters and manufactures, commodity futures is one best available
option or procuring their required raw materials, judging the market movements, and to plan their
operations suitably. There are also good opportunities for financiers & traders.

Using Commodity trading to your advantage :

Trading commodities enables you to participate in broad market moves or within specialized sectors.
Energy moves the world, you have seen oil prices rise and fall – Gold is constantly in the news, ever
vigilant for inflation or geo-political trouble – Food, Grains, Precious and Industrial Metals – these are
all part of this world. So these products are widely used by financial professionals as well as individual
investors, for portfolio protection as well as investment reward.

Benefits of online commodity trading :

• Online screen based futures trading in about 85 commodities.

• Possibilities for attractive returns based on risk reward ratios.
• Excellent hedging tool against price risk.
• High Liquidity in most contracts.
• 100% transparency, regulated by Forward Market Commission.
• Physical delivery as well as delivery in demats form.
• Adequate warehousing, testing facilities.

•Ability to leverage larger positions due to relatively lower margins.

DEPOSITORY SERVICES

Your assets, at your finger tips

The Indian capital market went through a major transformation with the introduction of the depository
system which replaced the paper-based settlement of trades. The depository system is one in which
securities are held electronically and transactions are processed by book entry. In the depository system,
securities are held in depository accounts similar to bank accounts. The depository system links the
issuers, the depository, the depository participants (DPs), and clearing houses of stock exchanges,
facilitates holding of securities in dematerialised form and effects transfers by means of account
transfers. This method does away with all the risks and hassles normally associated with paperwork and
also lower the cost of transactions.

99 per cent of trading of shares in India has been dematerialised. Around 7383 companies along with a
host of debt instruments and commercial; papers are available for Demat.

Acumen which began its Depository operations as early as 1999, is a depository participant with NSDL,
India’s first Depository. The operations of Acumen’s depository services are managed by a well-knit
team of dedicated, professionally qualified staff member who leave no stone unturned in their goal of
“Customer Delight”, offering you not only a host of services like demat, remat, security transfer, pledge
creation but also value added services like 24X7 online holdings, transaction statements, account
statements etc. - at costs that are among the most reasonable in the industry.

1.6 STATEMENT OF PROBLEM

The analyze for understanding the impact of commodity price towards the stock market would help to
determine the correlation over both commodity price and particular sector stock price. There would
many assumptions in this regard so as to understand the correlation between both stock price and
commodity price.

• Investors are not aware of prevailing commodity price.

• Stock price would fluctuate based on the global political and economic scenario.

• The number of literature on the topic is many.

1.7 OBJECTIVES OF THE STUDY

• To understand the commodity price impact over stock price.

• To analyze the stock pricess with commodity price and find out the correlation
between both set of prices.

• To achieve the gain in stock market based on commodity futures.

• To suggest the organization for giving their clients a knowledge of commodity prices
influences in stock market and it would help the clients in understanding which sector
stocks to buy based on commodity price

1.8. METHODOLOGY
1.8.1. SCOPE

The time periods for all the data which are taken for different commodities would differ from
the year 2005 to 2010. Data would be solved based on the fundamental analysis and then it
would be given due weightage for each company stock price and it enhances the scope of
stock price over comparison with commodity price. These correlation comparison would be
prevalent and enhances the due scope of correlation and regression analysis

1.8.2. DATA COLLECTION

The data for commodity price which includes crude oil and metals was taken from
manoramaonline.com and stock price of reliance industries, BPCL, IOC had been took from
nseindia.com over the years of 2006 to 2010.

Data relating to stock prices of various companies would differ due to bonus issue and split of
stocks, so those stock prices has been brought into single level and these stocks are being
priced uniformly and it would help in finding the correlation and relationship between stock
prices and the corresponding commodity price wherein these companies would be mainly
concentrated on the production process. This uniformity would finally bring in the
corresponding development of relationship and would establish better and more common
system in place.

1.9. LIMITATIONS OF THE STUDY

• Crude oil price would frequently fluctuate based on the global production.

• Government subsidy for petroleum products has been changed over the period of
time.

• There will be sustainable increase or decrease of oil prices based on political

environment prevailing throughout the globe.

• Metal price change considerably low.

2. REVIEW OF LITERATURE

Futures markets contribute in two important ways to the organization of economic activity: i)
they facilitate price discovery; and ii) they offer means of transferring risk or hedging. Price
discovery refers to the use of futures prices for pricing cash market transactions. In general,
price discovery is the process of uncovering an asset’s full information or permanent value.
The unobservable permanent price reflects the fundamental value of the stock or commodity.
It is distinct from the observable price, which can be decomposed into its fundamental value
and transitory effects. The latter consists of price movements due to factors such as bid-ask
bounce, temporary order imbalances or inventory adjustments. Whether the spot or the
futures market is the center of price discovery in commodity markets has for a long time been
discussed in the literature. Stein showed that futures and spot prices for a given commodity
are determined simultaneously. Garbade and Silber develop a model of simultaneous price
dynamics in which they establish that price discovery takes place in the market with highest
number of participants. Their empirical application concludes that “about 75 percent of new
information is incorporated first in the futures prices.” More recently, the price discovery
research has focused on microstructure models and on methods to measure it. This line of
literature applies two methodologies. Our paper suggests a practical econometric approach to
characterize and measure the phenomenon of price discovery by demonstrating the existence
of a perfect link between an extended GS theoretical model and the PT decomposition.
Building on GS, we develop an equilibrium model of commodity spot and futures prices
where the elasticity of arbitrage services, contrary to the standard assumption of being
infinite, is considered to be finite, and the existence of convenience yields is endogenously
modeled as a linear combination of st and ft satisfying the standard no-arbitrage condition.
The assumption of finite elasticity is more realistic since it reflects the existence of factors
such as basis risks, storage costs, convenience yields, etc. Convenience yields are natural
for goods, like art or land, that offer exogenous rental or service flows over time. It is
observed in commodities, such as agricultural products, industrial metals and energy, which
are consumed at a single point in time. Convenience yields and subsequent price
backwardations have attracted considerable attention in the literature. By explicitly
incorporating and modelling convenience yields, we are able to detect the existence of
backwardation and contango in the long-run equilibrium relationship between spot and
futures prices. In our model, this is reflected on a cointegrating vector, (1, -b2), different
from the standard b2 = 1. When b2 > 1 ( < 1) the market is under long run backwardation. As
a by-product of this modeling we find a theoretical justification for a cointegrating vector
between log-variables different from the standard (1, -1). To the best of our knowledge, this
is the first time this has been formally considered in this literature. Independent of the value
of b2, this paper shows that the proposed equilibrium model not only implies cointegration;
but it leads into an economically meaningful Error Correction Representation (see Engle and
Granger, 1987). The weights defining the linear combination of st and ft that constitute the
common permanent component in the PT decomposition, coincide exactly with the price
discovery parameters proposed by GS. These weights depend on the elasticity of arbitrage
services and are determined by the liquidity traded in the spot and in the futures market. This
result not only offers a theoretical justification for the PT decomposition; but it provides a
simple way of detecting which of the two prices is long run dominant in the price discovery
process. Information on price discovery is important because spot and futures markets are
widely used by firms engaged in the production, marketing and processing of commodities.
Consumption and production decisions depend on the price signals from these markets.
All the results produced in the paper can easily be tested as may be seen directly from our
application to London Metal Exchange (LME) data. We are interested in these metal
markets because they have highly developed futures contracts in equilibrium. This is
reflected in a cointegrated slope greater than one, and the futures price is information
dominant for all metals with a liquid futures markets: Aluminium (Al), Copper (Cu), Nickel
(Ni) and Zinc (Zn). The spot price is information dominant for Lead (Pb), the least liquid
LME contract.The paper is organized as follows. Section 2 describes the equilibrium model
with finite elasticity of supply of arbitrage services incorporating endogenously convenience
yields. It demonstrates that the model admits an economically meaningful Error Correction
Representation, and derives the contribution of the spot and futures prices to the price
discovery process. In addition, it shows that the weights of the linear combination defining
price discovery in the PT metric, correspond to the price discovery parameters proposed by
GS. Section 3 discusses the theoretical econometric background of the two techniques
available to measure price discovery, the Hasbrouck´s IS and the PT of Gonzalo-Granger.
Section 4 presents empirical estimates of the model developed in section 2 for five LME
traded metals, it tests for cointegration and the presence of long run backwardation (β2 > 1),
and estimates the contribution of the spot and futures prices to price discovery, testing the
hypothesis of the futures price being the sole contributor to price discovery. A by-product
of this section is the computation of the unobserved convenience yields for all commodities.
 The widespread reliance on natural gas commodity markets to set the price paid by
consumers is an extremely recent phenomenon, just over 15 years old. As evidenced by the
wild, irrational swings in natural gas prices, these new markets have not worked very well.
They are deemed to be ‘inefficient’ in technical academic studies and have a history of
manipulation, abuse and misreporting. Second, natural gas has supply and demand
characteristics that make it vulnerable to abuse and volatility, yet the markets in which
wholesale natural gas prices are set are less regulated than many other commodity markets.
Many in the industry believe these markets lack transparency and are vulnerable to abuse and
manipulation. Regulators have failed to lay these concerns to rest because the vast majority of
gas trading is subject to little monitoring or oversight. While regulators and policymakers
have been scrambling to reform the market rules for this commodity, they have yet to impose
comprehensive oversight and accountability.
Physical market fundamentals – a tight supply/demand balance – are not adequate to
explain either the short-term or long-term behavior of natural gas prices. This does not mean
that tight markets do not matter – of course they do – but identifying physical market
fundamentals is only the beginning.
Tight markets reflect public policies and strategic behaviors, not just Mother Nature. To
the extent that Mother Nature is a wild card, policymakers can and should create systems
that are less vulnerable and better able to mitigate the impact of supply shocks. Natural gas
commodity markets have exhibited erratic behavior and a massive increase in trading that
contributes to both volatility and the upward trend in prices. The rules can be changed to
moderate these effects. The incentive structures and distribution of bargaining power in the
physical and financial markets for natural gas are unnecessarily tilted against the consumer.
Public policy can and should ensure a better balance. When we look for answers, we end up
in Washington, D.C., where jurisdiction over the interstate natural gas system at issue resides.
All of the major determinants of the wildly fluctuating price of natural gas in recent years –
the physical (wellhead and pipeline) markets and the financial commodity markets – are
under federal authority, but policy makers have failed to take the steps necessary to protect
the public. The long-term fundamentals of supply and demand do not support the current high
price of gas. Demand has not been “surging,” “soaring” or “skyrocketing,” as is frequently
reported in the press (see Exhibit ES-2). Over the past ten years it has been relatively flat,
with a slight moderation of the winter peak. Over the past three years, it has declined slightly.
Traditional supply and demand analysis would suggest that prices should be similar, or
even a little lower than they were over the past two years, yet prices are running about $3.00
higher, up over 60 percent at the wellhead and in the spot market. Future prices are even
higher still, running about 40 percent above current prices. They are about twice as high as
the estimated long run costs of production. Assurances that things will settle down three or
four years in the future are cold comfort. A $3.00 price difference costs consumers about $5
billion per month. The massive increases in cash flow enjoyed by the industry in recent years
have not been used to expand supply. Sluggish investment keeps supplies tight. There are
several ways in which financial markets may be magnifying the upwardly volatile spiral of
prices and contribute to the ratchet. Financial markets thrive on volatility and volume, but
volatility and volume have costs. Producers of gas demand to be paid a higher premium to
bring their gas to market sooner rather than later. Traders demand to be rewarded for the risks
they incur, risks that are increased by the trading process itself. The influx of traders fuels
volatility and raises concerns about abusive or manipulative trading practices. Econometric
analyses of the natural gas markets in recent years raise important questions as to how well
the natural gas markets work. Given the uncertainty about the functioning of these markets,
the claim that the market price is always “right” because it is the market price should be
questioned.
The economic analysis does not support the claim that these markets operate efficiently
to establish prices. Risk premiums, which raise the price substantially (10 to 20 percent), are
high and rising. Prices are well above the underlying costs of production. The operation of
financial markets is no accident. Trading reflects the rules that are established – by law and
through self-organization. The most troubling aspect of natural gas trading is that policy
makers really cannot decipher what goes on the majority of transactions take place in markets
that are largely unregulated. These over-the-counter markets, reported in unaudited,
unregulated indices, are a major factor in setting the price of natural gas. And these
unaudited, unregulated markets have behaved very poorly in recent years, with numerous
instances of misreporting of prices. Even where there is light-handed regulation, the rules are
inadequate to protect the public, A small number of large players can influence the price that
consumers pay in a very short period of time and under circumstances that place the
consumer at risk. Index prices are often based on a small number of self-reported transactions
and there are no mechanisms for determining if such transactions represent an accurate
sampling of the natural gas market. When even the hint of accountability was imposed by
merely being asked to certify the veracity of reported transactions, traders stopped reporting.
The Exhibit below shows dramatically this phenomenon. The actual volume of trading did
not dry up. Only the reporting of the volume did. Thus, while some may be satisfied with
recent market reforms and enforcement efforts, many others are not. The natural gas market
lacks the most basic elements of transparency that are necessary to send proper price signals.
The sad irony is that the markets for natural gas (a commodity which is a vital necessity
for many Americans) are subject to far less regulation than most other commodities, most
of which are far less crucial to consumers’ everyday lives. Most people can live without
pork bellies, soybeans or orange juice; but they cannot live without natural gas for heating.

Over time, commodity price movements follow a similar pattern. Wheat has been trending
down in price for about 8 months. Then it stops trending down, and the price stays in a
sideways trading range for 2 months. This 2 month sideways trading range is a base of
accumulation. This tends to be a more quiet period where prices are bottoming out. The next
phase is when the price moves up, and out of the accumulation trading range. The price broke
out of the 2 month trading range, and is now poised to continue higher. There will be
intermittent price reactions downward during the main upward price movement, but overall
prices will move up. After a major upward price movement, usually many months or longer,
there is a topping out period. This is also called a distribution period. It tends to be a volatile
period, with prices sometimes wildly swinging up and down. Eventually prices start to fall
with intermittent rallies until we get to a new sideways trading range again, also known as a
base of accumulation. Then the whole process starts all over again. This is the pattern of a
normal recurring process that commodity price movements go through. First, you have
accumulation, and then prices go up. Then you have distribution, and prices go down.
Overall, prices tend to go down faster than up. It is important to become proficient at chart
reading, also known as technical analysis. This gives you a huge advantage whether you are
trading the commodities market or the stock market. The key to successful trading is to
always have as many factors as possible in your favor, before taking a position in the market.
If you do that, and implement sound money management, you are now trading like a real pro.
3. OIL PRICE HISTORY

3.1. Introduction

Crude oil prices behave much as any other commodity with wide price swings in times of
shortage or oversupply. The crude oil price cycle may extend over several years responding
to changes in demand as well as OPEC and non-OPEC supply.

The U.S. petroleum industry's price was heavily regulated through production or price
controls throughout much of the twentieth century. In the post World War II era U.S. oil
prices at the wellhead averaged $26.64 per barrel adjusted for inflation to 2008 dollars. In the
absence of price controls, the U.S. price would have tracked the world price averaging
$28.68. Over the same post war period the median for the domestic and the adjusted world
price of crude oil was $19.60 in 2008 prices. That means that only fifty percent of the time
from 1947 to 2008 have oil prices exceeded $19.60 per barrel. (See note in box on right.)

Until the March 28, 2000 adoption of the $22-$28 price band for the OPEC basket of crude,
oil prices only exceeded $24.00 per barrel in response to war or conflict in the Middle East.
With limited spare production capacity, OPEC abandoned its price band in 2005 and was
powerless to stem the surge in oil prices, which was reminiscent of the late 1970s.
 Crude Oil Prices 1947 - August, 2009

World Price - The only very long term price series that exists is the U.S. average wellhead or
first purchase price of crude. When discussing long-term price behavior this presents a
problem since the U.S. imposed price controls on domestic production from late 1973 to
January 1981. In order to present a consistent series and also reflect the difference between
international prices and U.S. prices we created a world oil price series that was consistent
with the U.S. wellhead price adjusting the wellhead price by adding the difference between
the refiners acquisition price of imported crude and the refiners average acquisition price of
domestic crude.
The very long-term view is much the same. Since 1869, US crude oil prices adjusted for
inflation have averaged $22.52 per barrel in 2008 dollars compared to $23.42 for world oil
prices.

Fifty percent of the time prices U.S. and world prices were below the median oil price of
$16.71 per barrel. If long-term history is a guide, those in the upstream segment of the crude
oil industry should structure their business to be able to operate with a profit, below $17.65
per barrel half of the time. The very long-term data and the post World War II data suggest a
"normal" price far below the current price.
 The results are dramatically different if only post-1970 data are used. In that case, U.S.
crude oil prices average $32.36 per barrel and the more relevant world oil price averages
$35.50 per barrel. The median oil price for that period is $30.04 per barrel.

If oil prices revert to the mean this period is likely the most appropriate for today's analyst. It
follows the peak in U.S. oil production eliminating the effects of the Texas Railroad
Commission and is a period when the Seven Sisters were no longer able to dominate oil
production and prices. It is an era of far more influence by OPEC oil producers than they had
in the past. As we will see in the details below influence over oil prices is not equivalent to
control.

Established in 1960 OPEC, with five founding members Iran, Iraq, Kuwait, Saudi Arabia and
Venezuela, took over a decade to establish its influence in the world market. Two of the
representatives at the initial meetings had studied the the Texas Railroad Commission's
methods of influencing price through limitations on production. By the end of 1971, six other
nations had joined the group: Qatar, Indonesia, Libya, United Arab Emirates, Algeria and
Nigeria. From the foundation of the Organization of Petroleum Exporting Countries through
1972 member countries experienced steady decline in the purchasing power of a barrel of oil.

Throughout the post war period exporting countries found increasing demand for their crude
oil but a 40% decline in the purchasing power of a barrel of oil. In March 1971, the balance
of power shifted. That month the Texas Railroad Commission set proration at 100 percent
for the first time. This meant that Texas producers were no longer limited in the volume of
oil that they could produce. More importantly, it meant that the power to control crude oil
prices shifted from the United States (Texas, Oklahoma and Louisiana) to OPEC. Another
way to say it is that there was no more spare capacity in the U.S. and therefore no tool to put
an upper limit on prices. A little over two years later OPEC, through the unintended
consequence of war, obtained a glimpse of the extent of its power to influence prices.

Middle East Supply Interruptions

Yom Kippur War - Arab Oil Embargo

In 1972, the price of crude oil was about $3.00 per barrel. By the end of 1974, the price of oil
had quadrupled to over $12.00. The Yom Kippur War started with an attack on Israel by
Syria and Egypt on October 5, 1973. The United States and many countries in the western
world showed support for Israel. Because of this support, several Arab exporting nations and
Iran imposed an embargo on the countries supporting Israel. While these nations curtailed
production by 5 million barrels per day other countries were able to increase production by a
million barrels. The net loss of 4 million barrels per day extended through March of 1974 and
represented 7 percent of the free world production.

Any doubt the ability to control crude oil prices had passed from the United States to OPEC
was removed during the Arab Oil Embargo. The extreme sensitivity of prices to supply
shortages became all too apparent when prices increased 400 percent in six short months.

From 1974 to 1978, the world crude oil price was relatively flat ranging from $12.21 per
barrel to $13.55 per barrel. When adjusted for inflation world oil prices were in a period of
moderate decline.
OPEC Oil Production 1973-2009

Crises in Iran and Iraq

The Iranian revolution was the proximate cause of what would become the highest price in
post-WWII history. However, its impact on prices would have been limited and of relatively
short duration had it not been for subsequent events. Shortly after the revolution, production
was up to 4 million barrels per day.
In September 1980, Iran already weakened by the revolution was invaded by Iraq. By
November, the combined production of both countries was only a million barrels per day and
6.5 million barrels per day less than a year before. Consequently worldwide crude oil
production was 10 percent lower than in 1979. The combination of the Iranian revolution and
the Iraq-Iran War cause crude oil prices to more than double increasing from $14 in 1978 to
$35 per barrel in 1981. Three decades later Iran's production is only two-thirds of the level
reached under the government of Reza Pahlavi, the former Shah of Iran. Iraq's production
remains a million barrels below its peak before the Iraq-Iran War.

US Oil Price Controls

The rapid increase in crude prices from 1973 to 1981 would have been much less were it not
for United States energy policy during the post Embargo period. The US imposed price
controls on domestically produced oil. The obvious result of the price controls was that U.S.
consumers of crude oil paid about 50 percent more for imports than domestic production and
U.S producers received less than world market price. In effect, the domestic petroleum
industry was subsidizing the U.S. consumer.

In the absence of price controls, U.S. exploration and production would certainly have been
significantly greater. Higher petroleum prices faced by consumers would have resulted in
lower rates of consumption: automobiles would have achieved higher miles per gallon
sooner, homes and commercial buildings would have has better insulated and improvements
in industrial energy efficiency would have been greater than they were during this period.
Consequently, the United States would have been less dependent on imports in 1979-1980
and the price increase in response to Iranian and Iraqi supply interruptions would have been
significantly less.

OPEC Fails to Control Crude Oil Prices

OPEC has seldom been effective at controlling prices. While often referred to as a cartel,
OPEC does not satisfy the definition. One of the primary requirements is a mechanism to
enforce member quotas. The old joke went something like this. What is the difference
between OPEC and the Texas Railroad Commission? OPEC doesn't have any Texas Rangers!
The only enforcement mechanism that has ever existed in OPEC was Saudi spare capacity.
\
With enough spare capacity at times to be able to increase production sufficiently to offset
the impact of lower prices on its own revenue, Saudi Arabia could enforce discipline by
threatening to increase production enough to crash prices. In reality even this was not an
OPEC enforcement mechanism unless OPEC's goals coincided with those of Saudi Arabia.
During the 1979-1980 period of rapidly increasing prices, Saudi Arabia's oil minister Ahmed
Yamani repeatedly warned other members of OPEC that high prices would lead to a
reduction in demand. His warnings fell on deaf ears. Surging prices caused several reactions
among consumers: better insulation in new homes, increased insulation in many older homes,
more energy efficiency in industrial processes, and automobiles with higher efficiency. These
factors along with a global recession caused a reduction in demand which led to falling crude
prices. Unfortunately for OPEC only the global recession was temporary. Nobody rushed to
remove insulation from their homes or to replace energy efficient plants and equipment --
much of the reaction to the oil price increase of the end of the decade was permanent and
would never respond to lower prices with increased consumption of oil.
Higher prices also resulted in increased exploration and production outside of OPEC. From
1980 to 1986 non-OPEC production increased 10 million barrels per day. OPEC was faced
with lower demand and higher supply from outside the organization.

From 1982 to 1985, OPEC attempted to set production quotas low enough to stabilize prices.
These attempts met with repeated failure as various members of OPEC produced beyond
their quotas. During most of this period Saudi Arabia acted as the swing producer cutting its
production in an attempt to stem the free fall in prices. In August of 1985, the Saudis tired of
this role. They linked their oil price to the spot market for crude and by early 1986 increased
production from 2 MMBPD to 5 MMBPD. Crude oil prices plummeted below $10 per barrel
by mid-1986. Despite the fall in prices Saudi revenue remained about the same with higher
volumes compensating for lower prices. The price of crude oil spiked in 1990 with the lower
production and uncertainty associated with the Iraqi invasion of Kuwait and the ensuing Gulf
War. The world and particularly the Middle East had a much harsher view of Saddam
Hussein invading Arab Kuwait than they did Persian Iran. The proximity to the world's
largest oil producer helped to shape the reaction.

The price cycle then turned up. The United States economy was strong and the Asian Pacific
region was booming. From 1990 to 1997 world oil consumption increased 6.2 million barrels
per day. Asian consumption accounted for all but 300,000 barrels per day of that gain and
contributed to a price recovery that extended into 1997. Declining Russian production
contributed to the price recovery. Between 1990 and 1996 Russian production declined over
barrels 5 million per day.

Non-OPEC Production & Crude Oil Prices

OPEC Production & Crude Oil Prices

OPEC continued to have mixed success in controlling prices. There were mistakes in timing
of quota changes as well as the usual problems in maintaining production discipline among
its member countries.
The price increases came to a rapid end in 1997 and 1998 when the impact of the economic
crisis in Asia was either ignored or severely underestimated by OPEC. In December, 1997
OPEC increased its quota by 2.5 million barrels per day (10 percent) to 27.5 MMBPD
effective January 1, 1998. The rapid growth in Asian economies had come to a halt. In 1998
Asian Pacific oil consumption declined for the first time since 1982. The combination of
lower consumption and higher OPEC production sent prices into a downward spiral. In
response, OPEC cut quotas by 1.25 million b/d in April and another 1.335 million in July.
Price continued down through December 1998.

Prices began to recover in early 1999 and OPEC reduced production another 1.719 million
barrels in April. As usual not all of the quotas were observed but between early 1998 and the
middle of 1999 OPEC production dropped by about 3 million barrels per day and was
sufficient to move prices above $25 per barrel.

With minimal Y2K problems and growing US and world economies the price continued to
rise throughout 2000 to a post 1981 high. Between April and October, 2000 three successive
OPEC quota increases totaling 3.2 million barrels per day were not able to stem the price
increases.

In the wake of the attack crude oil prices plummeted. Spot prices for the U.S. benchmark
West Texas Intermediate were down 35 percent by the middle of November. Under normal
circumstances a drop in price of this magnitude would have resulted an another round of
quota reductions but given the political climate OPEC delayed additional cuts until January
2002. It then reduced its quota by 1.5 million barrels per day and was joined by several non-
OPEC producers including Russia who promised combined production cuts of an additional
462,500 barrels. This had the desired effect with oil prices moving into the $25 range by
March, 2002. By mid-year the non-OPEC members were restoring their production cuts but
prices continued to rise and U.S. inventories reached a 20-year low later in the year.

By year end oversupply was not a problem. Problems in Venezuela led to a strike at PDVSA
causing Venezuelan production to plummet. In the wake of the strike Venezuela was never
able to restore capacity to its previous level and is still about 900,000 barrels per day below
its peak capacity of 3.5 million barrels per day. OPEC increased quotas by 2.8 million
barrels per day in January and February, 2003.
The loss of production capacity in Iraq and Venezuela combined with increased OPEC
production to meet growing international demand led to the erosion of excess oil production
capacity. In mid 2002, there was over 6 million barrels per day of excess production capacity
and by mid-2003 the excess was below 2 million. During much of 2004 and 2005 the spare
capacity to produce oil was under a million barrels per day. A million barrels per day is not
enough spare capacity to cover an interruption of supply from most OPEC producers.

In a world that consumes over 80 million barrels per day of petroleum products that added a
significant risk premium to crude oil price and is largely responsible for prices in excess of
$40-$50 per barrel.

Other major factors contributing to the current level of prices include a weak dollar and the
continued rapid growth in Asian economies and their petroleum consumption. The 2005
hurricanes and U.S. refinery problems associated with the conversion from MTBE as an
additive to ethanol have contributed to higher prices.

World Events and Crude Oil Prices 2001-2007

CRUDE OIL IN 2011:

U.S. crude oil was on a average cost $79.83 a barrel in 2010, up from the previous outlook
for $78.67 a barrel. Prices are seen increasing from an average $77 a barrel in the first quarter
of 2010 to $85 a barrel by the fourth quarter of 2011. In 2011, prices will average $83.50 a
barrel.
Prices are expected to rise as "the world oil market had gradually tighten in 2010 and 2011,
provided the global economic recovery continues as projected. Economic growth in
developed economies that make up the Organization for Economic Cooperation and
Development should increase from 1.2% in 2010 to 2.7% in 2011. Commodities in general
have rewarded investors with huge, in some cases, historic, returns in 2010, primarily in
anticipation of an ever-strengthening global economic recovery and low interest rates in the
U.S. However, one of the premier commodities, crude oil, has lagged, trading range-bound
with great volatility, unable to crack the $90 per barrel level (for most of the year). Due to
this high reward in commodities investors could able to get greater reward in relevant sector
stock prices as crude oil prices increases there is better result on company’s profit and it
would increase its stock price.

Prices were largely unaffected by some significant events, including the Gulf oil spill and the
debt crisis in the euro zone. After plunging from all-time highs of about $148 in the summer
of 2008 to a bottom in early 2009 (coincident with the expansion of the global financial
meltdown), oil prices have struggled mightily to claw back.

Now, as 2011 dawns, oil might be turning the corner. Indeed, crude oil recently touched
$126, a 26-month high.

Indeed, after growing by an estimated 5 percent in 2010, global GDP is expected to expand
by 4.2 percent next year; once again, with almost three-quarters of that growth coming from
commodity-hungry emerging markets. China and India are anticipated to witness 9 percent
and 8.7 percent economic expansion next year, respectively .There may be zigzags in the
future according to the economy, this and that, but the general trend is we will see higher oil
prices. This would help the companies in changing their profit and it would furthermore help
the companies in determining their profit strategies and it would vary in different group of
petroleum companies. There will be differences in relationship between crude oil price and
exploring, refining or marketing companies since the profit for these 3 inner sector would
differ since their profit would vary due to their income and expense change in different ways.

Francisco Blanch, head of commodities at Bank of America/Merrill Lynch, told Bloomberg

News that "global oil demand is set to hit a new record in 2011. The underlying economic
picture is still positive. We are still looking for economic growth because of quantitative
easing and accelerating growth in [the] emerging markets." This basically leads for better
emphasis on stock investors that there would be greater increase in the year 2011 and
investors can aim at getting higher profits in exploring companies since it would help the
companies to sell the crude oil at higher price.

The key is a restoration in global demand. Indeed, oil demand climbed 3.7 percent in
the first quarter of 2011. The IEA predicts that global energy demand will climb to 88.2
million barrels per day (bpd) in 2011, up from 86.9 million bpd last year. Moreover, the IEA
noted that global oil demand will grow by an average of 1.4-million bpd annually between
2009 - 2015.

"The country's growing need to import fossil fuels to meet its rising domestic demand will
have an increasingly large impact on international markets." These statements undoubtedly
clarifies that oil demand is increasing at higher level and there is so much need of oil in
coming years that too till 2015 we can clearly see a oil demand of 4 to 5% increase per
annum, thus it naturally would end up around $ 180 per barrel which would clearly states that
companies with oil related companies profit would generally increases year by year around
15-20% and it would provide shareholders with more EPS and naturally it would finally
prevail in an increase of share price.

The eternal irony is that if energy prices rise "too high" it would sap demand, which would
then start declining again. Related to this issue, oil companies will not justify expanding
production unless oil prices persist at high levels, perhaps north of $100. The other side of the
oil price equation -- supply -- is likely to tighten. OPEC, which controls 40 percent of the
planet's crude production, will surely seek to control output in order to push prices higher.

"Oil prices increasing to $100 [per barrel] would not hurt the global economy," said
Mohammad Ali Khatibi, Iran's OPEC representative, in February. "Not only producers, but
consumers have reached this agreement that $70 to $90 is a suitable price for oil because it
encourages investment and does not hurt the global economy." If oil prices surges above
$100 a barrel it would make investors to tremble in which company stocks to focus upon and
to invest thus they would finally settle in increased profitability and income for investors.

The Fed also plays a key role in oil's fortunes, since crude is priced in dollars. Oil prices
have climbed more than 7 percent since early November when the central bank announced it
will purchase an additional $600 billion of U.S. Treasuries. Given Ben Bernanke's
commitment to increasing liquidity even more, the price of oil is likely to keep rising.

The price crash in 2008 compelled major oil companies to drastically cut their capital
investments. "Integrated oil companies such as IOC, BPCL, Reliance Industries had
collectively reduced capital spending by about 20 percent in 2009", reliance industries KG
basin dispute had lead to change in share price of that company for few months.

"This will negatively impact the project pipeline in 2012 and 2013. Thus, if demand stays on
its current trajectory, there will be need of more oil by then; and unfortunately there may not
have enough. If supply is in question, it is possible that prices will need to rise high enough to
knock out demand." While crude oil has at least remained "above water" during in 2011, a
closely-associated commodity, natural gas, plunged more than 30 percent in price this year,
making it among the worst-performing commodity assets. Natural gas supply has surged,
while consumption has remained anemic. The market for global natural gas is really quite
distinct from the US natural gas market.

The global market is largely defined by liquefied natural gas (LNG), which trades more
closely, or even at parity, with oil prices. This is the perfect recipe for an environment of low
prices that have very little connection to global oil prices. Indian oil corporation and Bharat
petroleum which involves more in natural gas is struggling hard to increase their sales
concentration on more areas.

Over the next five years, the combination of low prices and highly visible supplies will lead
to the development of new markets. First, utilities will become increasingly more confident in
the visibility and reliability of supply, and that should lead to an expanded use of natural-gas
powered generation for electricity. Secondly, I think that we will see a robust market begin to
develop for compressed natural gas as a transportation fuel. It is still very early, but the
writing is on the wall. It simply makes too much economic sense. This would naturally
increase the need for natural gas in coming years and it would help in monitoring the growth
of this sector aand it would simply helps in better growth and profit for the companies.

Lastly, due to new air and emissions standards expected to be handed down from the
Environmental Protection Agency (EPA), we expects that by 2014 we should begin to see a
wave of coal-fired plant retirements. In order to replace this lost capacity, utilities will need
to turn increasingly to natural gas

So while demand should increase over the next two to three years, the elevated level of
supply should keep prices in their current range. If prices do rise over $5.00 to $5.50 per
thousand cubic feet (mcf), exploration & production companies will simply sell forward their
future production, attempting to lock in those prices. These exploration and production would
settle in increased profits and thus they would bring in increase of income over their
expenses. There may be slight variation in target of profit but predominantly they would help
in making more profits thus trying to increase their PAT and bring in increase of EPS and PE
ratio so that stock prices would naturally increase and helps

Companies are not hedged well for 2011 and 2012, so anytime gas prices rise into this range,
we should see a lot of supply come onto the market from the natural gas futures market. As
such, prices will range between $5.00 and $5.50 per mcf over the next two or three years.

4.RESULTS AND DISCUSSION

Multi Commodity Exchange of
India Ltd.
Expiry Current Expiry relianc
Date Price Date bpcl e ioc
(MMM close close close
YYYY) (Rs.) date price price price
13/01/20 2-Jan- 414.2
JAN 2006 2,830.00 06 06 5 713.9 510.7
FEB 15/02/20 1-Feb- 557.4
2006 2,603.00 06 06 435.5 708.85 5
MAR 15/03/20 1-Mar-
2006 2,775.00 06 06 425.3 795.35 584.4
APR 14/04/20 3-Apr- 435.7 552.1
2006 3,121.00 06 06 5 997.95 5
MAY 15/05/20 1-May- 412.3 470.0
2006 3,158.00 06 06 5 954.95 5
JUN 15/06/20 1-Jun- 1,059. 399.8
2006 3,215.00 06 06 334.5 85 5
JUL 2006 3,596.00 14/07/20 3-Jul- 312.4 978.8 389.3
 06 06 5 5
AUG 14/08/20 1-Aug- 361.5 1,117. 495.4
2006 3,405.00 06 06 5 35 5
SEP 15/09/20 1-Sep- 1,171.
2006 2,922.00 06 06 366.3 75 522.5
OCT 13/10/20 3-Oct- 1,226. 512.6
2006 2,681.00 06 06 400.9 00 5
NOV 15/11/20 1-Nov- 1,244.
2006 2,665.00 06 06 344.3 45 441.7
DEC 15/12/20 1-Dec- 338.0 1,270.
2006 2,807.00 06 06 5 15 450.1
15/01/20 2-Jan- 1,366.
JAN 2007 2,339.00 07 07 360.4 45 495.6
FEB 15/02/20 1-Feb- 311.2 1,352.
2007 2,520.00 07 07 5 50 413.3
MAR 15/03/20 1-Mar- 302.7 1,370. 399.6
2007 2,567.00 07 07 5 30 5
APR 13/04/20 2-Apr- 333.2 1,561. 441.0
2007 2,721.00 07 07 5 05 5
MAY 15/05/20 3-May- 1,758.
2007 2,572.00 07 07 361.2 80 466.2
JUN 15/06/20 4-Jun- 340.4 1,700.
2007 2,790.00 07 07 5 55 443.6
13/07/20 2-Jul- 1,893. 402.9
JUL 2007 2,992.00 07 07 321.3 50 5
AUG 14/08/20 1-Aug- 1,958.
2007 2,945.00 07 07 311 00 389
SEP 14/09/20 3-Sep- 2,297.
2007 3,200.00 07 07 362 00 471
OCT 15/10/20 1-Oct- 2,785.
2007 3,386.00 07 07 345.9 00 480
NOV 15/11/20 1-Nov- 2,846.
2007 3,670.00 07 07 389 00 540.5
DEC 14/12/20 3-Dec- 2,887.
2007 3,591.00 07 07 518 50 793
15/01/20 1-Jan- 2,495.
JAN 2008 3,609.00 08 08 357 00 475
FEB 15/02/20 1-Feb- 466.8 2,433. 557.9
2008 3,788.00 08 08 5 80 5
MAR 14/03/20 3-Mar- 2,252.
2008 4,458.00 08 08 404 70 447.1
APR 15/04/20 1-Apr- 2,608.
2008 4,547.00 08 08 409 00 459.8
 MAY 15/05/20 2-May- 2,401.
2008 5,263.00 08 08 362 10 430
JUN 13/06/20 2-Jun- 2,083.
2008 5,781.00 08 08 221.2 00 331
15/07/20 1-Jul- 2,214.
JUL 2008 5,989.00 08 08 326 00 404
AUG 14/08/20 1-Aug- 2,125.
2008 4,925.00 08 08 302 30 403
SEP 15/09/20 1-Sep- 358.8 1,945.
2008 4,397.00 08 08 5 10 408
OCT 15/10/20 1-Oct- 1,365.
2008 3,610.00 08 08 286 00 336
NOV 14/11/20 3-Nov- 1,135.
2008 2,821.00 08 08 363 00 416
DEC 15/12/20 1-Dec- 1,232.
2008 2,134.00 08 08 377 55 427
15/01/20 1-Jan- 1,329.
JAN 2009 1,737.00 09 09 392 80 446
FEB 13/02/20 2-Feb- 1,255. 435.2
2009 1,827.00 09 09 391 50 5
MAR 13/03/20 2-Mar- 374.7 1,522.
2009 2,390.00 09 09 5 10 386.1
APR 15/04/20 1-Apr- 1,810.
2009 2,457.00 09 09 386 20 440
MAY 15/05/20 4-May- 2,258. 603.8
2009 2,792.00 09 09 465 00 5
JUN 15/06/20 1-Jun- 429.9 2,029.
2009 3,386.00 09 09 5 00 530.1
15/07/20 1-Jul- 1,974.
JUL 2009 2,998.00 09 09 474 00 547.2
AUG 14/08/20 3-Aug- 1,998.
2009 3,259.00 09 09 509 70 581.9
SEP 21/09/20 1-Sep- 2,199.
2009 3,359.00 09 09 579 00 680.2
OCT 19/10/20 1-Oct- 1,927.
2009 3,644.00 09 09 509 00 309.5
NOV 19/11/20 3-Nov- 1,058.
2009 3,595.00 09 09 595.1 00 289.5
DEC 18/12/20 1-Dec- 1,093.
2009 3,437.00 09 09 635.5 35 306.9
19/01/20 4-Jan- 1,085.
JAN 2010 3,605.00 10 10 603.2 90 316.3
FEB 3,709.00 19/02/20 3-Feb- 559.8 979.3 316
2010 10 10 5
MAR 19/03/20 2-Mar- 1,074.
2010 3,669.00 10 10 517 50 296
APR 19/04/20 1-Apr- 1,031.
2010 3,633.00 10 10 520 55 296.6
MAY 19/05/20 3-May- 587.4 1,046.
2010 3,214.00 10 10 5 50 354.1
JUN 21/06/20 1-Jun- 1,089. 401.5
2010 3,552.00 10 10 662.4 15 5
19/07/20 1-Jul- 1,009. 362.1
JUL 2010 3,604.00 10 10 640 00 5
AUG 19/08/20 2-Aug-
2010 3,471.00 10 10 764.5 915.9 410.3
SEP 20/09/20 1-Sep- 750.2
2010 3,414.00 10 10 5 987.3 417
OCT 20/10/20 1-Oct- 1,097.
2010 3,534.00 10 10 728.9 15 413
NOV 18/11/20 1-Nov- 675.8
2010 3,720.00 10 10 5 986.4 347.1
DEC 17/12/20 1-Dec- 1,058.
2010 3,995.00 10 10 657 00 343.4
19/01/20 3-Jan-
JAN 2011 4,123.00 11 11 608.6 919.8 335.5
FEB 21/02/20 1-Feb-
2011 3,895.00 11 11 557 961.7 300
MAR 21/03/20 1-Mar- 315.2
2011 4,731.00 11 11 583.4 983 5
APR 18/04/20
2011 4,806.00 11
MAY 19/05/20
2011 4,858.00 11
JUN 20/06/20
2011 4,893.00 11
19/07/20
JUL 2011 4,950.00 11
AUG 19/08/20
2011 4,996.00 11
BALANCE SHEET FROM MARCH 2007 TO MARCH 2011

RELIANCE INDUSTRIES:

Yearly Results of
------------------- in Rs. Cr. -------------------
Reliance
Industries

Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

105,363.0 133,443.0 141,847.0 192,461.0 248,170.0

Sales Turnover
0 0 0 0 0

Other Income 193.00 895.00 2,060.00 2,460.00 3,052.00

105,556.0 134,338.0 143,907.0 194,921.0 251,222.0

Total Income
0 0 0 0 0

110,137.0 118,164.0 161,880.0 210,044.0

Total Expenses 87,153.00
0 0 0 0

Operating Profit 18,210.00 23,306.00 23,683.00 30,581.00 38,126.00

Profit On Sale Of Assets -- -- -- -- --

Profit On Sale Of
-- -- -- -- --
Investments

Gain/Loss On Foreign
-- -- -- -- --
Exchange

VRS Adjustment -- -- -- -- --

Other Extraordinary
-- -- -- -- --
Income/Expenses
Total Extraordinary
-- 4,733.00 -42.00 -- --
Income/Expenses

Tax On Extraordinary Items -- -- -- -- --

Net Extra Ordinary

-- -- -- -- --
Income/Expenses

Gross Profit 18,403.00 24,201.00 25,743.00 33,041.00 41,178.00

Interest 1,114.00 1,077.00 1,745.00 1,997.00 2,328.00

PBDT 17,289.00 27,857.00 23,956.00 31,044.00 38,850.00

Depreciation 4,009.00 4,847.00 5,195.00 10,497.00 13,608.00

Depreciation On
-- -- -- -- --
Revaluation Of Assets

PBT 13,280.00 23,010.00 18,761.00 20,547.00 25,242.00

Tax 2,372.00 3,552.00 3,124.00 4,311.00 4,956.00

Net Profit 10,908.00 19,458.00 15,637.00 16,236.00 20,286.00

Prior Years
-- -- -- -- --
Income/Expenses

Depreciation for Previous

Years Written Back/ -- -- -- -- --
Provided

Dividend -- -- -- -- --

Dividend Tax -- -- -- -- --

Dividend (%) -- -- -- -- --

Earnings Per Share 78.25 133.82 99.35 49.65 61.98

Book Value -- -- -- -- --

Equity 1,394.00 1,454.00 1,574.00 3,270.00 3,273.00

112,945.0 125,097.0 142,800.0

Reserves -- 77,442.00
0 0 0

Face Value 10.00 10.00 10.00 10.00 10.00

Petrochemicals business will be the future drivers for the R2.58 lakh crore Reliance
Industries (RIL) as it plans to pump in more investments into these sectors.
According to Mukesh Ambani, the company will augment its commitment to the Indian
market by investing in new petrochemical capacity, oranised retailing and digital services.
“We will augment our commitment to Indian markets by investing in new petrochemical
capacity, organized retailing and digital services,” . The company's new projects represented
the largest-ever investment by Reliance in a sector and the biggest capital commitment in the
global petrochemicals segment as well.

For 2010-11 , RIL recorded a turnover of over R258,000 crore ($58 billion) and a net profit
of R20,286 crore ($ 4.5 billion) with record income from each of its current three core
segments of petrochemicals, refining and marketing and oil and gas.

Outlining the company’s future strategy for growth, Ambani remarked, RIL gearing up for
the next phase of growth through a combination of our own initiatives and forging new
partnerships with leading companiesDuring the 2010-11 fiscal, Reliance entered into three
partnerships on shale gas in North Amercia. “The joint ventures are expected to accrue
resources in excess of 10 trillion cubic feet and make a meaningful contribution to company’s
earnings within the next few years. On the company selling 30% of its stake in 23 oil and gas
exploration blocks, including the all-important eastern offshore KG-D6 fields, to UK’s BP,
Reliance has seen output from the KG-D6 fields drop to less than 50 million standard cubic
metres per day from 61.5 mmscmd in March 2010, due to reservoir complexities. It is now
banking on BP to salvage the situation.

Reliance industries aim at increasing their revenue is fully supported by their KG-D6 basin
and their newly signed agreement with BP of UK. This would inevitably helps the company
to increase their net profit year on year and all three core sectors are increasing in a faster
phase so that RIL could able to increase their overall sales revenue from exploring, refining
and marketing segments and this is increasing the company’s revenue, on the other hand
company also trying to decrease their expense and one such way they recently took is
withholding the increase in salary and so that there won’t be any increase of expense burden.

Reliance industries stock has been rated neutral by Goldman Sachs this would make stock to
move in a down trend but if we take the company’s performance in the coming years we
could see a better growth since it has got its own exploring plants in Krishna Godavari basin
and crude oil price would touches $150 in a year or two so there would be more revenue
coming on the part of reliance industries and this would make company’s profit to increase
around twenty percent every year. So RIL stocks can expect to reach a level of around
Rs.1400 from its current level of Rs.950-1000 in a time span of two years.

INDIAN OIL CORPORATION

Balance Sheet of
------------------- in Rs. Cr. -------------------
Indian Oil
Corporation
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 1,168.01 1,168.01 1,192.37 1,192.37 2,427.95

Equity Share Capital 1,168.01 1,168.01 1,192.37 1,192.37 2,427.95

Share Application Money 0.00 24.36 0.00 21.60 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 28,134.66 33,664.92 39,893.88 42,789.29 48,124.88

Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

Networth 29,302.67 34,857.29 41,086.25 44,003.26 50,552.83

Secured Loans 7,793.54 5,671.42 6,415.78 17,565.13 18,292.45

Unsecured Loans 18,610.77 21,411.27 29,107.39 27,406.93 26,273.80

Total Debt 26,404.31 27,082.69 35,523.17 44,972.06 44,566.25

Total Liabilities 55,706.98 61,939.98 76,609.42 88,975.32 95,119.08

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

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds

Gross Block 43,662.84 54,770.29 56,731.50 62,104.64 71,780.60

Less: Accum. Depreciation 18,639.42 21,400.07 23,959.68 27,326.19 30,199.53

Net Block 25,023.42 33,370.22 32,771.82 34,778.45 41,581.07

Capital Work in Progress 9,620.03 4,394.30 9,170.22 18,186.05 21,268.63

Investments 14,521.39 19,990.86 21,535.78 32,232.13 22,370.25

Inventories 24,277.79 24,702.69 30,941.48 25,149.60 36,404.08

Sundry Debtors 6,699.48 6,736.06 6,819.23 5,937.86 5,799.28

Cash and Bank Balance 729.54 916.24 815.05 796.56 916.56

Total Current Assets 31,706.81 32,354.99 38,575.76 31,884.02 43,119.92

Loans and Advances 10,729.93 11,601.54 14,920.93 13,348.99 17,453.01

Fixed Deposits 14.63 9.73 9.38 1.46 398.55

Total CA, Loans & Advances 42,451.37 43,966.26 53,506.07 45,234.47 60,971.48

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 28,377.36 32,305.52 39,326.07 38,890.28 40,818.96

Provisions 7,589.38 7,633.41 1,172.99 2,603.46 10,271.56

Total CL & Provisions 35,966.74 39,938.93 40,499.06 41,493.74 51,090.52

Net Current Assets 6,484.63 4,027.33 13,007.01 3,740.73 9,880.96

Miscellaneous Expenses 57.51 157.27 124.59 37.96 18.17

Total Assets 55,706.98 61,939.98 76,609.42 88,975.32 95,119.08

Contingent Liabilities 8,724.76 22,676.47 25,574.96 26,317.31 25,715.07

Book Value (Rs) 250.88 298.22 344.58 368.86 208.21

Based on the previous year records and forecasted future sales and expenses we could come
to a estimation of share price of Indian Oil Corporation.

YEAR NET SALES ADJ.PAT (RS.B) ADJ.EPS PE ROE %

END
(RS.B)

2010A 2501 107.1 44.1 7.1 22

2011E 2872 79 32.7 9.5 14.5

2012E 2400 94 39 8.0 15.5

2013E 2300 105 43 7.2 16

QUARTERLY PERFORMANCE

OPERATIONAL PERFORMANCE:

Refinery throughput stood at 13.3mmt , up 6% Year on Year and 10% when compared to
Quarter to Quarter. Marketing volumes were 18.4mmt, up 4% Year on Year and 9% Quarter
on Quarter. In third quarter of FY11, IOC's gross under-recovery was Rs261b, of which
upstream shared Rs87b and the government shared Rs117b, resulting in net under-recovery
of Rs57b. As in previous years, subsidy sharing is likely to be finalized only towards the end
of the year (in 4Q); quarterly sharing is no indication of the final sharing formula.
Government had announced around Rs.210b compensation for Oil Manufacturing Companies
which would help in decreasing the revenue expenses of OMC. Oil bonds stood at Rs169b at
the end of 3Quarter of FY11. Other income of Rs13.5b includes forex gain of Rs3b.
Suppose OMC sharing is at 10 percent of total expense then it would automatically show a
uptrend in expense since revenue reduces.
FY 08 FY09 FY10 FY 11
FOREX (Rs./US$) 40.3 46 47.5 45
Brent(US$/bbl) 82.3 84.8 69.6 82.7
Under Recovery
(Rs.b)
Petrol 73 52 52 27
Diesel 353 523 93 277
Kerosene 191 282 174 185
LPG 156 176 143 205
Total 773 1033 461 695
Sharing (Rs.b)
Oil bonds 353 713 260 396
Upstream 257 329 145 230
OMC’s sharing 163 (9) 56 69
Total 773 1033 461 695
Sharing %
Oil bonds 46 69 56 57
Upstream 33 32 31 33
OMC’s sharing 21 (1) 12 10
Total 100 100 100 100

IOC had commenced operations at its new 0.9mmtpa cracker in May 2010, but due to
start-up issues, the cracker is yet to reach its optimal operational levels. Due to higher
operating cost and lower utilization levels, IOC had reported EBIT loss of Rs5.5b and loss of
Rs15.4b. These operations may be turned profitable in the next one or two quarters so that
company’s exploration would increase and make it more profitable in the next financial year.
The stock is trading at 8 times of financial year 2012 expected EPS of Rs38.7. There is an
expectation that the government to spell out the sustainable subsidy sharing formula (at
different oil prices) over the next few months. This would increase the value of IOC share
price.
BPCL

Balance Sheet of
Bharat ------------------- in Rs. Cr. -------------------

Petroleum
Corporation
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 300.00 361.54 361.54 361.54 361.54

Equity Share Capital 300.00 361.54 361.54 361.54 361.54

Share Application Money 61.54 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 8,777.88 9,912.00 11,315.30 11,766.57 12,725.17

Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

Networth 9,139.42 10,273.54 11,676.84 12,128.11 13,086.71

Secured Loans 3,071.32 2,593.96 2,730.21 3,661.60 10,443.87

Unsecured Loans 5,302.28 8,235.28 12,292.17 17,509.81 11,751.33

Total Debt 8,373.60 10,829.24 15,022.38 21,171.41 22,195.20

Total Liabilities 17,513.02 21,102.78 26,699.22 33,299.52 35,281.91

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

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds

Gross Block 17,376.84 19,457.58 21,500.93 22,522.33 25,412.52

Less: Accum. Depreciation 7,459.48 8,476.53 9,532.26 10,556.54 11,743.17

Net Block 9,917.36 10,981.05 11,968.67 11,965.79 13,669.35

Capital Work in Progress 1,168.11 852.34 766.71 2,037.48 2,517.75

Investments 3,877.42 7,385.42 9,358.01 16,715.19 12,201.32

Inventories 9,044.77 8,661.26 10,603.84 6,823.92 12,028.86

Sundry Debtors 1,315.89 1,518.73 1,608.61 1,425.67 2,662.68

Cash and Bank Balance 491.19 863.05 960.67 440.62 341.43

Total Current Assets 10,851.85 11,043.04 13,173.12 8,690.21 15,032.97

Loans and Advances 2,676.22 3,797.44 7,797.30 8,584.04 10,894.22

Fixed Deposits 0.91 0.91 0.92 0.93 0.93

Total CA, Loans & Advances 13,528.98 14,841.39 20,971.34 17,275.18 25,928.12

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 10,466.36 11,881.37 15,379.36 12,981.68 16,454.04

Provisions 512.49 1,076.07 986.15 1,712.44 2,580.59

Total CL & Provisions 10,978.85 12,957.44 16,365.51 14,694.12 19,034.63

Net Current Assets 2,550.13 1,883.95 4,605.83 2,581.06 6,893.49

Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00

Total Assets 17,513.02 21,102.76 26,699.22 33,299.52 35,281.91

Contingent Liabilities 2,751.56 3,590.62 5,083.23 5,862.61 5,682.54

Book Value (Rs) 302.60 284.16 322.97 335.45 361.97

BPCL

Bharat Petroleum Corp (BPCL) is planning to import 120,000 barrels per day (bpd) of crude
from Saudi Arabia and other countries in FY12 so as to meet its expanded capacity
requirement and hedge against supply concerns in Libya. Of the purchased volume, 70,000
bpd is likely to be processed at its recently commissioned Bina refinery in Central India and
the rest at its Kochi and Mumbai plants that can together process 430,000 bpd. Necessary
modifications are made based on global developments, unforeseen circumstances and
availability of specific varieties of crude that are best for company’s refineries.

Indian refining giant, Bharat Petroleum Corporation (BPCL) is planning to construct a

Liquefied natural gas import facility and pipeline infrastructure in India from Mozambique.
BPCL and diversified Videocon Industries holds 10 per cent stake each in the 2.6-million-
acre offshore area in the deep waters in Mozambique's Cabo Delgado province. US-based
Anadarko is the prime operator of the block in Rovuma sedimentary basin of Mozambique
with a 36.5 per cent holding.

Bharat Petroleum Corp Ltd is planning to ramp the production at its newly commissioned
Bina refinery in Madhya Pradesh from its present 6 million tonnes per year capacity to 9
million tonnes. Company is looking at expanding the capacity to nine million tonnes in the
first phase in what is called creeping expansion." Under the proposed expansion program, the
company intends to raise the capacity of its existing equipment, a process that may involve a
time period of 3 years. BPCL is also mulling over a second phase capacity expansion of its
refinery capacity up to 15 million tonnes, once the first phase expansion is accomplished. So
after a time span of three to five years company’s production would increase so as to tackle
the future demand and it would finally end up in emerging as a top company in this sector so
their share price would increase around 40%

1. SUMMARY AND CONCLUSION, SUGGESTION AND

RECOMMENDATION

5.1 SUMMARY AND CONCLUSION

For the last few years it has been seen time and again that increase in the price of the crude
oil had a direct impact on the stock market. Though it is hard to imagine buy it is fact that a
rise in the oil price has negative effect on the stock prices at the stock exchanges all over the
world.

The main reason behind this is the fear of the investors that the profit margin of the
companies will decrease because of the increase in the oil price. As an increase in the oil
price directly increases the operational cost, fuel cost, transportation cost of the companies, it
is quite natural that the profit margin of these companies will decrease. This is the reason that
the buyers become susceptible about the future of the companies that are hugely dependent
on oil. This uncertainty restricts the buyers to invest in these companies and as a result the
price of the stocks falls that ultimately has a negative effect on the overall market scenario.
But this phase is temporary as the companies adjust in the price level to make up for the
increased price in the oil and maintain the profit margin.

In practice the effect of the price increase in the profit margin of the companies takes time.
Before that could actually happen the companies take adequate measure to avoid the loss.
Therefore, the influence of the rise in the price of crude oil on the stock market is basically
triggered of the panic of investors rather than actual impact. But still it is always wise to wait
and watch after a rise in the oil prices takes place to make investments.
Whilst the mainstream press as ever looks in the rear view mirror to pick events as reasons
for the rise in the oil price, such as the ongoing breakout of freedom in the middle east, the
consequences of peak oil ensures an escalator effect for the ramping up of oil prices into ever
higher trading ranges that will one day make today's high oil prices look cheap, as oil prices
continue a volatile mega-trend to north of $200 per barrel.

5.2 SUGGESTION AND CONCLUSION

There are two types of stocks in India which relate to OIL and these are the pure marketing
plays which are known as OMC’s and these OMC’s are (Hindustan petroleum),
BPCL(Bharat Petroleum) and IOC (Indian Oil Coordination).

These companies do not have any oil reserves and they just refine and market the oil. That
way they are more prone to heavy losses when oil prices rise. The reason being that they need
to procure the oil at higher prices and then sell these to retail outlets and consumers at lower
prices thereby incurring losses. These Losses are somewhat subsidized by the Government
using some formula but that formula still leaves these with huge deficits.

Oil exploration stocks

On the other hand the Companies like ONGC have captive oil generating fields which at least
cushion the loss and in fact they make good money on that as and when the oil prices rise in
the International market.

An example is the Libya crisis. Libya is a big producer of oil and if the oil production is
stopped there then it impacts the oil prices. The crisis has led to International crude which the
NYMEX Crude at $93.06 and UK BRENT crude to be at $106.40. Anything above $90 is a
direct hit for the OMC’s and somewhat on oil stocks apart from Reliance Industries. Reliance
got out of the domestic retail market as they were not able to compete with the prices of the
domestic oil majors as the prices were subsidized with them. That way Reliance is cushioned
against the loss as they refine and sell in the international market.
More so, Reliance is now into Oil exploration and with more oil found at these places it is
definitely beneficial for Reliance. However since they import the large part of their refining
requirement any price hike in Crude also hurts their refining margins. Reliance being smart
about the crude must be able to procure major portion at lower prices and hence they
generally benefit from the higher prices.

To invest in Petroleum related stocks , I would suggest go for Reliance and ONGC. In
international markets as well as an in India you can invest in oil futures.

While most of us are suffering at the pump, there are actually some people who are making
money off from this situation, and it is not only the CEOs of big oil companies who are
cashing in on this money. It does not matter what you are currently investing in, it is
important that you make the decision while being as informed as possible. A good start would
be to begin by reading the prospectus for the investment you are thinking about, but that
should not be the end of your research. Performing due diligence is a process whereby you
perform necessary research on an investment prior to buying in to it, this process will involve
looking at any historical returns for the investment, understanding all the terms and
conditions of the investment, as well as analyzing an future potential. While it is not possible
for any one to know for certain how a particular investment will perform in the future, it is
possible to make a better prediction by simply being well informed on the investment. Since
crude oil is classified as a commodity, futures for this product are traded on what is known as
the commodities market. This market has a number of very sophisticated financial
instruments it utilizes; one of the most common would be the futures contract.

Invest in oil stocks

Buy stock in a company that is engaged in the transport of oil. Companies such as this would
include those who own pipelines. There are seven extremely large oil companies who control
almost all of the oil that exists in the entire world, and the prices for their stock benefit when
there are record crude prices.

Oil prices can be a subject of confusion for most consumers around the world. Prices tend to
vary at different times of the year. The reason for change in crude oil price throughout the
world is that the demand and supply for petroleum which changes depending on many
factors.
Oil is sold in commodity markets by investors, companies and various traders. All of these
investors wish to either use oil, or simply make it. The increasing need for oil means that
suppliers sometimes can not meet consumer demands. In these days we will find that the
price has increased greatly. For the price to be decreased there needs to be more selling of oil
than purchasing.

Understanding oil prices can be achieved by also understanding supply and demand. The
more people who demand it, the higher the price will be. It is as simple as that. Most oil
productions are controlled by the OPEC – Organization of Petroleum Exporting Countries.
The goal of the OPEC is go keep oil at 30$ per barrel.

To truly effect prices, major world events such as Hurricanes, recessions, war and extreme
weather will need to occur. Many events like Libya problem, Egyptian crisis causes a big
difference in prices, and peoples attitude towards gas and oil.

Oil prices are frequently debated with the majority of consumers complaining about them
increasingly rising. The competition is also rising, China and India are to countries which
demand a large amount. This then raises the prices for the American market. This common
trend has pushed prices up recently.

Another cause of the price fluctuation is the instability centered around politics in the Middle
East. Constant fears of war around Afghanistan and Iraq create a hike in oil prices. In July
2008 the average price was $136 per barrel. Mainly this is because sellers cannot guarantee
delivery of their oil because of the un-stability of the producers. This increase has caused a
difference in driving habits between Americans, but this has resulted in a safer driving
experience. However gas prices have then quickly begun to fall. The US then faced an
economic downturn and gas prices were $40 per barrel in February of 2009. Those times oil
refining company stocks had faced increase in share price since their procurement expense
had drastically reduced. All together investors could better invest in companies which engage
in exploring and marketing such as reliance industries since oil price would escalate and
reach a record high of $200/bbl and investors is better advised to avoid stocks of companies
which basically involve in refining process.
 2. APPENDICES

Reliance Industries:

Profit & Loss account ------------------- in Rs. Cr. -------------------

Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

Income
Sales Turnover 118,353.71 139,269.46 146,328.07 200,399.79 258,651.15
Excise Duty 6,654.68 5,463.68 4,369.07 8,307.92 10,515.09
Net Sales 111,699.03 133,805.78 141,959.00 192,091.87 248,136.06
Other Income 236.89 6,595.66 1,264.03 3,088.05 3,358.61
Stock Adjustments 654.60 -1,867.16 427.56 3,947.89 3,243.05
Total Income 112,590.52 138,534.28 143,650.59 199,127.81 254,737.72
Expenditure
Raw Materials 80,791.65 98,832.14 109,284.34 153,689.01 198,076.21
Power & Fuel Cost 2,261.69 2,052.84 3,355.98 2,706.71 2,255.07
Employee Cost 2,094.09 2,119.33 2,397.50 2,330.82 2,621.59
Other Manufacturing Expenses 1,112.17 715.19 1,162.98 2,153.67 2,915.44
Selling and Admin Expenses 5,478.10 5,549.40 4,736.60 5,756.44 7,207.83
Miscellaneous Expenses 321.23 412.66 562.42 651.96 500.52
Preoperative Exp Capitalised -111.21 -175.46 -3,265.65 -1,217.92 -30.26
Total Expenses 91,947.72 109,506.10 118,234.17 166,070.69 213,546.40

Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

Operating Profit 20,405.91 22,432.52 24,152.39 29,969.07 37,832.71

PBDIT 20,642.80 29,028.18 25,416.42 33,057.12 41,191.32
Interest 1,298.90 1,162.90 1,774.47 1,999.95 2,328.30
PBDT 19,343.90 27,865.28 23,641.95 31,057.17 38,863.02
Depreciation 4,815.15 4,847.14 5,195.29 10,496.53 13,607.58
Other Written Off 0.00 0.00 0.00 0.00 0.00
Profit Before Tax 14,528.75 23,018.14 18,446.66 20,560.64 25,255.44
Extra-ordinary items 0.51 48.10 0.00 0.00 0.00
PBT (Post Extra-ord Items) 14,529.26 23,066.24 18,446.66 20,560.64 25,255.44
Tax 2,585.35 3,559.85 3,137.34 4,324.97 4,969.14
Reported Net Profit 11,943.40 19,458.29 15,309.32 16,235.67 20,286.30
Total Value Addition 11,156.07 10,673.96 8,949.83 12,381.68 15,470.19
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 1,440.44 1,631.24 1,897.05 2,084.67 2,384.99
Corporate Dividend Tax 202.02 277.23 322.40 346.24 386.90
Per share data (annualised)
Shares in issue (lakhs) 13,935.08 14,536.49 15,737.98 32,703.74 32,733.74
Earning Per Share (Rs) 85.71 133.86 97.28 49.64 61.97
Equity Dividend (%) 110.00 130.00 130.00 70.00 80.00
Book Value (Rs) 439.57 542.74 727.66 392.51 446.25

Key Financial Ratios ------------------- in Rs. Cr. -------------------

Mar '07 Mar '08 Mar '09 Mar '10 Mar '11
Investment Valuation Ratios
Face Value 10.00 10.00 10.00 10.00 10.00
Dividend Per Share 11.00 13.00 13.00 7.00 8.00
Operating Profit Per Share (Rs) 146.44 154.32 153.47 91.64 115.58
Net Operating Profit Per Share
801.57 920.48 902.02 587.37 758.04
(Rs)
Free Reserves Per Share (Rs) 416.90 520.59 704.28 378.21 431.95
Bonus in Equity Capital 34.57 33.14 30.61 64.47 64.41
Profitability Ratios
Operating Profit Margin(%) 18.26 16.76 17.01 15.60 15.24
Profit Before Interest And Tax
13.90 13.06 13.19 10.02 9.65
Margin(%)
Gross Profit Margin(%) 13.95 13.14 13.35 10.13 9.76
Cash Profit Margin(%) 15.13 13.73 14.58 13.29 13.24
Adjusted Cash Margin(%) 15.13 13.73 14.58 13.29 13.24
Net Profit Margin(%) 10.64 14.45 10.65 8.35 8.08
Adjusted Net Profit Margin(%) 10.64 14.45 10.65 8.35 8.08
Return On Capital
18.00 15.68 10.96 11.35 12.60
Employed(%)
Return On Net Worth(%) 19.49 24.66 13.36 12.64 13.88
Adjusted Return on Net
19.85 17.28 13.76 11.95 13.42
Worth(%)
Return on Assets Excluding
439.57 542.74 727.66 392.51 446.25
Revaluations
Return on Assets Including
458.61 548.73 802.54 419.43 462.95
Revaluations
Return on Long Term Funds(%) 19.83 17.18 11.34 11.71 13.37
Liquidity And Solvency Ratios
Current Ratio 0.77 1.01 1.08 1.11 1.22
Quick Ratio 0.69 0.94 0.90 0.76 1.01
Debt Equity Ratio 0.45 0.46 0.65 0.49 0.46
Long Term Debt Equity Ratio 0.32 0.35 0.59 0.44 0.38
Debt Coverage Ratios
Interest Cover 13.51 17.05 11.85 10.97 11.66
Total Debt to Owners Fund 0.45 0.46 0.65 0.49 0.46
Financial Charges Coverage
16.06 19.95 14.58 16.08 17.40
Ratio
Financial Charges Coverage
13.90 21.90 12.56 14.37 15.56
Ratio Post Tax
Management Efficiency Ratios
Inventory Turnover Ratio 10.65 10.57 12.92 8.29 9.59
Debtors Turnover Ratio 28.29 26.87 26.29 23.67 17.05
Investments Turnover Ratio 10.65 10.57 12.92 8.29 9.59
Fixed Assets Turnover Ratio 1.13 1.29 1.01 1.24 1.58
Total Assets Turnover Ratio 1.26 1.15 0.79 1.48 1.66
Asset Turnover Ratio 1.13 1.29 1.01 1.24 1.58

Average Raw Material Holding 20.91 33.46 21.00 36.56 27.16

Average Finished Goods Held 18.28 10.27 8.92 13.25 12.21
Number of Days In Working
14.03 33.69 26.94 28.13 44.09
Capital
Profit & Loss Account Ratios
Material Cost Composition 72.32 73.86 76.98 80.00 79.82
Imported Composition of Raw
94.04 93.96 95.74 95.39 91.71
Materials Consumed
Selling Distribution Cost
3.27 2.41 2.18 2.14 2.15
Composition
Expenses as Composition of
52.40 56.80 61.22 53.46 56.64
Total Sales
Cash Flow Indicator Ratios
Dividend Payout Ratio Net
13.75 9.80 14.49 14.97 13.66
Profit
Dividend Payout Ratio Cash
9.80 7.85 10.82 9.09 8.17
Profit
Earning Retention Ratio 86.50 86.01 85.92 84.16 85.87
Cash Earning Retention Ratio 90.33 89.68 89.41 90.60 91.66
AdjustedCash Flow Times 1.64 1.97 3.53 2.42 2.03

Indian Oil Corporation:

Profit & Loss
account of ------------------- in Rs. Cr. -------------------

Indian Oil
Corporation
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

12 mths 12 mths 12 mths 12 mths 12 mths

Income

193,216.8 238,348.3 270,410.4 329,806.8 291,272.8

Sales Turnover
8 7 9 8 4

Excise Duty 18,321.76 21,849.52 23,051.25 22,682.89 21,834.76

174,895.1 216,498.8 247,359.2 307,123.9 269,438.0

Net Sales
2 5 4 9 8

Other Income 1,605.16 3,810.01 3,128.54 -2,905.92 3,189.68

Stock Adjustments 2,599.33 -180.73 1,958.09 -1,674.56 5,044.25

179,099.6 220,128.1 252,445.8 302,543.5 277,672.0

Total Income
1 3 7 1 1

Expenditure

159,012.8 193,290.8 223,214.6 273,708.9 240,712.7

Raw Materials
6 0 4 8 7

Power & Fuel Cost 218.29 291.31 357.82 447.19 369.45

Employee Cost 1,799.23 2,586.80 2,894.86 5,686.96 5,723.96

Other Manufacturing
742.93 821.56 1,200.32 1,053.32 1,385.83
Expenses

Selling and Admin

7,435.51 8,528.96 10,084.29 10,709.66 11,386.06
Expenses

Miscellaneous Expenses 867.22 526.75 642.54 804.51 733.59

Preoperative Exp
-406.74 -542.83 -403.58 -544.01 -1,121.28
Capitalised

Total Expenses 169,669.3 205,503.3 237,990.8 291,866.6 259,190.3

 0 5 9 1 8

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

12 mths 12 mths 12 mths 12 mths 12 mths

Operating Profit 7,825.15 10,814.77 11,326.44 13,582.82 15,291.95

PBDIT 9,430.31 14,624.78 14,454.98 10,676.90 18,481.63

Interest 995.44 1,496.25 1,589.73 4,020.98 1,572.35

PBDT 8,434.87 13,128.53 12,865.25 6,655.92 16,909.28

Depreciation 2,201.46 2,590.31 2,709.70 2,881.71 3,227.14

Other Written Off 10.47 113.43 236.53 317.64 133.98

Profit Before Tax 6,222.94 10,424.79 9,919.02 3,456.57 13,548.16

Extra-ordinary items 498.45 76.73 178.64 915.26 -36.52

PBT (Post Extra-ord Items) 6,721.39 10,501.52 10,097.66 4,371.83 13,511.64

Tax 1,790.38 2,949.46 3,104.54 1,364.71 3,097.87

Reported Net Profit 4,915.12 7,499.47 6,962.58 2,949.55 10,220.55

Total Value Addition 10,656.44 12,212.55 14,776.25 18,157.63 18,477.61

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 1,460.02 2,250.89 655.81 910.48 3,156.34

Corporate Dividend Tax 204.77 361.72 76.48 154.74 508.83

Per share data (annualised)

Shares in issue (lakhs) 11,680.12 11,680.12 11,923.74 11,923.74 24,279.52

Earning Per Share (Rs) 42.08 64.21 58.39 24.74 42.10

Equity Dividend (%) 125.00 190.00 55.00 75.00 130.00

Book Value (Rs) 250.88 298.22 344.58 368.86 208.21

Key Financial Ratios ------------------- in Rs. Cr. -------------------

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
Investment Valuation Ratios
Face Value 10.00 10.00 10.00 10.00 10.00
Dividend Per Share 12.50 19.00 5.50 7.50 13.00
Operating Profit Per Share (Rs) 66.86 92.14 94.73 113.42 62.19
Net Operating Profit Per Share
1,497.37 1,853.57 2,074.51 2,575.73 1,109.73
(Rs)
Free Reserves Per Share (Rs) 231.37 279.23 324.13 343.01 191.63
Bonus in Equity Capital 91.29 91.29 89.42 89.42 93.91
Profitability Ratios
Operating Profit Margin(%) 4.46 4.97 4.56 4.40 5.60
Profit Before Interest And Tax
3.18 3.74 3.43 3.43 4.35
Margin(%)
Gross Profit Margin(%) 4.68 5.09 3.47 3.46 4.40
Cash Profit Margin(%) 4.03 4.62 3.61 3.50 5.04
Adjusted Cash Margin(%) 3.65 3.73 3.61 3.50 5.04
Net Profit Margin(%) 2.78 3.43 2.78 0.95 3.74
Adjusted Net Profit Margin(%) 2.40 2.49 2.78 0.95 3.74
Return On Capital
12.60 15.97 14.06 14.64 15.83
Employed(%)
Return On Net Worth(%) 16.77 21.51 16.99 6.71 20.22
Adjusted Return on Net
14.49 15.71 14.83 17.40 20.55
Worth(%)
Return on Assets Excluding
5.36 296.88 343.53 368.54 208.14
Revaluations
Return on Assets Including
5.36 296.88 343.53 368.54 208.14
Revaluations
Return on Long Term Funds(%) 16.18 20.59 19.54 20.72 21.20
Liquidity And Solvency Ratios
Current Ratio 0.83 0.79 0.84 0.61 0.76
Quick Ratio 0.50 0.47 0.54 0.47 0.45
Debt Equity Ratio 0.90 0.78 0.86 1.02 0.88
Long Term Debt Equity Ratio 0.49 0.39 0.35 0.43 0.40
Debt Coverage Ratios
Interest Cover 7.24 6.75 6.94 3.30 9.86
Total Debt to Owners Fund 0.90 0.78 0.86 1.02 0.88
Financial Charges Coverage
9.28 8.42 8.63 4.04 11.71
Ratio
Financial Charges Coverage
8.16 7.82 7.23 2.53 9.64
Ratio Post Tax
Management Efficiency Ratios
Inventory Turnover Ratio 7.26 8.84 9.09 13.98 8.37
Debtors Turnover Ratio 28.23 32.23 36.50 48.15 45.91
Investments Turnover Ratio 8.26 10.10 9.09 13.98 8.37
Fixed Assets Turnover Ratio 5.26 6.01 4.38 4.98 3.78
Total Assets Turnover Ratio 3.15 3.51 3.24 3.47 2.85
Asset Turnover Ratio 4.02 3.97 4.38 4.98 3.78

Average Raw Material Holding 49.57 38.70 48.65 22.88 45.53

Average Finished Goods Held 27.21 22.26 21.49 16.43 24.77
Number of Days In Working 13.35 6.70 18.93 4.38 13.20
Capital
Profit & Loss Account Ratios
Material Cost Composition 90.91 89.28 90.23 89.12 89.33
Imported Composition of Raw
80.46 84.09 84.46 82.70 76.69
Materials Consumed
Selling Distribution Cost
3.84 3.57 3.53 3.15 3.89
Composition
Expenses as Composition of
3.21 4.21 4.63 4.87 5.10
Total Sales
Cash Flow Indicator Ratios
Dividend Payout Ratio Net
33.87 34.83 10.51 36.11 35.86
Profit
Dividend Payout Ratio Cash
23.35 25.60 7.39 17.32 26.98
Profit
Earning Retention Ratio 60.73 52.06 87.96 86.08 64.72
Cash Earning Retention Ratio 74.20 67.96 91.89 90.19 73.35
AdjustedCash Flow Times 4.09 3.32 3.94 4.15 3.24
BPCL

Profit & Loss

account of
------------------- in Rs. Cr. -------------------
Bharat
Petroleum
Corporation
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

12 mths 12 mths 12 mths 12 mths 12 mths

Income

85,149.6 107,452.2 121,684.0 145,392.0 131,499.7

Sales Turnover
2 7 7 7 2

Excise Duty 9,616.32 10,895.42 11,475.94 11,318.64 11,282.73

75,533.3 110,208.1 134,073.4 120,216.9

Net Sales 96,556.85
0 3 3 9

Other Income 304.66 550.99 1,091.63 -298.74 1,190.19

Stock Adjustments 754.40 205.45 -392.50 -1,575.88 3,989.85

76,592.3 110,907.2 132,198.8 125,397.0

Total Income 97,313.29
6 6 1 3

Expenditure

71,461.3 101,743.9 121,991.2 113,884.0

Raw Materials 88,745.19
9 9 9 3

Power & Fuel Cost 47.72 66.64 61.75 67.17 237.12

Employee Cost 881.35 1,003.70 1,297.21 1,884.88 2,141.12

Other Manufacturing
205.27 243.43 229.54 347.09 384.72
Expenses

Selling and Admin

2,059.31 2,365.31 2,508.57 2,870.03 3,186.95
Expenses

Miscellaneous Expenses 531.51 620.23 823.61 796.46 888.34

Preoperative Exp
0.00 0.00 0.00 0.00 0.00
Capitalised

75,186.5 106,664.6 127,956.9 120,722.2

Total Expenses 93,044.50
5 7 2 8

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

12 mths 12 mths 12 mths 12 mths 12 mths

Operating Profit 1,101.15 3,717.80 3,150.96 4,540.63 3,484.56

PBDIT 1,405.81 4,268.79 4,242.59 4,241.89 4,674.75

Interest 247.41 477.35 672.47 2,166.37 1,010.95

PBDT 1,158.40 3,791.44 3,570.12 2,075.52 3,663.80

Depreciation 768.01 904.11 1,098.21 1,075.53 1,242.32

Other Written Off 0.00 0.00 0.00 0.00 0.00

Profit Before Tax 390.39 2,887.33 2,471.91 999.99 2,421.48

Extra-ordinary items 17.81 -126.50 118.65 -2.97 -60.11

PBT (Post Extra-ord Items) 408.20 2,760.83 2,590.56 997.02 2,361.37

Tax 116.56 955.33 1,010.00 261.12 823.75

Reported Net Profit 291.65 1,805.48 1,580.56 735.90 1,537.62

Total Value Addition 3,725.15 4,299.32 4,920.68 5,965.63 6,838.25

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 90.39 578.47 144.62 253.08 506.16

Corporate Dividend Tax 12.68 91.87 9.16 31.45 72.77

Per share data (annualised)

Shares in issue (lakhs) 3,000.00 3,615.42 3,615.42 3,615.42 3,615.42

Earning Per Share (Rs) 9.72 49.94 43.72 20.35 42.53

Equity Dividend (%) 25.00 160.00 40.00 70.00 140.00

Book Value (Rs) 302.60 284.16 322.97 335.45 361.97

Key Financial Ratios ------------------- in Rs. Cr. -------------------

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
Investment Valuation Ratios
Face Value 10.00 10.00 10.00 10.00 10.00
Dividend Per Share 2.50 16.00 4.00 7.00 14.00
Operating Profit Per Share (Rs) 36.71 102.83 87.15 125.59 96.38
Net Operating Profit Per Share
2,517.78 2,670.69 3,048.28 3,708.38 3,325.12
(Rs)
Free Reserves Per Share (Rs) 277.22 273.74 312.56 316.74 323.90
Bonus in Equity Capital 92.33 76.61 76.61 76.61 76.61
Profitability Ratios
Operating Profit Margin(%) 1.45 3.85 2.85 3.38 2.89
Profit Before Interest And Tax
0.43 2.89 1.84 2.55 1.83
Margin(%)
Gross Profit Margin(%) 1.73 4.11 1.86 2.58 1.86
Cash Profit Margin(%) 1.39 2.78 2.20 2.65 2.73
Adjusted Cash Margin(%) 1.57 3.13 2.20 2.65 2.73
Net Profit Margin(%) 0.38 1.85 1.42 0.54 1.26
Adjusted Net Profit Margin(%) 0.56 2.20 1.42 0.54 1.26
Return On Capital
4.53 16.97 11.37 14.88 11.11
Employed(%)
Return On Net Worth(%) 3.19 17.57 13.53 6.06 11.74
Adjusted Return on Net
4.74 20.92 11.58 20.85 15.94
Worth(%)
Return on Assets Excluding
1.02 284.16 322.97 335.45 361.97
Revaluations
Return on Assets Including
1.02 284.16 322.97 335.45 361.97
Revaluations
Return on Long Term Funds(%) 7.40 28.81 19.46 31.19 15.52
Liquidity And Solvency Ratios
Current Ratio 0.67 0.61 0.74 0.50 0.72
Quick Ratio 0.39 0.45 0.61 0.67 0.68
Debt Equity Ratio 0.92 1.05 1.29 1.75 1.70
Long Term Debt Equity Ratio 0.18 0.21 0.34 0.31 0.93
Debt Coverage Ratios
Interest Cover 3.21 7.50 4.51 2.29 3.88
Total Debt to Owners Fund 0.92 1.05 1.29 1.75 1.70
Financial Charges Coverage
6.32 9.40 6.15 2.78 5.11
Ratio
Financial Charges Coverage
5.28 6.68 4.98 1.84 3.75
Ratio Post Tax
Management Efficiency Ratios
Inventory Turnover Ratio 8.40 11.24 11.64 21.91 11.09
Debtors Turnover Ratio 69.60 68.13 70.48 88.37 58.81
Investments Turnover Ratio 9.58 12.58 11.64 21.91 11.09
Fixed Assets Turnover Ratio 7.80 8.47 5.15 5.98 4.75
Total Assets Turnover Ratio 4.32 4.59 4.14 4.04 3.42
Asset Turnover Ratio 4.36 4.98 5.15 5.98 4.75

Average Raw Material Holding 22.38 12.43 27.65 10.14 19.54

Average Finished Goods Held 31.28 25.74 20.66 12.79 25.91
Number of Days In Working
12.15 7.02 15.05 6.93 20.64
Capital
Profit & Loss Account Ratios
Material Cost Composition 94.60 91.90 92.31 90.98 94.73
Imported Composition of Raw
71.52 72.14 70.99 72.72 72.07
Materials Consumed
Selling Distribution Cost
2.16 1.94 1.86 1.80 2.15
Composition
Expenses as Composition of
5.67 5.78 6.75 4.89 8.56
Total Sales
Cash Flow Indicator Ratios
Dividend Payout Ratio Net
35.33 37.12 9.72 38.66 37.65
Profit
Dividend Payout Ratio Cash
9.72 24.73 5.74 15.70 20.82
Profit
Earning Retention Ratio 76.08 68.82 88.64 88.75 72.27
Cash Earning Retention Ratio 91.41 78.05 93.73 92.11 82.62
AdjustedCash Flow Times 6.99 3.55 6.13 5.87 6.67
3. BIBLIOGRAPHY