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Introduction

Oil industry primarily comprises the following activities: crude oil exploration, crude oil
refining, distribution and marketing of petroleum products. The various products obtained
from the distillation of crude oil include petrol, diesel, kerosene, natural gas, naphtha,
fuel oil, aviation turbine fuel, bitumen and paraffin. A host of other less valuable
hydrocarbon products are also obtained in the crude oil distillation process as by-
products.

The petroleum products that come under price regulation include liquefied petroleum gas
(LPG), motor spirit (gasoline), superior kerosene oil and high-speed diesel; those that do
not come under price regulation include fuel and feedstock, lubes and greases,
petrochemicals and specialties. The aviation turbine fuel was recently de-controlled by
the government as a further step towards achieving complete de-regulation by April
2002.It may be noted that the price of a specific type of crude depends on its quality and
place of availability. Lube oil base stock (LOBS) is manufactured by Hindustan
Petroleum Corporation Limited (HPCL), Madras Refineries Limited (MRL) and Indian
Oil Corporation Limited (IOCL) at their Mumbai, Chennai and Haldia facilities
respectively to aggregate a total out of 670 tmt pa. Naphtha is the only petroleum product
that is produced in surplus in India. The main modes of transport of the petroleum
products are road, rail and pipelines.

In India, crude production will have to be enhanced to bridge the gap between indigenous
production (currently 35 million tonnes) and likely demand which is expected to reach
244 million tons in 2011 and 370 million tons in 2020-21. A review of the present
scenario has indicated sufficient hydrocarbon potential in the country, both in the
explored as well as in the frontier basins. The need for intensive exploration of the new
areas in producing basins and undertaking of bold exploration steps in frontier and deep-
water basins, exploring the huge untapped non-conventional sources of energy like CBM
and gas hydrates etc have been recognized in Hydrocarbon Vision 2025, the MoPNG's
strategy paper for the development of the sector. Exploitation of oil and gas in the
producing fields will have to be maximized through state of the art techniques like 3D/4D
seismic, horizontal drilling, enhanced or improved oil recovery (EOR, IOR) etc
particularly in fields with high R-P ratio. The Ministry of Petroleum and Natural Gas
(MOP&NG) estimates investments in exploration, drilling and related activities to be
approximately £38 billion in the next 10 years.

Until the early 1990s, the oil and gas E&P industry was a monopoly of the two national
oil companies: Oil India Ltd (OIL) and the Oil & Natural Gas Corporation Limited
(ONGC). Participation by private sector companies in oil exploration and production is a
recent phenomenon, but is becoming increasingly significant.

Oil Exploration
Exploration activity started in India way back in 1866 in the north eastern state of Assam,
just seven years after drilling of the first oil well in Pennsylvania, USA. For about a

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century the E&P activity was restricted to the northeastern part of the country and till
early 1960s the total crude production in India was only about 10,000 bpd. Burmah oil
was the only company engaged in E&P. With the demand growing, the government
recognized the need to explore hydrocarbon resources and accordingly set up Oil &
Natural Gas Commission (ONGC) in 1956. Burmah oil was also merged with Oil India
Ltd (OIL), this was however taken over by GOI in 1981. ONGC was converted into a
public ltd company in 1993. ONGC and OIL enjoy the status of National Oil Companies
(NOCs) and have a duopoly with about 90% and 10% share respectively. The NOCs
market their produce directly except natural gas, which is distributed through Gas
Authority of India Ltd (GAIL).

The Exploration & Production (E&P) activity encompasses discovery and production of
oil and gas, by undertaking geological surveys, identifying hydrocarbon resources and
commercially exploiting them.

The principal activities involved in an E&P activity are

• Undertaking seismic surveys


• Drilling an exploratory well
• Economic evaluation of the project
• Entering into agreements with the state
• Formulation of field development & production plan
• Develop production & evacuation infrastructure and undertake drilling &
production of oil & gas
• Decommissioning of the well

India remains one of the least explored regions in the world with a well density of 20 per
10000km2. Of the 26 sedimentary basins, only 6 have been explored so far. The Oil and
Natural Gas Corporation (ONGC) and the Oil India Limited (OIL)- the two upstream
public sector oil companies- in 1981/82 had taken their search to previously unexplored
areas. Number of wells drilled as well as the meterage increased. However current
reserve accretion continues to be low.

Refining and marketing of oil

The black crude is fed to the refineries and we get various clean fuels like petrol, diesel,
etc. For a layman, it is hard to believe all this but science has gone to such an extent that
we can separate the crude oil into various useful products.
In the refinery sector, companies have made an optimum utilization of science to get
more value added products. Various companies are trying to upgrade their refineries to
get more value added fuels (light and middle distillates). Some refineries have done this
before and others are continuously trying to upgrade their product mix. Here we take a
look at the product mix of various refineries in India.

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Let us first take a look at different products coming out from the refineries. These
products are classified into various segments - light distillates, medium distillates and
heavy distillates. Light distillates include mainly LPG, naphtha and petrol. Major
products in middle distillates are ATF, kerosene and diesel, while in case of heavy
distillates, the same include furnace oil, bitumen and LSHS (low sulphur heavy stock).
Products at the middle and light distillates end are more important to the companies as
they are high margin products and find use directly. Generally, distillate yield is
calculated on the basis of these products as a percentage of total products.

A Comparative View...
'000 tonnes HPCL BPCL Reliance
Refinery Location Mumbai Visakh Mumbai Jamnagar
FY99 FY03 FY99 FY03 FY99 FY03 FY03
Light distillates 728 1,115 863 1,588 2,648 2,485 1,100
Middle distillates 2,460 2,682 2,115 3,554 4,736 4,233 1,730
Heavy distillates 1,507 1,562 658 1,243 1,190 1,503 550
Total distillates 4,696 5,359 3,636 6,386 8,574 8,221 3,380
*Distillate Yield 67.9% 70.9% 81.9% 80.5% 86.1% 81.7% 83.7%
*Distillate yield = (Light+Middle)/ Total distillates

More the light and middle distillates, higher is the margin for the company. Heavy
distillates do not find any major use in the industry and hence are not desired. Thus, we
see why the companies are trying to continuously upgrade their refineries or use
additional and advanced chemical processes to improve the distillate yields
There are only four players in the marketing segment (HPCL, BPCL, IOC and IBP) while
we have a large number of standalone refineries. The marketing players enter into an
agreement with the refineries to supply their products through the retail networks. For
example, Reliance is into refining only and does not have its own retail outlets currently.
Thus, they enter into an agreement with the retail players like HPCL and BPCL. For
instance, both BPCL and HPCL sell about 1.5 MTPA of Reliance products.
While marketing companies sell various petroleum products, it becomes imperative to
look at their business mix of different products. The reason being margins, are different
for different products. For example, the more the products are sold through direct sales,
the lower the margins, while the more the products are sold through the retail network the
higher the margin. Thus companies like HPCL and BPCL, which have higher revenues
coming from retail segment, are in an advantage as compared to IOC whose major chunk
of revenues comes from direct sales.

Refineries in India

As of October, 99 there are a total of 17 refineries in the country comprising 15 in the


Public Sector, one in the Joint Sector and one in private sector. The company-wise
locations and capacity of the refineries as on 1.10.99 are given below:

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Capacity
Location of the
Name of the Company
Refinery
(MMTPA)*
1.Indian Oil Corporation Ltd. (IOC) Guwahati 1.00
Barauni 4.20
Koyali 12.50
Haldia 3.75
Mathura 7.50
Digboi 0.65
Panipat 6.00
2.Hindustan Petroleum Corpn.Ltd. (HPCL) Mumbai 5.50
Visakh 4.50
3. Bharat Petroleum Corpn. Ltd. (BPCL) Mumbai 6.90
4.Madras Refineries Ltd. (MRL) Chennai 6.50
5.kochi Refineries Ltd. (KRL) Cochin 7.50
6.Bongaigaon Refinery and
Bongaigaon 2.35
Petrochemicals Ltd. (BRPL)
7.Crude Distillation Unit of MRL Narimanam 0.50
8.Numaligarh Refineries Ltd. (NRL) Numaligarh 3.00
9.Mangalore Refinery and Petrochemicals
Mangalore 9.69
Ltd. (MRPL)
10.Reliance Petroleum Ltd. (RPL) Jamnagar 27.00
Total 109.04

* Million Metric Tonnes per Annum

On the marketing front there are four major companies HPCL, BPCL, IOC and IBP. With
the administered price mechanism (APM) dismantled post March 2002, the marketing
channel is open to private and foreign players. This has seen the competition increasing
in the marketing front and the government owned players are aggressively trying to
increase their market share by providing value added services to the consumers. This
enthuses us to look back at the marketing aspect of the business. In this article, we will
look at the different players and their market share in the major segments of this business.

The entire business of marketing is divided into four aspects as shown in the following
chart. Direct sales caters to the requirements of large industrial customers across various
sectors like fertilizers, power, aluminum as well as major institutional customers like
defence, state transport units (STU), railways, etc. This business accounts for about 40%
of the volume sales. Direct sales segment is dependent on the industrial growth of the
country.

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Pricing for Oil and Natural Gas

The Administered Price Mechanism, which has been a feature of the oil industry in the
last fifty years, has been phased out. The dismantling of this mechanism began on 1 April
1998 and ended in 2002.

The APM was made up of a cost-plus pricing system for the producing companies and
cross-subsidization for the consumers. The Oil -Pool Account was to see to the interests
of both producers and consumers. Subsidies have contributed to the severe liquidity
crunch faced by the oil companies. The new package accompanying the dismantling of
prices is directed towards bringing greater transparency in subsidies, moving prices
towards their real costs, sending right market signals, at the same time not throwing the
small consumer to the wolves. Studies have shown, the dismantling of the APM will
result in an overall wholesale price-index inflation of 1.57% in five years on a cumulative
basis.

The de-regulation of Natural Gas prices also began in a phased manner starting 1st
October 1999. The consumer price of gas at landfall points would be linked to the price
of a basket of LSHS/FO prices. Domestic gas prices are to move closer towards the inter-
fuel market determining pricing regime. The de-regulation of prices is to accompany
those of crude oil and petroleum products, to provide a rational market- related pricing
framework for end users.

The journey so far...


Event Year
Administered Price Mechanism introduced 1977
Oil sector opened up for private players 1991
Prices of Naphtha, FO, LSHS, bitumen and paraffin wax decontrolled 1998
Exports of petrol and diesel decanalized 1999
100% FDI in refining sector allowed 2000
Aviation turbine fuel price is dismantled in April 2001
APM is dismantled finally 2002

Post APM dismantling, private and foreign players are free to have their own retail
outlets. Government of India has already given permission to Reliance, Essar Oil,
Numaligarh Refinery and ONGC to set up their own auto fuel retailing stations in India.
Some of the private retail outlets from these companies are expected by the end of 2004
and this will pose a challenge for the existing players. Infact the PSU marketing players
are awakening in the last year trying to change the faces of their retail outlets and offering
various schemes, one stop shopping, etc.

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Production and consumption scenario

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Fuel Use 1990 1996 2000 2005 2010 2015 2020 % of Annual Change
1995-2020

Oil Use in 1.2 1.7 1.8 2.2 2.7 3.2 3.8 3.6
MMBD
Natural Gas 0.4 0.7 1.5 2.3 3.3 4.5 5.9 9.4
Use in TCF

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Major players

The leading players in the Indian oil industry are as follows:

• Indian Oil Corporation Ltd.


• Hindustan Petroleum Corporation Ltd.
• Bharat Petroleum Corporation Ltd.
• Oil and Natural Gas Corporation
• Kochi Refineries Ltd.
• Reliance Petroleum Ltd.

If one were to look at the oil sector, the business is divided into exploration and
production (E&P), refining and finally marketing. The major players in E&P are ONGC
and Oil India Limited (OIL). In case of refining, we have HPCL, BPCL, Reliance, IOC
and several other stand alone refineries like Kochi Refineries, Mangalore Refineries, etc.

On the marketing front there are four major companies HPCL, BPCL, IOC and IBP

Break-up of players on the basis of their activities

Companies
Activity
Involved
Exploration and
ONGC, OIL
Production
Refining and IOCL, BPCL,
Marketing HPCL
Marketing Alone IBP
Refining Alone MRL, KRL

In terms of ranking, ONGC is the market leader in upstream crude oil and gas production,
while IOCL is the market leader in marketing and refining of petroleum products.

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Affect of higher oil prices on the global economy

Oil prices remain an important determinant of global economic performance. Overall, an


oil-price increase leads to a transfer of income from importing to exporting countries
through a shift in the terms of trade. The magnitude of the direct effect of a given price
increase depends on the share of the cost of oil in national income, the degree of
dependence on imported oil and the ability of end-users to reduce their consumption and
switch away from oil. It also depends on the extent to which gas prices rise in response to
an oil-price increase, the gas-intensity of the economy and the impact of higher prices on
other forms of energy that compete with or, in the case of electricity, are generated from
oil and gas. Naturally, the bigger the oil-price increase and the longer higher prices are
sustained, the bigger the macroeconomic impact. For net oil-exporting countries, a price
increase directly increases real national income through higher export earnings, though
part of this gain would be later offset by losses from lower demand for exports generally
due to the economic recession suffered by trading partners. Adjustment effects, which
result from real wage, price and structural rigidities in the economy, add to the direct
income effect. Higher oil prices lead to inflation increased input costs, reduced non-oil
demand and lower investment in net oil importing countries. Tax revenues fall and the
budget deficit increases, due to rigidities in government expenditure, which drives
interest rates up. Because of resistance to real declines in wages, an oil price increase
typically leads to upward pressure on nominal wage levels. Wage pressures together with
reduced demand tend to lead to higher unemployment, at least in the short term. These
effects are greater the more sudden and the more pronounced the price increase and are
magnified by the impact of higher prices on consumer and business confidence. An oil-
price increase also changes the balance of trade between countries and exchange rates.
Net oil-importing countries normally experience deterioration in their balance of
payments, putting downward pressure on exchange rates. As a result, imports become
more expensive and exports less valuable, leading to a drop in real national income.
Without a change in central bank and government monetary policies, the dollar may tend
to rise as oil-producing countries’ demand for dollar-denominated international reserve
assets grow.
The economic and energy-policy response to a combination of higher inflation, higher
unemployment, lower exchange rates and lower real output also affects the overall impact
on the economy over the longer term. Government policy cannot eliminate the adverse
impacts described above but it can minimize them. Similarly, inappropriate policies can
worsen them. Overly contractionary monetary and fiscal policies to contain inflationary
pressures could exacerbate the recessionary income and unemployment effects. On the
other hand, expansionary monetary and fiscal policies may simply delay the fall in real
income necessitated by the increase in oil prices, stoke up inflationary pressures and
worsen the impact of higher prices in the long run.
While the general mechanism by which oil prices affect economic performance is
generally well understood, the precise dynamics and magnitude of these effects especially
the adjustments to the shift in the terms of trade – are uncertain. Quantitative estimates of
the overall macroeconomic damage caused by past oil price shocks and the gains from

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the 1986 price collapse to the economies of oil importing countries vary substantially.
This is partly due to differences in the models used to examine the issue. Nonetheless, the
effects were certainly significant: economic growth fell sharply in most oil-importing
countries in the two years following the price hikes of 1973/1974 and 1979/1980. Indeed,
most of the major economic downturns in the United States, Europe and the Pacific since
the 1970s have been preceded by sudden increases in the price of crude oil, although
other factors were more important in some cases.
Similarly, the boost to economic growth in oil-exporting countries provided by higher oil
prices in the past has always been less than the loss of economic growth in importing
countries, such that the net effect has always been negative. The growth of the world
economy has always fallen sharply in the wake of each major run-up in oil prices,
including that of 1999-2000. This is mainly because the propensity to consume of net
importing countries that lose from higher prices is generally higher than that of the
exporting countries. Demand in the latter countries tends to rise only gradually in
response to higher prices and export earnings, so that net global demand tends to fall in
the short term.

Oil prices remain an important macroeconomic variable: higher prices can still inflict
substantial damage on the economies of oil-importing countries and on the global
economy as a whole. The surge in prices in 1999-2000 contributed to the slowdown in
global economic activity, international trade and investment in 2000-2001. The
disappointing pace of recovery since then is at least partly due to rising oil prices:
according to the modeling results, global GDP growth may have been at least half a
percentage point higher in the last two or three years had prices remained at mid-2001
levels. The results of the simulations presented in this paper suggest that further increases
in oil prices sustained over the medium term would undermine significantly the prospects
for continued global economic recovery. Oil importing developing countries would
generally suffer the most as their economies are more oil-intensive and less able to
weather the financial turmoil wrought by higher oil-import costs.
The general economic background to the current run-up in prices is significantly different
to previous oil-price shocks, all of which coincided with an economic boom when
economies were already overheating. Prices are now rising in a situation of tentative
economic revival, excess capacity and low inflation. Firms are less able to pass through
higher energy-input costs in higher prices of goods and services because of strong
competition in wholesale and retail markets. As a result, higher oil prices have so far
eroded profits more than they have pushed up inflation. The consumer price index growth
has fallen in almost every OECD country in the past year, from 2.3% to 2.0% in the Euro
zone and 2.4% to 1.9% in the United States in the 12 months to December 2003.
The squeeze on profits delayed the recovery in business investment and employment,
which began in earnest in 2003 in many parts of the world. In contrast to previous oil
shocks, the financial authorities in many countries have so far been able to hold down
interest rates without risking an inflationary spiral. Yet the economic threat posed by
higher oil prices remains real. Fears of OPEC supply cuts, political tensions in Venezuela
and tight stocks have recently driven up international crude oil and product prices even
further. Current market conditions are more unstable than normal, in part because of
geopolitical uncertainties and because tight product markets – notably for gasoline in the

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United States – are reinforcing upward pressures on crude prices. The hike of futures
prices during the past several months implies that recent oil price rises could be
sustained. If that is the case, the macroeconomic consequences for importing countries
could be painful, especially in view of the severe budget-deficit problems being
experienced in all OECD regions and stubbornly high levels of unemployment in many
countries.
Fiscal imbalances would worsen, pressure to raise interest rates would grow and the
current revival in business and consumer confidence would be cut short, threatening the
durability of the current cyclical economic upturn.

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Indian scenario

India's oil imports are set to rise to 85 million tonnes during 2003-04, with high global
prices expected to impact on the country's import bill.

With the prospect of the Organization of Petroleum Exporting Countries (OPEC)


announcing a further production cut -- after the sudden decision last month of reducing
output by 900,000 barrels per day from November -- there are expectations of a further
rise in crude oil prices towards year-end.

Importing around two million barrels of crude per day, India is, however, optimistic that
the OPEC cut would have limited impact with several factors working against a steep
jump in global prices.

India's oil import bill has risen, but that is partly due to an increase in the quantity of
imports as also the higher prices. So far, there has not been much impact of the OPEC
decision to cut production by 900,000 barrels per day. Initially there was an impact of a
$1.0 to $1.5 but subsequently the prices have softened slightly

Depending on imports for 70 percent of its requirements, India's oil import bill witnessed
a 7.92 percent rise during April-August to $7.66 billion as against $7.1 billion in the
corresponding five months in the previous year.

During 2002-03, India's oil import bill was $17.62 billion.

India's imports have also increased in the initial five months. As against around 82.5
million tonnes imports last year, the imports are expected to be around 85 million tonnes
during 2003-04. This is because of growing consumption and demand for petroleum
products in the market.

The market demand has led to higher requirement by both public and private sector
refiners. India currently has an installed refining capacity of 112 million tonnes -- that not
only meets domestic requirement but also allows for export of petroleum products.

About rising gas prices, it was not really relevant as India does not import any natural
gas.

In the case of LPG, however, there is expected to be some impact as India imports around
one million tonnes of the eight million tonnes domestic requirement.

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Most of the imported LPG is used to meet the requirements of the industry and
automobile sector. Around seven million tonnes of LPG is used in the country as
domestic cooking fuel.

Domestic gas being a subsidized fuel, the state-owned oil and gas companies would have
to share the subsidy burden in view of the government decision not to raise the price of
cooking gas and kerosene sold through the public distribution network to people below
the poverty line.

The petroleum ministry is trying to work out how all the state-owned companies in both
upstream and downstream are going to share the burden. The list includes all the
exploration, refining and marketing companies including Oil and Natural Gas
Corporation (ONGC), gas infrastructure company GAIL (India) Ltd and all other oil
companies like Indian Oil Corporation.

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Impact of Crude prices on Indian oil companies

Crude prices are trading higher than ever before and have broken the US$ 41 per barrel
barrier. It is highly unlikely that the prices of crude oil are to sober down in the
foreseeable future, given the strong underlying demand from countries like US, China
and India. To put things in perspective, India imports nearly 70% of its oil requirements
and as per an IEA report, uses 2.5 times the crude for a unit of GDP as compared to the
OECD.

The impact on refinery companies

Increasing crude prices shall have an adverse impact on the refinery companies, where
crude is the major raw material. Although these refineries faced the brunt of high crude
prices, higher than normal gross refinery margins helped ease out pressure on operating
margins in the last quarter.

While adjusting for crude prices at US$ 32 per barrel the effects on OPM and NPM have
been calculated for HPCL, India’s second largest OMC. As per the assumptions, the
subsidies on LPG and kerosene shall continue to be in effect as in FY04 and petroleum
product prices shall not be increased in the current fiscal.

From the aforementioned graph, it is clearly visible that HPCL shall witness a major dip
in its operating margins to the tune of 300 basis points while the net profit margins have
witnessed a fall of 200 basis points. This is largely due to the fact the HPCL not only
sells products from its own refineries but also purchases products for resale. Strong
global demand fuelling crude prices have resulted in high product prices at the refinery.
Thus, HPCL shall have to pay up as per international prices at the refinery for the
products it purchases for resale, mainly LPG and diesel. At the same time, under-
recoveries on LPG and kerosene shall impact even further. Similar extent of impact on
other oil marketing companies is expected as well.

Indian Oil Corporation (IOC) said on Tuesday that the company has lost Rs21.43bn since
the start of April due to its inability to pass on the steep rise in global crude oil prices to
domestic consumers.

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IOC Chairman and Managing Director M.S. Ramachandran said that the company would
lose Rs5.04bn on the sale of petrol and diesel while under-recoveries on kerosene and
LPG would cost it Rs16.39bn during April 1-June 15.

"Our profitability will be very badly eroded," Ramachandran told reporters in New Delhi.

BPCL too has posted a 7% fall in its Q4 net profit.

The impact on upstream companies

The only beneficiaries of the increasing crude prices scenario shall be those engaged in
upstream activities such as ONGC and Oil India. To put things in perspective, ONGC
adds Rs9bn to its topline with every US$ 1 increase in crude prices.

ONGC is likely to be the major beneficiary in case of higher crude prices, given that it
has now been allowed to sell crude freely since April 2004. Further, ONGC Videsh
(OVL), ONGC’s overseas subsidiary has been on the prowl for equity oil and oil field
acquisition thereby geographically diversifying the company’s business. ONGC is also
planning its foray into the downstream activities of marketing and this, to a large extent,
result in the consolidated margins lowering down.It therefore, becomes imperative for oil
marketing PSUs to enter into the upstream segment to secure crude at reasonable prices
and maintain margins.

But it has to account for subsidies on LPG and kerosene, which as per today’s
mechanism, is an additional burden of Rs 13 bn (to be shared equally among the OMCs
and GAIL and ONGC).

Government: Hands-off…
Year Subsidies
(Rs) LPG/cylinder Kerosene/litre
2002-03 67.75 2.45
2003-04 45.17 1.63
2004-05 22.85 0.81
Source: Oil companies

Consider how the subsidy actually works. The retail price of LPG is Rs.250 per cylinder.
But the actual cost for oil marketing companies like BPCL, HPCL and GAIL is Rs.401
per cylinder. This means that the difference between the retail price and actual cost has to
be borne by someone. Currently, the GOI chips in with just Rs.45.2/cylinder of LPG and
the rest (Rs.106/cylinder) is borne by oil marketing companies, including GAIL and
ONGC. The same is the case for kerosene. While the government’s share is Rs.1.6/litre,
oil-marketing companies take a hit to the tune of Rs.3/litre.

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Another beneficiary of this scenario seems to be GAIL India. With increasing crude
prices, feedstock such as naphtha and furnace oil becomes an expensive proposition,
resulting in higher demand for natural gas.

Cutting taxes or import duties on one of the government's cash cows would, however,
widen an already yawning fiscal gap.

Currently, Indian crude mix averages US$ 32 per barrel (Source: BPCL) and firm prices
in the international markets are a cause of concern. Further, the PSUs have to account for
subsidies on LPG and kerosene, which as per today’s mechanism, is an additional burden
of Rs13bn (to be shared equally among the OMCs and GAIL and ONGC).

India imported about 8.2crore tons of crude oil in 02-03. At a foreign exchange rate of
Rs45/dollar and crude oil price of $25/barrel, the value comes to 69165cores. The figures
for 03-04 are expected to be 9.0crore tons. At an exchange rate of Rs46/dollar and crude
price of $28/barrel, the import in Rupee terms would be 86940crores. For the current year
04-05, the imported crude requirement might be 9.45crore tons. The foreign exchange
spent would be 114817crores at an exchange rate of Rs45 to a dollar and average rates of
$36/barrel. It means that we will need about 27000crores more. This money would go out
of the Indian economy. This burden would be borne by Indian Public or our Oil
companies. This money, which would have otherwise gone into the purchase of other
good/commodities/assets or to savings, would go out of the country. It would certainly
have a negative impact on the Indian economy.

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Analysis of companies

ONGC

Company profile

Oil and Natural Gas Corporation Ltd (ONGC) was incorporated in June 1993 to take over
the businesses of the erstwhile Oil and Natural Gas Commission that was set up in 1959.
The company produces a range of marketable products like petroleum, crude natural gas
liquid, aromatics rich naphtha, liquefied petroleum gas (LPG), superior kerosene and
ethane- propane as petrochemical feedstock.
ONGC is a near monopoly in India’s oil exploration and production industry and
produces 90 per cent of the country’s crude oil and natural gas and holds petroleum
exploration licenses for 80 per cent of the sedimentary basins in India.
Since its inception, ONGC has produced more than 600 million metric tonnes of crude oil
and supplied more than 200 billion cubic meters of gas. The grant of marketing rights and
the acquisition of Mangalore Refineries and Petrochemicals (MRPL) are major steps in
transforming ONGC into an integrated oil and gas corporate.

ONGC`s fully owned subsidiary, ONGC Videsh Ltd (OVL), has been making significant
strides in acquisition of equity oil and gas abroad. The gas property in Vietnam, with 45
per cent participation by OVL, is due to go on stream this year. Development of facilities
in the Sakhalin-I Oil & Gas Field (OVL`s participating interest is 20 per cent) is
progressing well; the first delivery of crude is scheduled in 2005, followed by gas in
2007. OVL is currently engaged in several other transnational negotiations for
exploration assets as well as discovered fields

Profit and loss account


Value(Rs.crores)
April-march’04 April-march’03 %change
Gross sales 32511.92 34738.50 -6.41
Excise duty -447.99 -461.21 -2.87
Net sales 32063.93 34277.29 -6.46
Other income 1547.08 1959.25 -21.04
Total income 33611.01 36236.54 -7.25
Expenditure -14383.36 -15871.79 -9.38
Operating profit 19227.65 20364.75 -5.58
Interest -467.50 -113.19 313.02
Gross profit 19180.90 20251.56 -5.29
Depreciation -5571.86 -4127.72 34.99
Profit before tax 13609.04 16123.84 -15.60
Tax -4944.61 -5594.52 -11.62
Profit after tax 8664.43 10529.32 -17.71

19
Net profit 8664.43 10529.32 -17.71
Equity capital 1425.93 1425.93 0.00
Reserves 38326.49 33932.27 12.95
EPS 60.76 73.84 -17.71
Nos. of shares-non 368,560,245.00 226,594,405.00 62.65
promoters
% of shares – non 25.85 15.89 62.68
promoters

Ratios

As on April-march’04 April-march’03
Operating profit margin% 59.14 58.62
Net profit margin% 26.65 30.31
EPS 60.76 73.84

Annual result highlights

• Net sales have decreased by 6.46% from Rs.34277.29cr. in Mar 2003 to


Rs.32063.93cr in Mar 2004.
• Net profit has decreased by 17.71% from Rs.10529.32cr in Mar 2003 to
Rs.8664.43cr in Mar 2004.
• Net profit margin has decreased by 12.07% from 30.31% in Mar 2003 to 26.65%
in Mar 2004.
• Operating profit margin has increased marginally by 0.88% from 58.62% in Mar
2003 to 59.14% in Mar 2004.

Future Plans
ONGC intends to invest $ two billion every year for the next seven to 10 years to double
in place reserves of oil and oil equivalent gas. It plans to double in place reserves of 5.77
billion tonnes of oil and oil equivalent gas through extensive exploration efforts. The
investment is possible only when they get the market price for their production, as
genuine deregulation of gas not taken place yet.

Around 15 projects have been identified by ONGC that would add 500 million tonne of
reserves. It has committed Rs35,000crore investment during the tenth five year plan
period.
ONGC is expected to double reserve accretion and improve recovery factor by 40 per
cent in next two years. It is under taking a massive program of investing Rs12,000crore
plus in improving oil recovery in 15 oil fields.

20
IOC

Company profile
Indian Oil Corporation (IOC) Ltd, set up in 1959 as a wholly owned government
enterprise, is India’s largest company in terms of revenues. IOC owns and operates 7 of
the country’s 15 refineries, with a combined capacity of 31.5 mmtpa (0.62mn barrels per
day).

The company has a 47% share in refining after the commissioning of its 6 mmtpa
refinery at Panipat. With the commissioning of the 27-mmtpa Reliance Petroleum Ltd
(RPL) refinery at Jamnagar, Gujarat, this is expected to come down to around to around
33%. It has a commanding 55% share in the marketing of petroleum products.

Out of IOC`s seven refineries, only the one located at Haldia (capacity 4 mtpa) processes
imported crude entirely. Among others, Guwahati and Digboi refineries use only
domestic crude. The other refineries located at Barauni (4.2 mtpa), Gujarat 12 mtpa),
Mathura (7.5 mtpa) and Panipat (3.5 mpta) use partly imported crude and partly domestic
crude (depending on the availability of domestic crude). Thus, the volume of imported
crude processed by IOC`s different refineries is not small. 70 per cent of IOC`s sales are
under controlled prices and include items such as petrol, diesel, kerosene, LPG and ATF

IOC is the world’s 17th largest petroleum company. It is India’s largest commercial
enterprise and the only company from the country in Fortune magazines Global 500
listing.

IOC has formed a number of joint ventures with various multinationals to undertake
business activities that would have otherwise been uneconomical or risky to undertake
alone. These include joint ventures (JVs) with the US-based Lubrizol Corporation (in
Lubrizol India), with the France-based Nyco and the domestic Balmer Lawrie (in Avi-Oil
India), with Germany-based Oiltanking (in Indian Oiltanking), and with Petronas of
Malaysia (in IndianOil Petronas).

While marketing companies sell various petroleum products, it becomes imperative to


look at their business mix of different products. The reason being margins, are different
for different products. For example, the more the products are sold through direct sales,
the lower the margins, while the more the products are sold through the retail network the
higher the margin.

21
Profit and loss account
Value (Rs.crores)
April-march’04 April-march’03 %change
Net sales 116775.57 123628.15 -5.54
Other income 1747.17 17,82.50 -1.98
Total income 118522.74 125410.65 -5.49
Expenditure -106510.19 -114572.42 -7.03
Operating profit 12012.55 10838.23 10.83
Interest -452.74 -762.47 -40.62
Gross profit 11559.81 10075.76 14.72
Depreciation -1868.97 -1661.76 12.47
Profit before tax 9690.84 8414.00 15.17
Tax -2686.02 -2299.11 16.82
Profit after tax 7004.82 6114.89 14.55
Net profit 7004.82 6114.89 14.55
Equity capital 1168.01 778.67 50.00
Reserves 21879.40 18149.32 20.55
EPS 59.97 52.35 14.55
Nos. of shares-non 209,934,345.00 139,956,230.00 50.00
promoters
% of shares – non 17.97 17.97 0
promoters

Ratios

As on April-march’04 April-march’03
Operating profit margin% 10.28 8.76

22
Net profit margin% 6.00 4.94
EPS 59.97 52.35

Annual result highlights

• Net sales have decreased by 5.54% from Rs.123628.15cr in Mar’03 to


Rs.116775.57cr in Mar’04.
• Net profits have increased by 14.55% from Rs.6114.89cr in Mar’03 to
Rs.7004.82cr in Mar’04.
• Net profit margin have increased by 21.45% from 4.94% in Mar’03 to 6.00% in
Mar’04
• Operating profit margin have increased by 17.35% from 8.76% in Mar’03 to
10.28% in Mar’04.

Future Plans
IOC is set to enter into a marketing pact with French oil major TotalFina Elf. The
proposed agreement will allow IOC to market TotalFina Elf`s range of fuel additives
through the former’s vast retail network. The two companies will also collaborate in
research & development activities in fuel additives, IOC`s proposed tie-up with TotalFina
appears to be yet another attempt by state-owned oil companies to counter the imminent
entry of private players into the marketing sector. The two companies will also
collaborate in research & development activities in fuel additives

IOC is planning to double its research and development (R&D) spends from Rs60crore to
Rs120crore. The oil major has also outlined a large number of projects to be taken up by
its R&D centre located in Faridabad. The oil major is also exploring the possibility of
extending R&D services to other refineries. The centre has been working on a large
number of projects including bio-diesel and multi-grade bitumen. Another breakthrough
includes the development of LPG-MAX, a new process for LPG maximization and
continuous film contractor-based process for removal of Mercaptan from LPG.

IOC will soon begin commercial trial production of its multi-grade bitumen. This is for
the first time that the high-technology bitumen has been developed in the country. The
research and development (R&D) centre of IOC has tied up with the Chennai Petroleum
Corporation Ltd (CRPC), a subsidiary of IOC, for undertaking the trial production. To
begin with, the oil major intends to produce 200 tonne of bitumen for the trial.
Worldwide only two companies, Mobil and Shell, have the technology for multi-grade
bitumen

23
HPCL
Company profile

HPCL is second largest integrated oil refining and marketing Company. The Refinery at
Mumbai came into stream in 1954 under the ownership of ESSO. In March, 1974, Govt.
of India acquired it. Hindustan Petroleum Corporation Ltd. was formed on 15.7.1974
after the merger of these companies. The capacity of the Mumbai Refinery of HPCL was
3.5 MMTPA which was increased to 5.5 MMTPA during 1986 after implementation of
expansion programme.

Profit and loss account


Value (Rs.crores)
April-march’04 April-march’03 %change
Gross sales 57511.13 - -
Excise duty -5993.47 - -
Net sales 51517.66 54165.63 -4.89
Other income 379.39 285.91 32.70
Total income 51897.05 54451.54 -4.69
Expenditure -48254.39 -51312.48 -5.96
Operating profit 3642.66 3139.06 16.04
Interest -55.65 -153.02 -63.63
Gross profit 3587.01 2986.04 20.13
Depreciation -606.58 -574.25 5.63
Profit before tax 2980.43 2411.79 23.58
Tax -1076.40 -874.43 23.10
Profit after tax 1903.94 1537.36 23.84
Net profit 1903.94 1537.36 23.84
Equity capital 338.90 338.83 0.02
Reserves 7403.91 6340.02 16.78
EPS 56.18 45.37 23.83
Nos. of shares-non 166,253,250.00 166,253,250.00 0.00
promoters
% of shares – non 48.99 48.99 0.00
promoters

Ratios

As on April-march’04 April-march’03
Operating profit margin% 7.07 5.79
Net profit margin% 3.69 2.83
EPS 56.18 45.37

24
Annual result highlights

• Net sales have decreased by 4.89% from Rs.54165.63cr in Mar’03 to


Rs.51517.66cr in Mar’04.
• Net profits have increased by 23.84% from Rs.1537.36cr in Mar’03 to
Rs.1903.94cr in Mar’04.
• Net profit margin have increased by 30.38% from 2.83% in Mar’03 to 3.69% in
Mar’04
• Operating profit margin have increased by 22.10% from 5.79% in Mar’03 to
7.07% in Mar’04.

The major constituents of the company’s business mix are retail and direct sale to the
industries as they have higher profit margin.

25
BPCL
Company profile

Commissioned in 1955, Bharat Petroleum's Mumbai refinery is spread across 454 acres
of land in Mahul village. This asset based SBU, the very backbone of the Company,
comprises the Refinery and International Trade & Supply. BPCL Performing consistently
over the years, BPCL's Refinery in Mumbai has achieved a crude throughput of 8.87
MMT during the year 1999-2000.

BPCL's Refinery installed capacity is 6.9 metric tones. It is the most versatile refinery in
the country, having processed 50 different types of crude-with Forcados, Escravos and
Bonnylight being the latest additions. The varied processing activities have provided
valuable insights on optimization of crude mix for the maximum value output.
Furthermore, it is the only Refinery in the country, processing residue in Fluid Catalytic
Cracking Units.

The International Trade and Supplies (IT&S) department is an integral part of the
Refinery and is fully equipped to import and export petroleum products.

Refinery products

• Polypropylene Feedstock
• Aviation Turbine Fuel (atf)
• High Speed Diesel Oil
• Navy grade HSD
• Light Diesel Oil
• Fuel Oil
• LSHS
• Bitumen
• Sulphur
• Motor Gasoline (mt 80)
• Mineral Turpentine
• MTBE
• Liquefied Petroleum Gas
• Unleaded Motor Gasoline
• Food Grade Hexane
• SBP 55/115
• Benzene
• Toluene
• RIL Naphtha
• Rama Petrochemicals Naphtha
• High Aromatics Naphtha (export)
• Low Aromatics Naphtha (normal)
• Low Aromatics Naphtha (export)

26
The major constituents of the company’s business mix are retail and direct sale to the
industries as they have higher profit margin

Profit and loss account


Value (Rs.crores)
April-march’04 April-march’03 %change
Gross sales 53448.40 - -
Excise duty -5194.10 - -
Net sales 48254.30 48502.40 -0.51
Other income 466.90 346.50 34.57
Total income 48721.20 48848.90 -0.26
Expenditure -45419.50 -46128.60 -1.54
Operating profit 3301.70 2720.30 21.37
Interest -105.00 -245.90 -57.30
Gross profit 3196.70 2474.40 29.19
Depreciation -561.20 -480.90 16.70
Profit before tax 2635.50 1993.50 32.20
Tax -940.90 -743.50 26.55
Profit after tax 1694.60 1250.00 35.57
Net profit 1694.60 1250.00 35.57
Equity capital 300.00 300.00 0.00
Reserves 5549.70 4447.40 24.79
EPS 56.49 41.67 35.57
Nos. of shares-non 101,399,940.00 101,399,940.00 0.00
promoters
% of shares – non 33.80 33.80 0.00
promoters

Ratios

As on April-march’04 April-march’03
Operating profit margin% 6.84 5.60

27
Net profit margin% 3.51 2.57
EPS 56.49 41.67

Annual result highlights

• Net sales decreased by 0.51% from Rs.48502.40cr in Mar’03 to Rs. 48254.30cr in


Mar’04.
• Net profit increased by 35.57% from Rs.1250.00cr in Mar’03 to Rs1694.60cr in
Mar’04.
• Net profit margin increased by 36.57% from 2.57% in Mar’03 to 3.51% in
Mar’04.
• Operating profit margin increased by 22.14% from 5.60% in Mar’03 to 6.84% in
in Mar’04.

Future plans

Refinery has plans for massive expansion & modernization to increase capacity and
efficiency, improve safety, and decrease energy and to meet stringent future product
specifications.

MRPL
Company profile

28
Mangalore Refineries and Petrochemicals Ltd (MRPL) is a joint venture between
Hindustan Petroleum, Indian Rayon and Grasim Industries. It is the first in India to have
a hydro-cracker combined with fluidized catalytic converter, which lends flexibility to
production. Better adapted to make middle distillates, it can produce lead-free petrol.

After the modified administered pricing mechanism, MRPL can price its naphtha, and
freely import crude from international markets. It is working with Chevron and Texaco
for procurement. MRPL increased its crude oil refining capacity from three mmtpa to
nine mmtpa. It is taking a stake in the product pipeline from Mangalore to Bangalore via
Hassan.

It got a shot in the arm when the Karnataka government granted it sales tax concession of
up to Rs2,500crores annually for 14 years. Its bottom-line took a hit, though, from the
higher prices of crude, and from prices of end products not increasing correspondingly.

Profit and loss account


Value (Rs.crores)
April-march’04 April-march’03 %change
Gross sales 12612.22 - -
Excise duty -1221.58 - -
Net sales 11390.64 8058.77 41.34
Other income 608.03 54.78 1009.95
Total income 11998.67 8113.55 47.88
Expenditure -10672.56 -7825.51 36.38
Operating profit 1326.11 288.04 360.39
Interest -373.42 -567.07 -34.15
Gross profit 952.69 -279.03 -441.43
Depreciation -378.19 -373.74 1.19
Profit before tax 574.50 -652.77 -188.01
Tax -115.09 -240.97 -52.23
Profit after tax 459.41 -411.80 -211.56
Net profit 459.41 -411.80 -211.56
Equity capital 1752.61 1759.60 -0.40
Reserves 349.05 447.01 -21.91
EPS 2.62 -5.19 -150.48
Nos. of shares-non 200,393,512.00 556,397,664.00 -63.98
promoters
% of shares – non 11.43 31.78 -64.03
promoters

Ratios

29
As on April-march’04 April-march’03
Operating profit margin% 11.64 3.57
Net profit margin% 4.03 (5.11)
EPS 2.62 -5.19

Annual result highlights

• Net sales have increased by 41.34% from Rs.8058.77cr in Mar 2003 to


Rs.11390.64cr in Mar 2004.
• Net profit has increased by 211.56% from Rs-411.80cr in Mar 2003 to
Rs.459.41cr in Mar 2004.
• Net profit margin has increased by 1.78% from (5.11) % in Mar 2003 to 4.03% in
Mar 2004.
• Operating profit margin has increased substantially by 226.05% from 3.57% in
Mar 2003 to 11.64% in Mar 2004.
• Other income has increased drastically by 1009.95% from 54.78% in Mar 2003 to
608.03% in Mar 2004.

Future Plans
The company proposes to enhance its capacity through de-bottlenecking, first to 12
mmtpa and further to 18 mmtpa. It is also constructing a new jetty at a cost of
Rs180crore.

30
IBP

Company profile

IBP Company Ltd., a Kolkata-based subsidiary of Indian Oil Corporation (IOC) group,
had started its operations way back in 1909, in Rangoon.A public sector undertaking,
following its divestment in the beginning of 2002, IOC now holds 53.6% stake in IBP.
The Union government at present has a 26 per cent stake. IBP also has a 61.8% stake in
Balmer Lawrie & Co. Ltd. Arun Jyoti has been appointed as the new IBP MD after SN
Mathur, chairman and MD, resigns as IBP head and director.

IBP is a competent player in the area of marketing & distribution of petroleum products
besides storage of the same, and is also engaged in the manufacture & sale of industrial
explosives, Cryocontainers, Liquified Petroleum Gas (LPG) regulators, freeze drying
plants, LPG valves and other Engineering Products.

Basically, a marketing company, IBP at present has a good retail network, spread across
the country although with larger presence in Northern & Eastern India. The company in
the current year started 76 new retail outlets including 25 jubilee outlets (outlets with
multiple associated facilities) and 28 company owned and operated outlets plus 8 new
LPG Distributorship. It commissioned two new terminals at Sangrur, in Punjab and
Kondapally, in Andhra Pradesh.Besides, the `IBP Red` brand the company has launched
a brake fluid `IBP Dot 3` and a coolant `IBP Cool`. The company has added about 50
new grades of lubes taking the total to 133. In case of its subsidiary, Numaligarh
Refineries Ltd. and Indian oil tanking Ltd, IBP has divested its stake in favor of BPCL
and Indian Oil Corporation Limited.

Profit and loss account


Value(Rs.crores)
April-march’04 April-march’03 %change
Net sales 10650.19 8926.07 19.32
Other income 60.93 64.83 -6.02
Total income 10711.12 8990.90 19.13
Expenditure -10337.18 -8805.28 17.40
Operating profit 373.94 185.62 101.45
Interest -0.07 -0.49 -85.71
Gross profit 373.87 185.13 101.95
Depreciation -41.27 -44.39 -7.03
Profit before tax 332.60 140.74 136.32
Tax -117.94 -52.99 122.57
Profit after tax 214.66 87.75 144.63
Net profit 214.66 87.75 144.63
Equity capital 22.15 22.15 0.00
Reserves 603.86 511.69 18.01

31
EPS 96.92 39.62 144.62
Nos. of shares-non 10,280,107.00 4,521,717.00 127.35
promoters
% of shares – non 46.42 20.42 127.33
promoters

Ratios

As on April-march’04 April-march’03
Operating profit margin% 3.51 2.07
Net profit margin% 2.01 0.98
EPS 96.92 39.62

Annual result highlights

• Net sales have increased by 19.32% from Rs.8926.07cr in Mar 2003 to


Rs.10650.19cr in Mar 2004.
• Net profit has increased by 144.63% from Rs.87.75cr in Mar 2003 toRs.214.66cr
in Mar 2004.
• Net profit margin has increased by 105.10% from 0.98% in Mar 2003 to 2.01% in
Mar 2004.
• Operating profit margin has increased by 69.56% from 2.07% in Mar 2003 to
3.51% in Mar 2004

Future Plans
IBP Co Ltd would like to achieve synergy with the operations of IOC and is planning to
invest heavily in infrastructure. The company is to add 250/300 retail outlets every year
at an estimated cost of Rs350-400crore annually. Further, IBP has plans of building 13
new depots at a cost of Rs2.1bn. The company is making a conscious effort to identify
avenues for achieving significant differentiation of its products.

As a result of all these the company is also contemplating an increase in the market share
in the next three years and as well is eyeing the sale of its petroleum products in overseas
market.It’s plan for bulk marketing, is already in the offing, where an agreement has
already been made with the Army while negotiations are on with the Railways.

The joint venture Petronet envisages development of pipeline infrastructure for


transportation of petroleum products in the different regions of the country, with the
Kochi - Karur Pipeline in an advanced stage of implementation. The company to take

32
advantage of the withdrawal of the Administrative Pricing Mechanism has made a
Perspective Plan and chalked out a future strategy covering the period upto 2010.

33
Kochi refineries

Company profile

Kochi Refineries (KRL), formerly known as Cochin Refineries Ltd., started as a refinery
with a capacity of 2.5 million metric tons per annum. Now refine more than 7.5 million
metric tonnes every year.

The company does not have a distribution network and with the exception of aromatics is
dependent on IOC for marketing. It has tied up with IOC till March 2003 for marketing
controlled and decontrolled products from its refinery. In FY99, KRL merged its JV,
Cochin Refineries Balmer Lawrie, with itself.

The government sold its 55 per cent stake in Kochi Refineries to Bharat Petroleum
Corporation Limited (BPCL) for around Rs800crore as part of a restructuring exercise in
the downstream sector.

Profit and loss account


Value(Rs.crores)
April-march’04 April-march’03 %change
Gross sales - 10489.50 -
Excise duty - -1256.10 -
Net sales 9863.90 9233.40 6.83
Other income 59.40 34.20 73.68
Total income 9923.30 9267.60 7.08
Expenditure -8857.20 -8360.80 5.94
Operating profit 1066.10 906.80 17.57
Interest -39.80 -94.90 -58.06
Gross profit 1026.30 811.90 26.41
Depreciation -116.50 -115.40 0.95
Profit before tax 909.80 696.50 30.62
Tax -354.70 -240.50 47.48
Profit after tax 555.10 456.00 21.73
Net profit 555.10 456.00 21.73
Equity capital 138.50 138.50 0.00
EPS 40.09 32.93 21.74
Nos. of shares-non 62,580,120.00 62,580,120.00 0.00
promoters
% of shares – non 45.19 45.19 0.00
promoters

34
Ratios

As on April-march’04 April-march’03
Operating profit margin% 10.81 9.82
Net profit margin% 5.62 4.93
EPS 40.09 32.93

Annual result highlights

• Net sales have increased by 6.83% from Rs.9233.40cr in Mar 2003 to


Rs.9863.90cr in Mar 2004.
• Net profit has increased by 21.73% from Rs.456.00cr in Mar 2003 toRs.555.10cr
in Mar 2004.
• Net profit margin has increased by 14.00% from 4.93% in Mar 2003 to 5.62 % in
Mar 2004.
• Operating profit margin has increased by 10.08% from 9.82% in Mar 2003 to
10.81% in Mar 2004

Future Plans
Bharat Petroleum Corporation Ltd (BPCL) may merge its subsidiary Kochi Refineries
with itself. The boards of both companies are likely to meet shortly for considering the
merger. BPCL holds 55 per cent in the company, the Kerala government has 6 per cent
and the remaining is with the public and Fis. If the merger goes through, it would provide
synergies and also tax advantages. BPCL may benefit by side-stepping purchase tax and
local sales taxes, which in turn may improve its profitability. The two companies have
already integrated several functions including crude procurement and marketing.

35
Reliance

Company profile
Started in 1966 as a textile manufacturing firm, Reliance Industries Ltd (RIL) is today
one of the world’s largest integrated petrochemicals companies. The company’s strategic
focus is to build world scale capacities with vertical integration. It started with textiles,
which constitutes 1% of RIL`s business today. It then integrated backwards into fibers,
fibre intermediates and then into raw chemicals and petrochemicals. It also integrated
into polymers. The company also has a presence in Oil & Gas which contributes a little
over 3 per cent to RIL`s turnover.

RIL enjoys a leadership position in domestic market in all its products, with a market
share of 45% in polyesters and 85% and 80% in polyester intermediates PTA and MEG
respectively. In polymers business it enjoys market shares of 63%, 71% and 90% in
polyethylene (PE), polypropylene (PP) and polyvinyl chloride (PVC) respectively.

Reliance holds a 30% interest in an unincorporated Joint Venture with Enron and ONGC,
to develop the proven Panna, Mukta and Tapi oil and gas fields. Enron has a 30% share,
and ONGC the balance 40% share.

Reliance is India’s largest private sector exploration and production company. RIL had 2
properties Panna, Mukta and Tapi two years ago and currently it has 25 different
properties. The company has recently won 4 new exploration blocks in the second round
of bidding. There are about a 100 people who look after the Oil & Gas business. The
fiscal incentives available apart from the integration benefits are substantial. RIL plans to
spend roughly 300mn US dollars in the Oil & Gas business over the next three years.

The crude discovered from these blocks would be a vital input to Reliance Petroleum’s
(RPL) 27 million tonne refinery recently commissioned in Jamnagar, Gujarat. RIL, in
turn, will be sourcing the feedstock (naphtha) for its in-house businesses from the
Jamnagar refinery.

The diverse business mix of RIL has helped it spread its business risk. During FY99, RIL
acquired two polyester manufacturing facilities - JK Corp (43000 tpa) and India
Polyfibres Ltd (22000 tpa), which will enhance the integration of its polyester
intermediates and improve its market penetration in this sector.

In January 2000 RIL commissioned the third line (200,000 mtpa of its 600,000 mtpa
world’s largest PP plant at its Jamnagar Petrochemicals Complex. With this, RIL’s PP
capacity has reached 1 mn mtpa, which makes it the fifth largest PP producer in the
world. It has also completed the world’s largest 1.4 mn mtpa Paraxylene (PX) plant in the
same complex and has become the third largest PX producer in the world.

The board of Reliance Industries at its meeting held on March 3, 2002, has considered
and approved the proposal for amalgamation of Reliance Petroleum Ltd with the
company.

36
The proposed scheme of amalgamation provides that the amalgamation will take effect
from the appointed date i.e. April 1, 2001. All assets, liabilities and obligations of
Reliance Petroleum Ltd will vest in the company from the said appointed date

Profit and loss account


Value(Rs.crores)
April-march’04 April-march’03 %change
Gross sales 56247.00 50096.00 12.28
Excise duty -4445.00 -4198.00 5.88
Net sales 51802.00 45898.00 12.86
Other income 1138.00 1001.00 13.69
Total income 52940.00 46899.00 12.88
Expenditure -41818.00 -37533.00 11.42
Operating profit 11122.00 9366.00 18.75
Interest -1435.00 -1555.00 -7.72
Gross profit 9687.00 7811.00 24.02
Depreciation -3247.00 -2837.00 14.45
Profit before tax 6440.00 4974.00 29.47
Tax -1141.00 -870.00 31.15
Profit after tax 5299.00 4104.00 29.12
Extraordinary items -139.00 - -
Net profit 5160.00 4104.00 25.73
Equity capital 1396.00 1396.00 0.00
Reserves - 26243.00 -
EPS 36.80 29.30 25.60
Nos. of shares-non 744,720,000.00 746,809,000.00 -0.28
promoters
% of shares – non 53.33 53.48 -0.28
promoters

Ratios

As on April-march’04 April-march’03
Operating profit margin% 19.77 18.69
Net profit margin% 9.17 8.19
EPS 36.80 29.30

37
Annual result highlights

• Net sales have increased by 12.86% from Rs.45898.00cr in Mar 2003 to


Rs.51802.00cr in Mar 2004.
• Net profit has increased by 25.73% from Rs.4104.00cr in Mar 2003 to
Rs.5160.00cr in Mar 2004.
• Net profit margin has increased by 11.96% from 8.19% in Mar 2003 to 9.17% in
Mar 2004.
• Operating profit margin has increased by 5.77% from 18.69% in Mar 2003 to
19.77% in Mar 2004

Future Plans
The Andhra Pradesh government is in talks with Reliance to set up a 2,500-seat capacity
call centre near Hi-Tech City in Hyderabad. The two parties are expected to sign a
memorandum of understanding shortly.

Reliance may also provide more bandwidth to the Andhra Pradesh government’s
proposed `Web Stores` across the state to facilitate e-governance activities faster at a
competitive price. Reliance is said to have assured the state government that it would
provide a 2 MB line bandwidth capacity to each computer site to ensure faster access.

Reliance Industries Ltd (RIL) is planning big after taking over Indian Petrochemicals
Corporation Ltd (IPCL) and is drawing up a blueprint for expanding the cracker capacity
at IPCL’s Gandhar complex to global levels, from the current 4,00,000 tonnes to 1
million tonnes.

The company also plans to change IPCL`s gas-crackers to multi-feed ones. However, the
eventual decision of the expansion and conversion of the crackers would be decided by
IPCL board.

IPCL owns and operates three petrochemical complexes, a naphtha-fired cracker at


Vadodara and gas-based complexes at Gandhar in Gujarat and Nagothane in Maharashtra

Reliance Industries’ business model is significantly diversified with a substantial


presence in almost every segment of the hydrocarbons value chain ranging from
petrochemicals to exploration and refining. The charts below mention the revenue break-
up.

Currently, Reliance Industries’ business model is significantly diversified with a


substantial presence in almost every segment of the hydrocarbons value chain ranging
from petrochemicals to exploration and refining.

38
39
Bongaigaon

Company profile
Bongaigaon Refineries and Petrochemicals Ltd (BRPL) of Assam, is the only refining
company in India to be forward integrated into petrochemicals and fibers. Government of
India holds 74.46% of its equity. BRPL’s refining capacity stands at 2.35 mmtpa and
marketing of its products is done by Indian Oil Corporation Ltd (IOC). Its main
petrochemical products are dimethyl terephthalate (DMT) and polyester staple fibre
(PSF), with most of the DMT being captivity consumed for PSF production. Around 80%
of the output is light and middle distillates. In FY99, the refinery contributed 81%,
petrochemicals 10%, and PSF contributed 9 % to the turnover. In FY99, BRPL entered
into a marketing agreement with IOC for ten years. Profits have halved to Rs342.7mn in
FY99 due to lower utilization of capacities and lower realizations.

Profit and loss account


Value (Rs.Crore)
April-march’04 April-march’03 %change
Gross sales 3196.18 1861.53 71.70
Excise duty -268.27 -140.51 90.93
Net sales 2927.91 1721.02 70.13
Other income 22.37 218.86 -89.78
Total income 2950.28 1939.88 52.09
Expenditure -2464.16 -1574.66 56.49
Operating profit 486.12 365.22 33.10
Interest -15.16 -25.89 -41.44
Gross profit 470.96 339.33 38.79
Depreciation -31.09 -31.62 -1.68
Profit before tax 439.87 307.71 42.95
Tax -136.13 -129.26 5.31
Profit after tax 303.74 178.45 70.21
Net profit 303.74 178.45 70.21
Equity capital 199.82 199.82 0.00
Reserves - 238.72 -
EPS 15.20 8.93 70.21
Nos. of shares-non 51,024,074.00 51,024,074.00 0.00
promoters
% of shares – non 25.5 25.54 -0.16
promoters

Ratios

As on April-march’04 April-march’03
Operating profit margin% 15.21 19.61

40
Net profit margin% 9.50 9.58
EPS 15.20 8.93

Annual result highlights

• Net sales have increased by 70.13% from Rs.1721.02cr in Mar 2003 to


Rs.2927.91cr in Mar 2004.
• Net profit has increased by 70.21% from Rs.178.45cr in Mar 2003 toRs.303.74cr
in Mar 2004.
• Net profit margin has decreased by 0.83% from 9.58% in Mar 2003 to 9.50% in
Mar 2004.
• Operating profit margin has decreased by 22.43% from 19.61% in Mar 2003 to
15.21% in Mar 2004

41
Company wise performance

ONGC IOC HPCL BPCL MRPL IBP Kochi Reliance BRL*


Share 1425.93 1168.01 338.9 300 1752.61 22.15 138.5 1396 199.82
capital(cr.)
Reserves(cr) 38326.5 21879.4 7403.91 5549.7 349.05 603.86 - - -
OPM% 59.14 10.28 7.07 6.84 11.64 3.51 10.81 19.77 15.21
NPM% 26.65 6 3.69 3.51 4.03 2.01 5.62 9.17 9.50
EPS 60.76 59.97 56.18 56.49 2.62 96.92 40.09 36.8 15.20
BV(Rs) 278.78 197.32 228.47 194.99 11.99 282.62 130.38 227.22 21.16
PE Ratio 10.36 6.14 5.98 6.28 14.42 4.99 3.69 11.67 4.12
Price/Book 2.39 1.9 1.48 1.85 3.15 1.73 1.15 1.93 2.97
Value
Dividend% 240 210 220 175 - 250 120 52.5 50.00
Free Float 25.85 17.97 48.99 33.8 11.43 46.42 45.19 53.33 25.50
Capital
*Bongaigaon refineries ltd
Looking at the ratios we can say that ONGC has the highest EPS which indicates the
earnings attributable to a share. This shows that the company has good prospects. The
higher the EPS the better it is for the company and the investors. Looking at the PE ratio
we can say that MRPL has the highest value which indicates it is a growth company but it
also indicates the risk characteristics of a company. ONGC, Reliance, IOC, BPCL have
moderate PE ratio which is good and there are less riskier as far as investment in these
companies is considered. As far as net operating margin is considered ONGC has
reported highest growth 59.14% followed by Reliance 19.77%.MPRL has also reported
high operating margin of 11.64% since it has become a subsidiary of ONGC.

42
Future outlook

Global oil consumption is projected to grow at an average rate of two per cent a year to
almost 89 million barrels a day by 2009.Much of the growth may come from increased
consumption in non-OECD countries, such as India and China. Continued strong growth
in non-OECD consumption is projected over this period, with growth in oil consumption
averaging slightly more than three per cent a year.

43
While China is expected to be the main driver of growth in global oil consumption,
Consumption is estimated to rise 3.3 percent to 81.1 million barrels this year, as
economic growth in China boosts demand. With the off take forecast to rise six per cent
this year, the US' consumption is seen rising by over one per cent from the present 20
million barrels a day.

44
Future oil consumption in India is expected to grow rapidly, to 2.8 million bbl/d by 2010,
from 2.2 million bbl/d in 2003. India is attempting to limit its dependence on oil imports
somewhat by expanding domestic exploration and production.

Non-OPEC oil producers, who had increased production last year to 49 million barrels a
day as prices flared up, are expected to increase production by another 1.5 million barrels
a day. Given this forecast, non-OPEC oil producers could increase their share of global
oil production to around 63 per cent.

Among the non-OPEC oil producers, Russia is expected to lead the output charge. Its
production is seen rising seven per cent this year to 9.1 million barrels a day. Africa, the
US, Canada and Brazil are the others expected to increase their production.

45
From the above graph it is clear that imports of USA/India/China will be growing at a
faster pace. These three countries itself will account for around 74% of oil’s import while
developing countries like India and China will be the main drivers of growth in global oil
consumption.

46
Bibliography

Introduction to oil sector, www.karvy.com, March 2004(updated), 1-30 June.

Location of refineries, www.petroleum.nic.in, April 2004(updated), 1-30 June.

Financial statements, www.hdfcsec.com, March 2004(updated), 1-10 July.

Companies’ Profiles, www.economictimes.com, March 2004(updated), 1-30 June.

Information about Kochi refinery, www.kochirefineries.com, March-April 2003(updated),


15&16 June.

Companies’ profile, www.indiainfoline.com, March-April 2003(updated), 20 May-10


June.

Dividend, Financial Ratios of the Refineries, www.bseindia.com, March-April


2004(updated), 25 May- 25 June.

Information of Reliance, HPCL, BPCL, www.equitymaster.com, April 2004(updated),


13-15 June.

World oil consumption, www.iea.org, April 2004(updated), 27-29


June.

Introduction to refining and marketing of oil www.uktradeinvest.gov.uk, March


2004(updated), 23-25 June.

47

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