ABSTRACT-

Equity Research primarily means analyzing company’s financials, perform ratio analysis,
forecast the financials and explore scenarios with an objective of making buy/sell stock
investment recommendation. This project on equity research on oil and gas sector takes into
consideration the nuts and bolts of equity research. Equity research plays a very critical role that
fills the information gap between the buyers and sellers of shares. The main objective of equity
research is to study companies, analyze financials, and look at quantitative and qualitative
aspects mainly for decision, whether to invest or not. It is analyzing stock of oil and gas sector.
Research is valuable because it fills information gaps so that each individual investor does not
need to analyze every stock of oil and gas sector. This project also highlights the behavior of the
investors towards a particular sector in BSE and NSE. This project gives us information about
how volatile our share market is.

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OBJECTIVES-

Primary objective –

To do equity research on oil and gas.

Secondary objectives -

1) To provide overview of oil and gas sector.

2) To justify the current investment in the oil and gas sector.
3) To understand the movement and performance of stocks.
4) To recommend increase/decrease of investment in a oil and gas sector.

SCOPE-

The scope of the project is limited to understanding the basic of fundamental analysis and
technical analysis and applies it to take decision of investing in both sectors. Fundamental
analysis seeks to determine future stock prices by understanding and measuring the objectives
“values” of the equity. Whereas the study of stock charts, known as the technical analysis
believes that the past action of the market itself will determine the future course of the prices.

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LIMITATIONS-

1) Lack of awareness of equity research.

2) Misleading concepts.
3) The lack of information sources for the analysis.

PROPOSED METHODOLOGY-

The research has been based on secondary data analysis. The study has been exploratory as it
aims at examining the secondary data for analyzing the previous researches that have been done
in the area of technical and fundamental analysis of stock of oil and gas industry. The knowledge
thus gained from this preliminary study forms the basis for the further detailed descriptive
research. In the exploratory study, the various technical indicators that are important for
analyzing stocks of oil and gas sector were actually identified and important ones short listed.

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 EQUITY RESEARCH ON OIL AND GAS

INTRODUCTION-

The oil and gas sector is among the six core industries in India and plays a major role in
influencing decision making for all the other important sections of the economy.

In 1997–98, the New Exploration Licensing Policy (NELP) was envisaged to fill the
ever-increasing gap between India’s gas demand and supply. A recent report points out that the
Indian oil and gas industry is to be worth US$ 139.8 billion by 2015. India’s economic growth is
closely related to energy demand; therefore the need for oil and gas is projected to grow more,
thereby making the sector quite conducive for investment.

The Government of India has adopted several policies to fulfill the increasing demand.
The government has allowed 100 per cent foreign direct investment (FDI) in many segments of
the sector, including natural gas, petroleum products, and refineries, among others. Today, it
attracts both domestic and foreign investment, as attested by the presence of Reliance Industries
Ltd (RIL) and Cairn India.

ECONOMIC ANALYSIS-
India has emerged as the fastest growing major economy in the world as per the Central
Statistics Organization (CSO) and International Monetary Fund (IMF). According to the
Economic Survey 2015-16, the Indian economy will continue to grow more than 7 per cent in
2016-17. The improvement in India’s economic fundamentals has accelerated in the year 2015
with the combined impact of strong government reforms, RBI's inflation focus supported by
benign global commodity prices.

India was ranked the highest globally in terms of consumer confidence during October-
December quarter of 2015, continuing its earlier trend of being ranked the highest during first
three quarters of 2015, as per the global consumer confidence index created by Nielsen.

According to IMF World Economic Outlook Update (January 2016), Indian economy is
expected to grow at 7-7.75 per cent during FY 2016-17, despite the uncertainties in the global

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market. The Economic Survey 2015-16 had forecasted that the Indian economy will growing by
more than seven per cent for the third successive year 2016-17 and can start growing at eight per
cent or more in next two years.

Foreign direct investment (FDI) in India have increased by 29 per cent during October
2014-December 2015 period post the launch of Make in India campaign, compared to the 15-
month period before the launch.

India has emerged as one of the strongest performers with respect to deals across the
world in terms of Mergers and Acquisitions (M&A). The total transaction value of M&A
involving Indian companies stood at US$ 26.3 billion with 930 deals in 2015 as against US$ 29.4
billion involving 870 deals in 2014.In the M&A space, Telecom was the dominant sector,
amounting to 40 per cent of the total transaction value. Also, Private equity (PE) investments
increased 86 per cent y-o-y to US$ 1.43 billion. Total private equity (PE) investments in India
for 2015 reached a record high of US$ 19.5 billion through 159 deals, according to the PwC
Money Tree India report.

According to The World Bank, India's per capita income is expected to cross Rs 100,000
(US$ 1,505.4) in FY 2017 from Rs 93,231 (US$ 1,403.5) in FY 2016.

Consumer prices recorded flat growth in March over the previous month, which
contrasted February’s 0.24% drop. The result was largely driven by a slight rise in prices for
tobacco and intoxicants, which was offset by lower prices for fuel and light. Inflation eased in
March, coming in at 4.8%, which represented a six-month low (February: 5.3%). March’s result
came in below market analysts’ expectations of 5.0% inflation.

The wholesale price index (WPI) in March rose 0.34% over the previous month, which
contrasted February’s 0.97% fall. March’s reading reflected rising prices for manufactured goods
as well as for fuel and power products. On an annual basis, wholesale prices fell 0.9% in March,
which mirrored February’s result. However, the trend pointed up and annual average WPI
inflation rose from minus 2.6% to minus 2.5%.

Industrial production returned to growth in February, after three months of falling output.
Industrial production rose 2.0% compared to the same month last year, which contrasted

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January’s 1.5% fall. The reading surprised market analysts, who had expected a more modest
0.5% expansion.

February’s improvement was driven by broad-based gains across sectors. Manufacturing

production rebounded from a 2.8% contraction in January to a 0.7% expansion in February.
Mining output gained steam, rising from a 1.5% increase in January to a 5.0% expansion in
February.

The Reserve Bank of India (RBI) cut the repurchase rate to an over-five-year low and
announced a slew of measures designed to boost liquidity amid easing price pressures in the
Indian economy. At a scheduled meeting on 5 April, the RBI decided to cut the repurchase rate
from 6.75% to 6.50%, a decision which was widely expected by market analysts. However, in an
unanticipated move, the Bank decided to narrow the policy rate corridor from plus/minus 100
basis points to plus/minus 50 basis points and consequently cut the marginal standing facility rate
(Bank rate) to 7.00% and hiked the reverse repurchase rate to 6.00%. This decision came along
with other measures designed to help improve the transmission of policy rate cuts and support
growth in India’s economy.

Recently released data related to India’s external sector showed that the trade deficit totaled USD
5.1 billion in March, which was a smaller shortfall over the USD 11.4 billion deficit observed in
the same month last year. In addition, the March result marked the smallest gap since March
2011. For the 12 months up to March, the trade deficit recorded USD 118.5 billion, which was
an improvement from the 124.8 billion gaps tallied in the 12 months up to February.

The narrowing in the trade deficit stemmed from imports contracting a notable 21.6%
annually in March, which was a significantly more profound drop than the 5.0% plunge tallied in
February. The low-oil-price environment has caused the value of India’s imports to drop.
Accordingly, oil imports totaled USD 4.8 billion in March, which represented a 35.3% decrease
compared to the same month last year.

Meanwhile, exports fell 5.5% in March, which was a smaller fall than February’s 5.7%
contraction and marked the best result since December 2014.

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SECTOR ANALYSIS:
MARKET SIZE-

Backed by new oil fields, domestic oil output is anticipated to grow to 1 MBPD by FY16.
With India developing gas-fired power stations, consumption is up more than 160 per cent since
1995. Gas consumption is likely to expand at a CAGR of 21 per cent during FY08–17. Presently,
domestic production accounts for more than three-quarters of the country’s total gas
consumption. India increasingly relies on imported LNG; the country was the fifth-largest LNG
importer in 2013, accounting for 5.5 per cent of global imports. India’s LNG imports are
forecasted to increase at a CAGR of 33 per cent during 2012–17. However, net imports of
Natural Gas fell from 13.14 BCM in 2012-13 to 13.03 BCM in 2013-14. State-owned Oil and
Natural Gas Corporation (ONGC) dominates the upstream segment (exploration and production),
accounting for approximately 68 per cent of the country’s total oil output (FY14). Indian Oil
Corporation Limited (IOCL) operates 11,214 km network of crude, gas and product pipelines,
with a capacity of 1.6 MBPD of oil and 10 million metric standard cubic meters per day
(MMSCMD) of gas. This is around 30 per cent of the nation’s total pipeline network. IOCL is
the largest company, operating 10 out of 22 Indian refineries, with a combined capacity of 1.3
BPD.

INVESTMENT-

According to data released by the Department of Industrial Policy and Promotion (DIPP), the
petroleum and natural gas sector attracted FDI worth US$ 6.62 billion between April 2000 and
September 2015. Following are some of the major investments and developments in the oil and
gas sector:

• India's consumption of petroleum products which include domestic and industrial fuels
like petrol, diesel, cooking gas, kerosene, naphtha, etc., rose 17.7 per cent to 15.2 million
tonne (MT) in October 2015 from 12.9 MT in October 2014, as per Petroleum Planning
and Analysis Cell (PPAC) data. The increase in consumption can be mainly attributed to
India's high economic growth, low fuel prices, festival season demand.
• Essar Projects, the engineering, procurement & construction (EPC) arm of Essar Group,
in a joint venture with Italy’s Saipem has won a US$ 1.57 billion contract from Kuwait

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 National Petroleum Company (KNPC) for setting up part of the Al-Zour Refinery Project
in Kuwait.
• ONGC Videsh Ltd (OVL), the foreign arm of state-owned petroleum explorer Oil and
Natural Gas Corporation (ONGC), has planned to acquire up to 15 per cent stake in CSJC
Vankorneft, which owns Russia's second-largest oil and gas field.
• Kirloskar Oil Engines Ltd (KOEL) and MTU Friedrichshafen, GmbH signed a
memorandum of understanding (MoU) towards exclusive cooperation on the building and
commissioning of emergency diesel gensets (EDG).
• CDP Bharat Forge GmbH acquired 100 per cent equity shares of Mécanique Générale
Langroise (MGL) for € 11.8 million (US$ 12.91 million) to consolidate Bharat Forge’s
position in the oil and gas sector by enhancing service offerings and geographical reach.
• Technic won a € 100 million (US$ 109.37 million) contract from ONGC to build an
onshore oil and gas terminal in Andhra Pradesh.
• RIL and Mexican state-owned company Petroleos Mexicanos (Pemex) entered into a
memorandum of understanding (MoU) for cooperation in the oil and gas sector.
• GAIL Global USA LNG LLC (GGULL) signed an agreement with the US-based WGL
Midstream Inc to source gas required to produce 2.5 MT of liquefied natural gas (LNG) a
year at the Cove Point Terminal in Maryland, US.
• Russian oil major Rosneft and the Essar Group have entered into a contract for Rosneft
to buy 49 per cent stake in Essar’s Vadinar refinery and supply 100 million tonnes of oil
to Essar for the next 10 years.
• The Carlyle Group plans to invest US$ 500 million in Magna Energy Ltd, an India-
focused upstream oil and gas company that aims to secure local licenses in India with a
primary focus on development and production.
• RIL aims to invest US$ 31.7 billion in core oil and petrochemical business over the next
12-18 months.
• Essel Group Middle East plans to acquire 60 per cent participating interest in the African
oil and gas exploration projects of a Canadian publicly traded oil and gas company,
Simba Energy Inc.

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 • IOCL targets to increase the capacity of its Panipat refinery by 34 per cent, to 20.2
million tonnes by 2020 through an investment of US$ 2.38 billion. IOC also plans to
increase capacity of Koyali and Mathura refineries.

GOVERNMENT INITIATIVES-

Some of the major initiatives taken by the Government of India to promote oil and gas sector
are:
• The Ministry of Petroleum and Natural Gas has put up for comments a draft policy, to opt
for revenue-sharing model while auctioning future oil and gas blocks for exploration to
private companies, compared to production-sharing mode earlier, in order to make the
process more transparent and market-oriented.
• The Ministry of Petroleum and Natural Gas has announced a new 'Marginal Fields
Policy', which aims to bring into production 69 marginal oil and gas fields with 89
million tonnes or Rs 75,000 crore (US$ 11.5 billion) worth of reserves, by offering
various incentives to oil and gas explorers such as exemption from payment of oil cess
and customs duty on machinery and equipment.
• Government of India entered into bilateral discussion with Norway to extend co-
operation between the two countries in the field of oil and natural gas and hydrocarbon
exploration.
• To strengthen the country`s energy security, oil diplomacy initiatives have been
intensified through meaningful engagements with hydrocarbon rich countries.
• PAHAL - Direct Benefit Transfer for LPG consumer (DBTL) scheme launched in 54
districts on November 11, 2014 and expanded to rest of the country on January 1, 2015
will cover 15.3 crore active LPG consumers of the country.
• 24 x 7 LPG service via web launched to provide LPG consumers an integrated solution to
carry out all services at one place, through My LPG.in, from the comfort of their home.
• The Government of India launched the 'Give It Up' campaign on LPG subsidy that helped
it save Rs 140 crore (US$ 21.11 million) as on 22nd July 2015 with nearly 12.6 lakh
Indians registering for the cause. As per recent statistics from oil ministry, as many as
30,000 to 40,000 households are giving up LPG subsidy each day.

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 • Special dispensation for North East Region: For incentivizing exploration and production
in North East Region, 40 per cent subsidy on gas price has been extended to private
companies operating in the region, along with ONGC and OIL.
• The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Mr.
Narendra Modi, has approved a mechanism for procurement of Ethanol by Public Sector
Oil Marketing Companies (OMCs) to carry out the Ethanol Blended Petrol (EBP)
Program.

ROAD AHEAD -

By 2015-16, India’s demand for gas may touch 124 MTPA against a domestic supply of 33
MTPA and higher imports of 47.2 MTPA, leaving a shortage of 44 MTPA, as per projections by
the Petroleum and Natural Gas Ministry of India. Business Monitor International (BMI) predicts
that India would account for 12.4 per cent of Asia-Pacific regional oil demand by 2015.

FDI POLICY-

The present Foreign Direct Investment (FDI) policy for the Petroleum and Natural Gas Sector is
laid down by para 6.2.4.2 of Circular 6 of 2013 issued on 22.08.2013 by the Department of
Industrial Policy and Promotion, Ministry of Commerce and Industry. The Policy is as follows:

Item % of FDI Cap/Equity

Entry Route

Exploration activities of oil and natural gas fields, infrastructure related to marketing of
petroleum products and natural gas, petroleum product pipelines, natural gas/pipelines, LNG
Regasification infrastructure, market study and formulation and petroleum refining in private
sector, subject to the existing sectoral policy and regulatory framework in the oil marketing
sector and the policy of the Government on private participation in exploration of oil and the
discovered fields of natural oil companies.

Petroleum refining by the Public Sector Undertaking (PSU), without any disinvestment or
dilution of domestic equity in the existing PSUs.

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REGULATIONS IN PETROLEUM & NATURAL GAS SECTOR -

There are certain sectoral policy regulations that are required to be adhered to. The sectoral
policy/regulations applicable for the exploration and production (E&P) activities in India are as
follows:

• Statutes governing the upstream sector, viz. the Oil Field (Regulation and Development)
Act, 1948 and Petroleum and Natural Gas Rules 1959 which govern grant of Petroleum
Exploration Licenses and Mining Leases, royalty etc.
• New Exploration Licensing Policy(NELP)-allotment of exploration blocks only through
international competitive bidding
• Coal Bed Methane(CBM) Policy- allotment of coal blocks for extraction of methane gas
from coal seams through international competitive bidding

The sectoral policy/ regulations applicable for refining and marketing activities in India are
as follows:

• Statutes governing industrial production, viz The Industries (Development And

Regulation) Act, 1951, and rules framed there under, and the Petroleum Act, 1934, which
relate to import, transport, storage, production, refining and blending of petroleum.
• The marketing regulations prescribe that for gaining marketing rights for transportation
fuel by the private investors, including for foreign investment, a threshold of investment
(Rs.2000 crore) should have been made and/ or be committed to make a number of
specific product-wise regulations and rules framed under the Petroleum Act, 1934, all of
which have a thrust on controlling adulteration and ensuring quality of the product.

KEY PROVISIONS IN UNION BUDGET FOR OIL AND GAS COMPANIES-

The Budget announcement of a 20% ad valorem cess is directionally a right step.

However, a lower rate of cess—5% to 8% of realized price of crude oil—would have likely
helped stimulate the oil & gas sector; particularly fields which are already producing crude oil.

Budget 2016: Given the global economic headwinds, the new oil order and the Prime
Minister’s vision of reduced imports, I was expecting fundamental step change in the budget

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towards its approach to the oil & gas industry. One of the most critical pieces of reform for the
Oil & Gas industry was to convert the existing specific cess levy to an ad valorem.

The Budget announcement of a 20% ad valorem cess is directionally a right step.

However, a lower rate of cess—5% to 8% of realized price of crude oil—would have likely
helped stimulate the oil & gas sector; particularly fields which are already producing crude oil.
Lower cess rate was imperative as, given the geological landscape; the fiscal burden on the
Indian oil & gas sector is very high vis-a-vis other countries.

Today, the share of natural gas in India’s total energy mix is way below the world
average. Given the climate change imperative and India’s Intended Nationally Determined
Contribution, it is vital that in addition to the renewable energy, we create an enabling
framework which increases the share of natural gas in India’s overall energy mix.

To this end, the Budget announcement of a proposal under consideration for new
discoveries and areas which are yet to commence production, for providing a calibrated
marketing freedom and for predetermined ceiling price on the principle of landed price of
alternative fuels is indeed a positive step. This would likely improve the economics of future gas
discoveries and as a result support higher penetration of natural gas.

The Budget also has made provision which could likely violate existing signed contracts.
For instance, the Budget announcement with respect to Section 80-IB is of concern. It envisages
no deduction for mineral oil or natural gas which commences production on or after April 1,
2017. This provision is contrary to what has been provided in the production sharing contract and
stated government policy.

The Indian oil & gas sector is at crossroads. It is going through a challenging phase and is
in need of significant investments. It is imperative that we intensify exploration and production
in India, attract investments so that we secure energy supplies, support and create hundreds of
thousands of jobs, generate billions in revenue for the industry and government, and as a result
stimulate overall economic growth. However, pressures on the sector have grown as prices have
continued to fall.

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 Given the historic low oil prices, numerous governments have facilitated oil & gas
companies to sustain exploration and production till global oil & gas market reaches a better
equilibrium.

Thus, in addition to the two positive measures announced in the budget, the Union
Finance Minister could have utilized his third budget to announce other policy measures which
could have further help restore investor confidence.

FOREIGN INVESTMENT POLICY-OIL AND GAS SECTOR-

The Indian government has announced various policy initiatives in order to attract foreign
investment in oil and gas sector. The key initiatives include:

• Indian oil and gas fields are open for investment by domestic private and foreign
entrepreneurs under the framework of NELP.
• FDI is permitted up to 100% in discovered small and medium sized fields through
competitive bidding.
• Delicensing of refinery industry.
• The refining sector is open to the joint sector (public private partnership) as well as to the
private sector for new refineries. In case of private Indian company, FDI is permitted
upto 100%.
• For petroleum products and pipeline sector, FDI is permitted upto 100% through
automatic route.
• FDI upto 100% permitted for natural gas/LNG pipeline with prior government approval.
• Subject to the policy laid down by the government, marketing of transportation fuels (like
MS, HSD and ATF) can be permitted to a company investing or proposing to invest
atleast Rs.20 billion in exploration, refining, pipelines, or terminals in the oil and gas
sector on India.
• FDI is permitted upto 100% on automatic route in infrastructure related to marketing of
petroleum products.
• FDI upto 100% is permitted for the purpose of market study and formulation, and for
investment/financing.
• For actual trading and marketing, minimum 26% Indian equity is required over 5 years.

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DEMAND AND SUPPLY DRIVERS-

• Socio Economic Development

Development is a continuous process and both – the developed as well as developing

countries constantly strive for the growth and development of their economy as well as
society in general. In order to develop socially, it is crucial for such countries to focus on
advancing their infrastructure projects like roads, bridges and transportation systems
Factors contributing to economic growth such as industrialization and agriculture also
need to keep receiving impetus for growth. It is also crucial to concentrate on the growth
of communications infrastructure to keep the world connected.

All the above mentioned factors are dependent on various sources of energy, including oil
and gas. As countries compete with each other at a global level to achieve their growth
objectives, the role of energy sources and suppliers cannot be undermined. Hence, it can
be said that socio economic ambitions will serve as an important driver of change in this
industry.

• Technology

Oil companies have come a long way when it comes to increasingly harnessing the power
of technology to adapt to the demand. From installing underground and underwater steel
pipe for transporting oil and petroleum, to drilling deep into the ocean beds for oil
exploration in offshore locations, and even using remote sensors to find reserves, this
industry has always tapped its potential and will continue to do so.

The oil and gas industry has always striven to go beyond conventional technology and
embrace unconventional technology to boost innovation in its operations, especially deep
water exploration. Cost-Revenue Ratio

Costs related to operating refineries have seen a significant increase in the last few years
in this sector. Project costs have risen greatly as drilling costs alone have multiplied
owning to the rise in steel prices. This has also had an effect on offshore operations.
Although the revenues generated also remain high so far, what remains to be seen is
whether the industry is able to adapt itself to the global market.

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 With the ever increasing demand and dependence on these energy sources, it is hoped
that this industry will continue to create revenue to invest in new exploration projects and
technology, and the costs would gradually stabilize. Generation of revenue is an
important driver that influences innovation in the oil and gas sector.

• Employee Safety

Keeping hazards away is never easy for any industry and the oil and gas industry is no
different. However, due to pressure from the government and regulatory authorities, local
agencies, NGOs and workers, as well as to bring about corporate responsibility, this
sector has been focusing on providing a safe working environment to its employees.

Risk analysis and management are being treated as crucial aspects in the operation of
refineries and oil rigs. Management attitudes towards safety has witnessed a change for
the better by undertaking accident prevention measures, risk assessment and
identification, implementation of the right controls to minimize/eliminate risks and
hazards.

• The Great Environment Debate

In the past, our environment has endured manmade disasters such as oil spills in the
oceans, gas flaring, air, water and land pollution and so on. Global warming has become
a major threat to our environment and its effects are being felt all over the world since the
last few years. The oil and gas industry has taken notice of this and is keeping its efforts
on to combat environmental issues.

Environmental regulatory policies and technology such as carbon capture and storage
have been implemented to ensure that minimum damage is caused to the environment
and the operations of this sector become more environments friendly. The concept of
clean energy is also fast gaining ground and is testimony to the fact that necessary
measures are being taken to bring about a change in the outlook toward environmental
issues.

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PORTER’S FIVE FORCE ANALYSIS-

• Threat of Substitute Products

The substitute products of oil and gas energy are coal, solar energy, wind energy
hydroelectricity, nuclear energy and many more. The threat of substitute is low in the oil
and gas industry in which BP is operating. This threat is low due to an increased cost of
production of alternative energy solutions which are not as cost effective; moreover,
these alternatives/substitutes do not give same efficiency that is given by oil and gas.
However, companies are investing a great amount in finding out other alternatives such
as solar energy and making them as efficient as oil and gas. A disadvantage of this is that
the switching and maintenance cost is very high when dealing with these alternatives.
This makes them unattractive for consumers.
• Threat of new Entrants
Entry of new entrant depends on entry and exit barriers in any particular industry. The
main barriers to entry are capital requirement to start a business, economies of scale,
brand equity, regulatory policies of the government and access to distribution channels.
In oil and gas industry, barriers to entry are very high because high level of capital
investment and technical knowledge that is required to enter in this industry. However,
new entrants into the sector of renewable energy market are considered low as it requires
a huge amount of capital.
• Intense Rivalry among Existing Players
Intensity of competition among the existing competitors depends on the number of
competitors in market and their potential and competencies. Intensity of competition
among existing players will be high when there are high exit barriers, there are number of
small or equal competitors who lack differentiation. The oil and gas industry is
characterized by big companies like Shell, BP, Exxon Mobil, Total, chevron, and Conoco
Phillips. In this industry, rivalry is high. These companies produce low differentiated
products and exit barrier are very high in this industry. In addition to the high level or
rivalry and high exit barriers, there are also high fixed cost and slow industry growth.

16
 • Bargaining Power of Suppliers
Suppliers have strong bargaining power when they have a well
well-organized
organized market,
availability
bility of few substitutes and switching cost to other supplier is high. The
bargaining power of suppliers is high in oil and gas industry. The main suppliers are
countries having oil and gas reserves. The main suppliers of oil are the OPEC countries
such as Iran and Saudi Arabia. A focus on low production costs to achieve economies of
scale is a requirement needed to be achieved. Moreover, suppliers require a high level of
technical knowledge and competencies in this industry which increases their bargaining
bargaini
power. The more they supply, the cheaper the commodity becomes – shifting the supply
curve to the right.
• Bargaining Power of Buyers
Bargaining power of buyer means how much control the buyers have to force down the
products price and bargain for higher quality or more services. Buyers have strong buying
power when buyers make bulk purchase, switching cost of buyer is low and buyers are
price sensitive. In this industry the bargaining power of buyer is medium. Oil and gas is a
commodity which has a low bbrand
rand loyalty and where product differentiation is. There are
many buyers who can switch from the oil of one particular company another company
who possess these same commodities. These factors lead to buyers to go in favor of lower
prices.

COMPANY ANALYSIS:

1) Aban Offshore-

Aban Offshore Limited offers a diverse range of offshore drilling services to clients in India
and abroad.

Exploratory services

Drilling services

Production of hydrocarbons

Manning and management

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 'The Aban fleet has proven itself drilling operations, production and exploratory block
worldwide for reputed clients like Oil & Natural Gas Corporation Ltd. (ONGC), Hardy
Exploration & Production (India) Inc., Shell Brunei, Shell Malaysia, Gujarat State Petroleum
Corporation Ltd. (GSPC),Hindustan Oil Exploration Co. Ltd., Cairn Energy, Petronas
Carigali, ROC Oil, Shell (South East Asia), Exxon Mobil Malaysia.

The services ensure a leading edge in the competitive field of offshore drilling. The company
fulfills all the stringent international standards, undertakes effective risk assessment and
maintains strict safety standards in all its offshore operations. A powerful team of world-class
specialists, a well-equipped maintenance team and excellent fabrication facilities reinforce
the company’s essence.

They have also gone beyond core competence in response to maintaining a culture of
excellence and innovation. This was demonstrated when AOL successfully executed
manning and management contracts for ONGC's jack-up rigs, which included training its
personnel in operational and management methods.

RECENT DEVELOPMENTS:

The Company reported a 102.74 per cent increase in its profit after tax from 938.73 million
in 2012- 13 to 930.65 million in 2013-14. Correspondingly, the Company's cash profit (profit
after tax plus depreciation) strengthened from 967.20 million to 246.90 million during the
period.

At Aban, this improvement was the result of some decisive initiatives in improving its
deployment, operational and financial performance.

One, the Company successfully deployed almost all its rigs on contract, resulting in high
asset utilization. Add to this the fact that the Aban Ice commenced on a new contract during
the year under review at an enhanced day rate. As most of the contracts are in USD, the
depreciation of the Indian rupee against USD during the year resulted in higher revenues in
Indian rupee and a correspondingly higher profit.

Two, the Company refinanced its debt for a longer tenure of 15 years, which aligned debt
tenures with the long- term nature of the Company's assets and reduced considerable stress
on the Company's repayment capability and projected cash flows.

18
 Three, the Company sustained prevailing rates for long-term contracts and capitalized on
higher rates where rig contracts were renewed.

Four, even as the external currency environment remained volatile, the Company
converted all its loans into dollar denomination, progressively emerging as a currency-neutral
corporate with revenues also in dollar denomination.

SWOT ANALYSIS:

1. 20 offshore drilling units and amongst top ten in world with

respect to the assets owned.

2. Rich customer base worldwide including Indian PSUs like

ONGC and many other private players.

3. Diversified business model with business in construction, wind

energy, offshore and onshore drilling, power generation.

4. Strong focus on CSR activities.

Strengths 5. New projects in Pipeline to enhance operations.

1. Increasing cost due of raw materials, causing a reduction in

margin.

2. Tremendous loss because one of the vessel had capsized in the

Weaknesses offshore of Venezuela.

1. India's growing energy requirements.

2. Increasing natural gas market globally.

3. Heavy industrialization causing an increase in demand for fuel.

Opportunities 4. Demand-Supply gap in India.

1. Possibilities of reduction in subsidies on natural gas by

government of India causing a fall in demand.

2. Economic instability and fluctuations in India's policies.

Threats

19
 3. Development of alternate source of energies.

2) Chennai Petro-

Chennai Petroleum Corporation Limited (CPCL), formerly known as Madras Refineries

Limited (MRL) was formed as a joint venture in 1965 between the Government of India
(GOI), AMOCO and National Iranian Oil Company (NIOC) having a share holding in the
ratio 74%: 13%: 13% respectively. Originally, CPCL Refinery was set up with an installed
capacity of 2.5 Million Tonnes Per Annum (MMTPA) in a record time of 27 months at a cost
of Rs. 43 crore without any time or cost overrun.

In 1985, AMOCO disinvested in favor of GOI and the shareholding percentage of GOI
and NIOC stood revised at 84.62% and 15.38% respectively. Later GOI disinvested 16.92%
of the paid up capital in favor of Unit Trust of India, Mutual Funds, Insurance Companies
and Banks on 19th May 1992, thereby reducing its holding to 67.7 %. The public issue of
CPCL shares at a premium of Rs. 70 (Rs. 90 to FIIs) in 1994 was oversubscribed to an extent
of 38 times and added a large shareholder base.

As a part of the restructuring steps taken up by the Government of India, Indian Oil
acquired equity from GOI in 2000-01. In July 2003, NIOC transferred their entire
shareholding to Naftiran Intertrade Company Limited, an affiliate, in line with the Formation
Agreement, as part of their organizational restructuring. Currently IOC holds 51.89% while
NICO holds 15.40%.

CPCL has two refineries with a combined refining capacity of 11.5 Million Tonnes Per
Annum (MMTPA). The Manali Refinery has a capacity of 10.5 MMTPA and is one of the
most complex refineries in India with Fuel, Lube, Wax and Petrochemical feed stocks
production facilities. CPCL's second refinery is located at Cauvery Basin at Nagapattinam.
This unit was set up in Nagapattinam with a capacity of 0.5 MMTPA in 1993 and later
enhanced to 1.0 MMTPA.

20
 The main products of the company are LPG, Motor Spirit, Superior Kerosene, Aviation
Turbine Fuel, High Speed Diesel, Naphtha, Bitumen, Lube Base Stocks, Paraffin Wax, Fuel
Oil, Hexane and Petrochemical feed stocks. The Wax Plant at CPCL has an installed capacity
of 30,000 tonnes per annum, which is designed to produce paraffin wax for manufacture of
candle wax, waterproof formulations and match wax. A Propylene Plant with a capacity of
17,000 tonnes per annum was commissioned in 1988 to supply petrochemical feedstock to
neighboring downstream industries. The unit was revamped to enhance the propylene
production capacity to 30,000 tonnes per annum in 2004. CPCL also supplies LABFS to a
downstream unit for manufacture of Liner Alkyl Benzene.
The crude throughput for the year 2014-2015 was 10.782 million metric tonnes (MMT).The
company’s turnover for the year 2014-15 was Rs 47,877.82 crores and the Profit after Tax
was (Rs.38.99 crores).

RECENT DEVELOPMENTS:

• Chennai Petroleum Corporation Ltd announces allotment of Non-convertible Cumulative

Redeemable Preference Shares to Indian Oil Corporation Ltd

Chennai Petroleum Corporation Ltd: Says 100,00,00,000 Non-convertible Cumulative

Redeemable Preference Shares to Indian Oil Corporation Limited on Private Placement
Preferential Allotment Basis aggregating to 1000 Indian Rupees Crore.

• Chennai Petroleum Corporation Ltd appoints Gautham Roy as Managing Director

Chennai Petroleum Corporation Ltd: Says that Gautham Roy has been appointed as
Managing Director, in terms of letter dated Oct. 09, 2014, received from Ministry of
Petroleum and Natural Gas, Government of India. Says Gautham Roy has assumed the
charge as Managing Director effective Oct. 14.

21
SWOT ANALYSIS:

1. One of the most advance and complex refinery in India is owned

by CPCL

2. Largest refinery in south India with 10.5 million metric tons per
annum

3. Robust system and process to ensure full safety

4. The products produced by company ranges from Motor Spirit,

Kerosene, Naphtha, Motor Spirit, Aviation Turbine Fuel, Diesel,
Lube base Stocks, Fuel oil, Bitumen, Hexane and Petrochemical
feed stocks.

Strengths 4. Company has leading research facility in area of Petroleum

1. Comparatively smaller operations and visibility as compared big

industry players

Weaknesses 2. Reducing margins due to increase in cost

1. India's growing energy requirements

2. Increasing natural gas market globally

3. Heavy industrialization causing an increase in demand for fuel

Opportunities 4. Demand-Supply gap in India

1. Possibilities of reduction in subsidies on natural gas by

government of India causing a fall in demand

2. Economic instability and fluctuations in India's policies

Threats 3. Slow policy actions taken by government of India

22
3) Gujarat State Petro-

GSPC is one of the leading oil and gas exploration, development and production
companies in India. They are also one of the largest gas trading companies in India. In
addition, they have a significant presence in the gas transmission and gas distribution
businesses. Their exploration, development and production activities are conducted both
onshore and offshore in India and overseas. Government of Gujarat along with its public
sector undertakings is holding more than 97% of equity of the company as on 31-Mar-15.

Their primary asset is the Deen Dayal field in the Krishna-Godavari basin (the "KG
basin"), located off the east coast of the State of Andhra Pradesh, India, which has significant
gas reserves, part of which, Deen Dayal West ("DDW") field, and is fully developed for
commercial production. They are the operator of the offshore KG-OSN-2001/3 block (the
"KG block"), which includes the DDW field, and hold an 80.0% Participating Interest (PI) in
the block.

They also hold PI in 16 producing fields in the Cambay basin. As of now they hold PI in
26 onshore and offshore exploration and production blocks. 24 of these blocks are located in
India and 02 are located in Australia and Indonesia. They conduct all exploration,
development and production activities through unincorporated joint ventures with other
domestic oil and gas companies and foreign partners and pursuant to PSCs and PSAs.

They, through their Subsidiaries and Associates, operate the largest gas transmission and
distribution network in the State of Gujarat. Their subsidiary, Gujarat State Petronet Limited
(GSPL), is a gas transmission company on common carrier basis. Gujarat Gas Ltd. and
Sabarmati Gas are engaged in the business of City Gas Distribution and related pipeline
infrastructure in Gujarat. Between them, these companies have developed pipeline
infrastructure and supply piped gas to domestic customers, industrial customers, commercial
customers and Compressed Natural Gas ("CNG") stations in Gujarat.

They trade in Liquefied Natural Gas ("LNG"), catering to industries engaged in power
generation, steel and city gas distribution, among others.

23
 They engage in other activities in the energy sector as well. Associate, GSPC LNG
Limited (GSPC LNG), is developing an LNG terminal at Mundra in Gujarat. Their associate
company Gujarat State Energy Generation Limited (GSEG), owns and operates a gas based
power plant at Hazira in Gujarat. Another wholly owned subsidiary, GSPC Pipavav Power
Company Limited (GPPC), is setting up a gas-fired combined cycle power plant at Pipavav
in Gujarat. They have also set up a wind farm at Jakhau in Gujarat.

RECENT DEVELOPMENTS:

• Gujarat State Petronet Ltd recommends dividend

Gujarat State Petronet Ltd: Recommends dividend of 1.2 Indian rupees per share of 10
rupees each (i.e. at 12 pct) for the financial year 2014-15.

• Gujarat State Petronet Ltd approves appointment of managing director

Gujarat State Petronet Ltd: Approved the appointment of Atanu Chakraborty, lAS as
managing director of the company with effect from Nov. 06.

SWOT ANALYSIS:

1. Vertically integrated company in field of hydrocarbon activities

2. Krishna Godavari Basin founded by GSPL was one of India's

largest gas find

3. Strong backing by Gujarat Government with 95% stake owned

by the government itself.

4. Many subsidiaries in across natural gas value chain

Strengths 5. Strong business alliances with partners worldwide

1. Intervention of Govt. policies affecting operations

Weaknesses

24
 2. Increasing costs and declining oil reserves

3. Business segments prone to changes in regulations

1. India's growing energy requirements

2. More oil wells discoveries

3.Heavy industrialization causing an increase in demand for fuel

Opportunities 4. Demand-Supply gap in India

1. Possibilities of reduction in subsidies on natural gas by

government of India causing a fall in demand

2. Economic instability and fluctuations in India's policies

3. Risks of SINKING investments of overseas assets which are in

Threats exploration stage in case of no hydrocarbon discovery

4) Petronet LNG-

Petronet LNG Limited, one of the fastest growing world-class companies in the Indian
energy sector, has set up the country's first LNG receiving and regasification terminal at
Dahej, Gujarat, and another terminal at Kochi, Kerala. While the Dahej terminal has a
nominal capacity of 10 MMTPA [equivalent to 40 MMSCMD of natural gas], the Kochi
terminal has a capacity of 5 MMTPA [equivalent to 20 MMSCMD of natural gas]. The
company is in the process to build a third terminal at Gangavaram, Andhra Pradesh.

Petronet LNG is at the forefront of India's all-out national drive to ensure the country's
energy security in the years to come.

Formed as a Joint Venture by the Government of India to import LNG and set up LNG
terminals in the country, it involves India's leading oil and natural gas industry players. Their
promoters are GAIL (India) Limited (GAIL), Oil & Natural Gas Corporation Limited

25
 (ONGC), Indian Oil Corporation Limited (IOCL) and Bharat Petroleum Corporation Limited
(BPCL). The authorized capital is Rs. 1,200 crore ($240 million).

RECENT DEVELOPMENTS:

• Petronet LNG says Kochi terminal utilization may rise to 20 pct in 1 year

Petronet LNG Ltd: Exec says "good possibility that we are qualified to bid for a LNG
terminal in Bangladesh". Exec says Kochi LNG terminal currently operating at 5.5
percent capacity, may go up to 20 percent in a year. Exec says landed price for gas from
Qatar's RasGas around $5 per MBTU. Exec says utilization capacity highest ever at 11
pct.

• Petronet LNG Ltd announces officer changes

Petronet LNG Ltd: Says that Shri. Prabhat Singh has been appointed as Managing Director
& CEO by the Board of Directors in its meeting held on July 30 in place of Dr. A. K.
Balyan.

SWOT ANALYSIS:

1. India's largest buyer of natural gas

2.Strong backing by government of India

3. Strategic location near the coast of India

4.Company expanding its capacity to more than double

Strengths 5. Strong participation in community development in India

1. Reducing margins because of fluctuation in currency

2. Revenues depends on international LNG price which keeps on

Weaknesses fluctuating

26
 1.India's growing energy requirements

2.Increasing natural gas market globally

3.Heavy import dependence of natural gas

Opportunities 4. Large gap in India's demand and supply

1.Frequent labor unrest in India

2.Labour Unions

3.Environmental hazards cause a backlash

Threats 4.Economic instability and fluctuations in India's policies

MIDDLE CAPITALIZATION COMPANIES-

Company P/E EPS Industrial

LTPT
name Ratio Average
Aban offshore 4.49 29.87 1.12 33.45
Chennai petro 3.39 -2.62 0.84 -2.20
Gujarat state
19.06 7.29 4.76 34.70
petro
Petronet LNG 21.26 11.77 5.31 62.49

FUNDAMENTAL ANALYSIS-

1) Price to earning ratio- PE ratio explains that to earn Rs.1 how a person actually has to
pay. Here the PE ratio is written by the

PE= PRICE/EPS

27
 2) LTPT- LTPT is long term price target. LTPT is the term where the companies which are
selected as large cap companies will have their future values. Those FV can be more and
can also be less depending upon the over valuation and under valuation of the stock. If
company A is been over brought in the market then there is a probability that the price in
the long term may fall and say if company B is less valued as compared to its capabilities
then there is a high profitability that the stock price may rise in the future.

LTPT=EPS*Industrial average.

Analysis-

After doing the analysis we come to know that all the companies selected are over
valued. Their company PE ratio is more than industrial PE. Hence this proves that, these
stocks are already grown to certain extent and has limited scope to increase in future.

RATIO ANALYSIS-

• Current Ratio

Company 2013 2014 2015 Average Rank

Name/Year
Aban Offshore 0.77 0.46 1.15 0.79 4
Chennai Petro 0.91 0.97 0.72 0.86 3
Gujarat State 2.16 1.39 1.37 1.64 1
Petro
Petronet LNG 1.18 1.29 1.87 1.44 2

Analysis: Standard current ratio is 2:1. The current ratio helps investors and creditors
understand the liquidity of a company and how easily that company will be able to pay off its
current liabilities. Looking at the data of Gujarat State petro we understand it has more
current assets than current liabilities compared to other companies data. So here we suggest
to invest in Gujarat State petro.

• Quick Ratio
28
 Company 2013 2014 2015 Average Rank
Name/Year
Aban Offshore 0.69 0.37 1.04 0.7 3
Chennai Petro 0.28 0.26 0.26 0.26 4
Gujarat State 2.02 1.28 1.17 1.49 1
Petro
Petronet LNG 0.88 1.01 1.25 1.04 2

Analysis: Standard quick ratio is 1:1 and it indicates the immediate solvency. Higher quick
ratios are more favorable for companies because it shows there are more quick assets than
current liabilities. A company with a quick ratio of 1 indicates that quick assets equal current
assets. This also shows that the company could pay off its current liabilities without selling
any long-term assets. Looking at the three years data of all the companies we come to know
that Gujarat State Petro has good quick ratio compared to other companies.

• Return on Asset Ratio

Company 2013 2014 2015 Average Rank

Name/Year
Aban Offshore -0.29% 4.57% 4.03% 2.77% 3
Chennai Petro -12.52% -2.17% -0.35% -5.01% 4
Gujarat State 10.24% 7.75% 7.40% 8.46% 1
Petro
Petronet LNG 10.36% 5.79% 7.93% 8.02% 2

Analysis: Higher ratio is more favorable to investors because it shows that the company is
more effectively managing its assets to produce greater amounts of net income. A positive
ROA ratio usually indicates an upward profit trend as well. Here the company should have
positive and higher ROA and Gujarat State petro fulfills both the criteria in comparison with
other companies. So here we suggest to invest in Gujarat State Petro.

29
• Return on Capital Employed

Company 2013 2014 2015 Average Rank

Name/Year
Aban Offshore -0.40% 6.33% 5.04% 3.65 3
Chennai Petro -45.18% -6.80% -1.44% -17.80 4
Gujarat State 11.47% 8.76% 8.21% 9.48 2
Petro
Petronet LNG 15.19% 8.38% 9.10% 10.89 1

Analysis: The return on capital employed ratio shows how much profit employed capital
generates. Obviously, a higher ratio would be more favorable because it means that more
profits are generated by each rupee of capital employed. Here we come to know that Gujarat
State Petro has higher return on capital employed compared to Petronet LNG it has stable
fluctuations.

• Return on Equity

Company 2013 2014 2015 Average Rank

Name/Year
Aban Offshore 0.00 9.50% 6.64% 5.38% 3
Chennai Petro 0.00 0.00 0.00 0% 4
Gujarat State 18.29% 12.72% 11.32% 14.11% 2
Petro
Petronet LNG 25.82% 14.27% 15.51% 18.53% 1

Analysis: Return on equity measures how efficiently a firm can use the money from
shareholders to generate profits and grow the company. Higher ratios are almost always
better than lower ratios, but have to be compared to other companies’ ratios in the industry.
Here Petronet LNG in having decreasing return on equity and Gujarat state Petro in having
stable return on equity. So here we suggest Gujarat state Petro to invest.

30
• Earning Per Share

Company 2013 2014 2015 Average Rank

Name/Year
Aban Offshore -10.30 33.91 29.87 17.82 1
Chennai Petro -118.65 -20.40 -49.79 -62.94 4
Gujarat State 9.56 7.45 7.29 8.1 3
Petro
Petronet LNG 15.32 9.49 11.77 12.19 2

Analysis: Earning per share is the same as any profitability or market prospect ratio. Higher
earnings per share are always better than a lower ratio because this means the company is
more profitable and the company has more profits to distribute to its shareholders. Looking at
the data we come to know that Petronet LNG has positive and higher EPS compared to
Gujarat State Petro.

• Debt to Equity Ratio

Company 2013 2014 2015 Average Rank

Name/Year
Aban Offshore 0.89 0.52 0.27 0.56 3
Chennai Petro 2.82 3.17 2.66 2.88 4
Gujarat State 0.46 0.31 0.25 0.34 1
Petro
Petronet LNG 0.61 0.58 0.42 0.53 2

Analysis: A lower debt to equity ratio usually implies a more financially stable business.
Companies with a higher debt to equity ratio are considered more risky to creditors and
investors than companies with a lower ratio. Here by looking at the data we come to know
that Gujarat State Petro has lower debt to equity ratio. So we suggest to invest in Gujarat
State Petro.

31
TECHNICAL ANALYSIS: INTRODUCTION
INTRODUCTION-

The methods used to analyze securities and make investment decisions fall into two very broad
categories: fundamental analysis and technical analysis.. Fundamental analysis involves
analyzing the characteristics of a company in order to estimate its value. Technical analysis takes
a completely different approach; it doesn't care one bit about the "value" of a company or a
commodity. Technicians are only interested in the price movements in the market.

Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and
demand in a market in an attempt to determine what direction, or trend,, will continue in the
future. In other words, technical analysis attempts to understand the emotions in the market by
studying the market itself, as opposed to its components. If you understand the benefits and

32
limitations of technical analysis, it can give you a new set of tools or skills that will enable you to
be a better trader or investor.

Technical analysis: The basic assumptions

Technical analysis is a method of evaluating securities by analyzing the statistics generated by

market activity, such as past prices and volume. Technical analysts do not attempt to measure a
security's intrinsic value, but instead use charts and other tools to identify patterns that can
suggest future activity.

Just as there are many investment styles on the fundamental side, there are also many different
types of technical traders. Some rely on chart patterns, others use technical indicators and
oscillators, and most use some combination of the two. In any case, technical analysts' exclusive
use of historical price and volume data is what separates them from their fundamental
counterparts. Unlike fundamental analysts, technical analysts don't care whether a stock is
undervalued - the only thing that matters is a security's past trading data and what information
this data can provide about where the security might move in the future.

The field of technical analysis is based on three assumptions:

1. The market discounts everything.

2. Price moves in trends.

3. History tends to repeat itself.

1. The Market Discounts Everything

A major criticism of technical analysis is that it only considers price movement, ignoring the
fundamental factors of the company. However, technical analysis assumes that, at any given
time, a stock's price reflects everything that has or could affect the company - including
fundamental factors. Technical analysts believe that the company's fundamentals, along with
broader economic factors and market psychology, are all priced into the stock, removing the
need to actually consider these factors separately. This only leaves the analysis of price

33
 movement, which technical theory views as a product of the supply and demand for a
particular stock in the market.

2. Price Moves in Trends

In technical analysis, price movements are believed to follow trends. This means that after a
trend has been established, the future price movement is more likely to be in the same direction
as the trend than to be against it. Most technical trading strategies are based on this assumption.

3. History Tends To Repeat Itself

Another important idea in technical analysis is that history tends to repeat itself, mainly in
terms of price movement. The repetitive nature of price movements is attributed to market
psychology; in other words, market participants tend to provide a consistent reaction to similar
market stimuli over time. Technical analysis uses chart patterns to analyze market movements
and understand trends. Although many of these charts have been used for more than 100 years,
they are still believed to be relevant because they illustrate patterns in price movements that
often repeat themselves.

Technical analysis: fundamental verses technical

Technical analysis and fundamental analysis are the two main schools of thought in the
financial markets. As we've mentioned, technical analysis looks at the price movement of a
security and uses this data to predict its future price movements. Fundamental analysis, on the
other hand, looks at economic factors, known as fundamentals. Let's get into the details of how
these two approaches differ, the criticisms against technical analysis and how technical and
fundamental analysis can be used together to analyze securities.

The Differences

At the most basic level, a technical analyst approaches a security from the charts, while a
fundamental analyst starts with the financial statements.

34
 By looking at the balance sheet, cash flow statement and income statement, a fundamental
analyst tries to determine a company's value. In financial terms, an analyst attempts to measure
a company's intrinsic value. In this approach, investment decisions are fairly easy to make - if
the price of a stock trades below its intrinsic value, it's a good investment. Although this is an
oversimplification (fundamental analysis goes beyond just the financial statements) for the
purposes of this tutorial, this simple tenet holds true.

Technical traders, on the other hand, believe there is no reason to analyze a company's
fundamentals because these are all accounted for in the stock's price. Technicians believe that
all the information they need about a stock can be found in its charts.

Time Horizon

Fundamental analysis takes a relatively long-term approach to analyzing the market compared
to technical analysis. While technical analysis can be used on a timeframe of weeks, days or
even minutes, fundamental analysis often looks at data over a number of years.

The different timeframes that these two approaches use is a result of the nature of the investing
style to which they each adhere. It can take a long time for a company's value to be reflected in
the market, so when a fundamental analyst estimates intrinsic value, a gain is not realized until
the stock's market price rises to its "correct" value. This type of investing is called value
investing and assumes that the short-term market is wrong, but that the price of a particular
stock will correct itself over the long run. This "long run" can represent a timeframe of as long
as several years, in some cases.

Furthermore, the numbers that a fundamentalist analyzes are only released over long periods of
time. Financial statements are filed quarterly and changes in earnings per share don't emerge on
a daily basis like price and volume information. Also remember that fundamentals are the
actual characteristics of a business. New management can't implement sweeping changes
overnight and it takes time to create new products, marketing campaigns, supply chains, etc.
Part of the reason that fundamental analysts use a long-term timeframe, therefore, is because
the data they use to analyze a stock is generated much more slowly than the price and volume
data used by technical analysts.

35
Technical Analysis: The Use of Trend

One of the most important concepts in technical analysis is that of trend. The meaning in
finance isn't all that different from the general definition of the term - a trend is really nothing
more than the general direction in which a security or market is headed. Take a look at the
chart below:

Figure 1

It isn't hard to see that the trend in Figure 1 is up. However, it's not always this easy to see a
trend:

Figure 2

36
 There are lots of ups and downs in this chart, but there isn't a clear indication of which
direction this security is headed.

A More Formal Definition

Unfortunately, trends are not always easy to see. In other words, defining a trend goes well
beyond the obvious. In any given chart, you will probably notice that prices do not tend to
move in a straight line in any direction, but rather in a series of highs and lows. In technical
analysis, it is the movement of the highs and lows that constitutes a trend. For example, an
uptrend is classified as a series of higher highs and higher lows, while a downtrend is one of
lower lows and lower highs.

Figure 3

Figure 3 is an example of an uptrend. Point 2 in the chart is the first high, which is determined
after the price falls from this point. Point 3 is the low that is established as the price falls from
the high. For this to remain an uptrend, each successive low must not fall below the previous
lowest point or the trend is deemed a reversal.

Types of Trend

There are three types of trend:

• Uptrends
• Downtrends

37
 Sideways/Horizontal Trends As the names imply, when each successive peak and trough is
higher, it's referred to as an upward trend. If the peaks and troughs are getting lower, it's a
downtrend. When there is little movement up or down in the peaks and troughs, it's a sideways
or horizontal trend. If you want to get really technical, you might even say that a sideways
trend is actually not a trend on its own, but a lack of a well-defined trend in either direction. In
any case, the market can really only trend in these three ways: up, down or nowhere.

Trend Lengths

Along with these three trend directions, there are three trend classifications. A trend of any
direction can be classified as a long-term trend, intermediate trend or a short-term trend. In
terms of the stock market, a major trend is generally categorized as one lasting longer than a
year. An intermediate trend is considered to last between one and three months and a near-term
trend is anything less than a month. A long-term trend is composed of several intermediate
trends, which often move against the direction of the major trend. If the major trend is upward
and there is a downward correction in price movement followed by a continuation of the
uptrend, the correction is considered to be an intermediate trend. The short-term trends are
components of both major and intermediate trends. Take a look a Figure 4 to get a sense of
how these three trend lengths might look.

Figure 4

38
 When analyzing trends, it is important that the chart is constructed to best reflect the type of
trend being analyzed. To help identify long-term trends, weekly charts or daily charts spanning
a five-year period are used by chartists to get a better idea of the long-term trend. Daily data
charts are best used when analyzing both intermediate and short-term trends. It is also
important to remember that the longer the trend, the more important it is; for example, a one-
month trend is not as significant as a five-year trend.

Trendlines

A trendline is a simple charting technique that adds a line to a chart to represent the trend in the
market or a stock. Drawing a trendline is as simple as drawing a straight line that follows a
general trend. These lines are used to clearly show the trend and are also used in the
identification of trend reversals. As you can see in Figure 5, an upward trendline is drawn at
the lows of an upward trend. This line represents the support the stock has every time it moves
from a high to a low. Notice how the price is propped up by this support. This type of trendline
helps traders to anticipate the point at which a stock's price will begin moving upwards again.
Similarly, a downward trendline is drawn at the highs of the downward trend. This line
represents the resistance level that a stock faces every time the price moves from a low to a
high.

Figure 5

39
Channels

A channel, or channel lines, is the addition of two parallel trendlines that act as strong areas of
support and resistance. The upper trendline connects a series of highs, while the lower
trendline connects a series of lows. A channel can slope upward, downward or sideways but,
regardless of the direction, the interpretation remains the same. Traders will expect a given
security to trade between the two levels of support and resistance until it breaks beyond one of
the levels, in which case traders can expect a sharp move in the direction of the break. Along
with clearly displaying the trend, channels are mainly used to illustrate important areas of
support and resistance.

Figure 6

Figure 6 illustrates a descending channel on a stock chart; the upper trendline has been placed
on the highs and the lower trendline is on the lows. The price has bounced off of these lines
several times, and has remained range-bound for several months. As long as the price does not
fall below the lower line or move beyond the upper resistance, the range-bound downtrend is
expected to continue.

40
Technical Analysis: Support and Resistance

Once you understand the concept of a trend, the next major concept is that of support and
resistance. You'll often hear technical analysts talk about the ongoing battle between the bulls
and the bears, or the struggle between buyers (demand) and sellers (supply). This is revealed
by the prices a security seldom moves above (resistance) or below (support).

Figure 1

As you can see in Figure 1, support is the price level through which a stock or market seldom
falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level that a
stock or market seldom surpasses (illustrated by the red arrows).
Round Numbers and Support and Resistance
One type of universal support and resistance that tends to be seen across a large number of
securities is round numbers. Round numbers like 10, 20, 35, 50, 100 and 1,000 tend be
important in support and resistance levels because they often represent the major psychological
turning points at which many traders will make buy or sell decisions.
Buyers will often purchase large amounts of stock once the price starts to fall toward a major
round number such as $50, which makes it more difficult for shares to fall below the level. On
the other hand, sellers start to sell off a stock as it moves toward a round number peak, making
it difficult to move past this upper level as well. It is the increased buying and selling pressure

41
 at these levels that makes them important points of support and resistance and, in many cases,
major psychological points as well.
The Importance of Support and Resistance

Support and resistance analysis is an important part of trends because it can be used to make
trading decisions and identify when a trend is reversing. For example, if a trader identifies an
important level of resistance that has been tested several times but never broken, he or she may
decide to take profits as the security moves toward this point because it is unlikely that it will
move past this level.

Support and resistance levels both test and confirm trends and need to be monitored by anyone
who uses technical analysis. As long as the price of the share remains between these levels of
support and resistance, the trend is likely to continue. It is important to note, however, that a
break beyond a level of support or resistance does not always have to be a reversal. For
example, if prices moved above the resistance levels of an upward trending channel, the trend
accelerates and not reversed. This means that the price appreciation is expected to be faster
than it was in the channel.

Being aware of these important support and resistance points should affect the way that you
trade a stock. Traders should avoid placing orders at these major points, as the area around
them is usually marked by a lot of volatility. If you feel confident about making a trade near a
support or resistance level, it is important that you follow this simple rule: do not place orders
directly at the support or resistance level. This is because in many cases, the price never
actually reaches the whole number, but flirts with it instead. So if you're bullish on a stock that
is moving toward an important support level, do not place the trade at the support level.
Instead, place it above the support level, but within a few points. On the other hand, if you are
placing stops or short selling, set up your trade price at or below the level of support.

Once you understand the concept of a trend, the next major concept is that of support and
resistance. You'll often hear technical analysts talk about the ongoing battle between the bulls
and the bears, or the struggle between buyers (demand) and sellers (supply). This is revealed
by the prices a security seldom moves above (resistance) or below (support).

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 Figure 1

As you can see in Figure 1, support is the price level through which a stock or market seldom
falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level that a
stock or market seldom surpasses (illustrated by the red arrows).

Technical Analysis: Chart Patterns

A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of
future price movements. Chartists use these patterns to identify current trends and trend
reversals and to trigger buy and sell signals.

In the first section of this tutorial, we talked about the three assumptions of technical analysis,
the third of which was that in technical analysis, history repeats itself. The theory behind chart
patterns is based on this assumption. The idea is that certain patterns are seen many times, and
that these patterns signal a certain high probability move in a stock. Based on the historic trend
of a chart pattern setting up a certain price movement, chartists look for these patterns to
identify trading opportunities.

While there are general ideas and components to every chart pattern, there is no chart pattern
that will tell you with 100% certainty where a security is headed. This creates some leeway and
debate as to what a good pattern looks like, and is a major reason why charting is often seen as
more of an art than a science.
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 There are two types of patterns within this area of technical analysis, reversal and continuation.
A reversal pattern signals that a prior trend will reverse upon completion of the pattern. A
continuation pattern, on the other hand, signals that a trend will continue once the pattern is
complete. These patterns can be found over charts of any timeframe. In this section, we will
review some of the more popular chart patterns.

Head and Shoulders

This is one of the most popular and reliable chart patterns in technical analysis. Head and
shoulders is a reversal chart pattern that when formed, signals that the security is likely to
move against the previous trend. As you can see in Figure 1, there are two versions of the head
and shoulders chart pattern. Head and shoulders top (shown on the left) is a chart pattern that is
formed at the high of an upward movement and signals that the upward trend is about to end.
Head and shoulders bottom, also known as inverse head and shoulders (shown on the right) is
the lesser known of the two, but is used to signal a reversal in a downtrend.

Figure 1: Head and shoulders top is shown on the left. Head and shoulders bottom, or
inverse head and shoulders, is on the right.

Both of these head and shoulders patterns are similar in that there are four main parts: two
shoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a
high and a low. For example, in the head and shoulders top image shown on the left side in

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 Figure 1, the left shoulder is made up of a high followed by a low. In this pattern, the neckline
is a level of support or resistance. Remember that an upward trend is a period of successive
rising highs and rising lows. The head and shoulders chart pattern, therefore, illustrates a
weakening in a trend by showing the deterioration in the successive movements of the highs
and lows.

Cup and Handle

A cup and handle chart is a bullish continuation pattern in which the upward trend has paused
but will continue in an upward direction once the pattern is confirmed.

Figure 2

As you can see in Figure 2, this price pattern forms what looks like a cup, which is preceded by
an upward trend. The handle follows the cup formation and is formed by a generally
downward/sideways movement in the security's price. Once the price movement pushes above
the resistance lines formed in the handle, the upward trend can continue. There is a wide
ranging time frame for this type of pattern, with the span ranging from several months to more
than a year.

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Double Tops and Bottoms

This chart pattern is another well-known pattern that signals a trend reversal - it is considered
to be one of the most reliable and is commonly used. These patterns are formed after a
sustained trend and signal to chartists that the trend is about to reverse. The pattern is created
when a price movement tests support or resistance levels twice and is unable to break through.
This pattern is often used to signal intermediate and long-term trend reversals.

Figure 3: A double top pattern is shown on the left, while a double bottom pattern is shown
on the right.

In the case of the double top pattern in Figure 3, the price movement has twice tried to move
above a certain price level. After two unsuccessful attempts at pushing the price higher, the
trend reverses and the price heads lower. In the case of a double bottom (shown on the right),
the price movement has tried to go lower twice, but has found support each time. After the
second bounce off of the support, the security enters a new trend and heads upward.

Triple Tops and Bottoms

Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These
are not as prevalent in charts as head and shoulders and double tops and bottoms, but they act
in a similar fashion. These two chart patterns are formed when the price movement tests a level
of support or resistance three times and is unable to break through; this signals a reversal of the
prior trend.

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 Figure 7

Confusion can form with triple tops and bottoms during the formation of the pattern because
they can look similar to other chart patterns. After the first two support/resistance tests are
formed in the price movement, the pattern will look like a double top or bottom, which could
lead a chartist to enter a reversal position too soon.

Rounding Bottom

A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that
signals a shift from a downward trend to an upward trend. This pattern is traditionally thought
to last anywhere from several months to several years.

Figure 8

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A rounding bottom chart pattern looks similar to a cup and handle pattern but without the
handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as the
handle in the cup and handle, make it a difficult pattern to trade.

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GRAPHS SHOWING DIFFERENT CHART PATTERNS
PATTERNS-

This graph of Gujarat state petro shows the rounding bottom chart patt
pattern
ern which means the stock
prices which were showing downward trend is now going upward.

This graph of Gujarat state petro shows the upward trend and also shows the change in its trend
as there is a slight fall in price.

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This graph of Aban off shore company shows the ddownward trend. A downward trendline is
drawn at the highs of the downward trend.

This graph shows the head and shoulder chart pattern. Head and shoulders top is a chart pattern
that is formed at the high of an upward movement and signals that the upward trend is about to
end.

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This graph shows the sideway trend. The upper trendline connects a series of highs, while the
lower trendline connects a series of lows. Traders will expect a given security to trade between
the two levels of support and resistance until it breaks beyond one of the levels, in which case
traders can expect a sharp move in the direction of the break.

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FINDINGS-

Ratio/Company Aban Offshore Chennai Petro Gujarat State Petronet LNG

Name Petro
Current Ratio 4 3 1 2
Quick Ratio 3 4 1 2
Return on Asset 3 4 1 2
Return on Capital 3 4 2 1
Employed
Return on Equity 3 4 2 1
Earnings Per Share 1 4 3 2
Debt to Equity 3 4 1 2

OBSERVATION-

• GUJARAT STATE PETRO:

In comparison with other three companies, Gujarat State Petro is much better. The biggest
positives are high current assets, quick assets, return on assets, and low debt to equity ratio.
The only negative point is earning per share and P/E ratio which makes the stock a bit
overvalued.
• PETRONET LNG:
Petronet LNG is the second best performer out of the four companies. It shows good earnings
per share, less debt to equity ratio.
• ABAN OFFSHORE:
In comparison with other three companies, aban offshore has medium, quick assets, return on
assets, return on capital employed, return on equity and less debt to equity ratio. The only
positive is good earnings per share.
• CHENNAI PETRO:
It is the worst performer of the four companies. It has low quick ratio, low return on asset,
low return on capital employed, low earnings per share and high debt to equity ratio which is
not good from the investment point of view.

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CONCLUSION-

The oil and gas sector is fairly well developed in India, and is poised to contribute a large share
to India’s energy basket over the next 15–20 years. A conservative estimate of 7 per cent growth
in the Indian economy is expected to approximately double India’s per capita energy
consumption over the next 20 years. Since energy demand and economic growth are almost
interlinked, the Indian oil and gas sector, which provides the country with a significant portion of
its energy requirements, has been identified as a key metric that will drive future GDP growth.

Aban Offshore reported a 25.9% QoQ decline in revenue to 733.6 crore, below our estimate of
872.8 crore. The average revenue per rig per day declined 25.9%QoQ to 44.3 lakhs in Q3FY16,
below our estimate of 52.7 lakhs. The company reported a loss of 86.2 crore that came in below
our profit estimate of 53.4 crore. Higher-than-expected interest cost (increased 4.7% QoQ) and
lower other income QoQ also contributed to the reported loss continued low crude price. New
contracts for assets which are currently under marketing would be key to Aban’s
operational performance in the medium term. Lower prices and inability to renew assets continue
to remain key risks to earnings. We have a SELL recommendation on the stock.

The long term prospects of the company remain strong with the potential GRM upside. CPCL
has initiated efforts to reduce working capital requirement by reducing credit period to 10 days
(from 16days) for products sold to IOCL and better inventory management initiatives (now
35days vs. 52days earlier). This coupled with lower oil price would reduce working capital
requirement. Hence, we expect CPCL to generate higher operating cash flow in FY16E/FY17E.
We initiate coverage with a BUY rating on the stock.

Gujarat State Petronet Ltd. reported revenue of INR. 2481 mn down 1.9% QoQ and up 2.0% Y-
o-Y due to lower transmission volume. Profit stood at INR. 1235 mn (boosted by higher other
income) up 13.8% on QoQ and 39.1% on Y-o-Y basis. Transmission volumes stood at 23.1
mmscmd which was down 5.1% QoQ and up 0.7% YoY. Implied tariff was higher 0.9% on a
QoQ and down 6.2% on a YoY basis to INR 1,080/mscm. We give a buy recommendation.

The contractual commitment in Q4CY15 would imply entire Dahej terminal capacity could be
booked for servicing term cargoes, foregoing spot trading margins. We have increased our

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FY17E EPS by 13% on higher volumes and revised our target price to INR 171 (INR152
earlier). We recommend hold on Petronet LNG.

SUGGESTIONS-

According to fundamental and technical analysis we come to know that Gujarat State Petro has
future scope among the other companies selected. It’s industrial PE and LTPT calculated says
that it has future growth opportunities. So you can invest in Gujarat State Petro.

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BIBLIOGRAPHY-

1) www.ibef.org/industry/indian-oil-and-gas-industry-analysis-presentation
2) www.moneycontrol.com
3) www.investopedia.com/university/technical/
4) oilpro.com/post/.../5-key-drivers-of-change-in-the-
oil-and-gas-industry
5) www.petroleum.nic.in/fdi.pdf

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