A PROJECT REPORT ON

“ANALYSIS OF CAPITAL STRUCTURE”

FOR
“INDIAN OIL CORPORATION LIMITED”

SUBMITTED BY
“NIDHI SHARMA”

UNDER THE GUIDANCE OF

“PROF. YOGESH BHUSARI”

SUBMITTED TO
“SAVITRIBAI PHULE PUNE UNIVERSITY”

SUBMITTED IN PARTIAL FULFILLMENT OF

“BACHELOR OF BUSINESS ADMINISTRATION”
(FINANCE)

“INDIRA COLLEGE OF COMMERCE AND SCIENCE”

(2017-2020)
 DECLARATION

I, NIDHI SHARMA studying in BBA-3rd year in INDIRA COLLEGE OF COMMERCE AND

SCIENCE, hereby declare that the project report by name “ANALYSIS OF CAPITAL

STRUCTURE FOR INDIAN OIL CORPORATION LIMITED.” Has been prepared with due

diligence, maintaining full originality, as a part of partial fulfilment for the award of the BACHELOR

OF BUSINESS ADMINISTRATION IN FINANCE.

DATE:

PLACE: PUNE

NIDHI SHARMA

[iii]
[ii]
 ACKNOWLEDGEMENT

I would like to express my gratitude for all the people, who extended unending support at all stages of
the project.

This project is a product of not only my sincere efforts but also the guidance and morale support given
by the management of Indira College of Commerce and Science.

I express my sincere gratitude to my guide PROF. YOGESH BHUSARI for sparing his valuable time
in giving the valuable information and suggestions all through, for the successful completion of the
project.

I would also take the opportunity to thank DR. JANARDAN PAWAR (Principal) and DR.
THOMSON VARGHESE (HOD - BBA AND BBA-IB) of Indira College of Commerce and Science,
Pune for giving me an opportunity to be a part of this institution and encouraging me to complete this
project.

Last but not the least, I would like to express my gratitude to my colleagues who have directly or
indirectly contributed to the successful completion of the project.

NIDHI SHARMA

[iv]
TABLE OF CONTENTS

1. INTRODUCTION TO PROJECT ……………………………………………………………….1

1.1. INTRODUCTION TO CAPITAL STRUCTURE……………………………………………...2
1.2. IMPORTANCE OF CAPITAL STRUCTURE……………………………………………....3-4
2. COMPANY PROFILE AND MARKET SCENERIO…………………………………………...5
2.1. COMPANY PROFILE ............................................................................................................... 6
2.2. OPERATION .............................................................................................................................. 7
2.2.1. BUSINESS DIVISION……………………………………………………………………..7
2.2.2. PRODUCT AND SERVICES……………………………………………………………...8
2.3. HISTORY………………………………………………………………………………….....8-9
2.4. IOCL GROUP SUBSIDARIES……………………………………………………………….10
2.5. MARKETSHARE…………………………………………………………………………….10
2.6. POLICIES…………………………………………………………………………………10-12
3. COMPANY PRODUCT PROFILE………………………………………………………….….13
3.1. INDIAN OIL CORP. LTD. ………………………………………………………………...….14
3.2. INDANE LPG ……………………………………………………………………………..15-16
3.3. SERVO LUBRICANTS …………………………………………………………………...17-18
3.4. XTRAPREMIUM PETROL ……………………………………………………………….….19
3.5. XTRAMILE DIESEL …………………………………………………………………………20
3.6. PROPEL PETROCHEMICLAS ………………………………………………………………21
3.6.1. MEGA PLANTS ……………………………………………………………………...22-25
4. OBJECTIVES AND SCOPE OF CAPITAL STRUCTURE…………………………….....….26
4.1. OBJECTIVES ………………………………………………………………………………...27
4.2. SCOPE …………………………………………………………………………………….….28
5. RESEARCH METHEDOLOGY …………………………………………………………….….29
5.1. RESEARCH DESIGN …………………………………………………………………….….30
5.2. DATA SOURCES AND COLLECTIONS …………………………………………………..30
5.3. STRUCTURE OF FIRM ……………………………………………………………………..30
6. ANALYSIS AND INTERPRETATION ………………………………………………………...31
6.1. ANALYSIS OF CAPITAL STRUCTURE …………………………………………….…….32
6.1.1. SHARE CAPITAL …………………………………………………………………....32-34
6.1.2. TOTAL DEBT …………………………………………………………………...……35-38

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 6.2. EBIT ………………………………………………………………………………………38-39
6.3. EPS ………………………………………………………………………………….…….40-41
6.4. RATIOS …………………………………………………………………………………...41-45
6.5. WACC …………………………………………………………………………………….46-48
7. FINDINGS …………………………………………………………………………...……….49-50
8. SUGGESTIONS ……………………………………………………………………………...51-52
9. CONCLUSION ……………………………………………………………………………….53-54
10. ANNEXURE ………………………………………………………………………………...55-57
11. BIBLIOGRAPHY…………………………………………………………………………...58-59

[vi]
LIST OF TABLES:

3.1. NON-SUBSIDIARY PRICES IN METROS …………………………………………………...16

3.2. PRICES IN METROS …………………………………………………………………….…….16
3.3. MARKETSHARE OF LUBRICANTS………………………………………………………….18
6.1.1.(2): PAID-UP CAPITAL PER YEAR…………………………………………………………34
6.4.(1): VALUE OF CURRENT ASSETS AND LIABILITIES………………………………..…...42
6.4.(2): VALUE OF DEBT AND EQUITY ……………………………………………………..….43
6.4.(3): VALUE OF NET INCOME AND INVETMENTS ……………………………………..….45
6.5.(1): WACC FOR THE YEAR 2014-15………………………………………………….………46
6.5.(2): WACC FOR THE YEAR 2015-16 …………………………………………………….…...46
6.5.(3): WACC FOR THE YEAR 2016-17……………………………………………………….…47
6.5.(4): WACC FOR THE YEAR 2017-18……………………………………………………….…47
6.5.(5): WACC FOR THE YEAR 2018-19……………………………………………………….…47

[vii]
LIST OF GRAPHS:

6.1.1.(1): SHARE CAPITAL OF IOCL …………………………………………………………….32

6.1.2.(1): SECURED LOANS ……………………………………………………………………….36
6.1.2(2): UNSECURED LOANS ……………………………………………………………………37
6.2.(1): EARNING BEFORE INERESTS AND TAXES……………………………………………39
6.3.(1): EARNING PER SHARE …………………………………………………………………….40
6.4.(1): CURRENT RATIO FROM 2014-15 TO 2018-19………………………………………. ….42
6.4.(2): DEBT-EQUITY RATIO FROM 2014-15 TO 2018-19…………………………………….44
6.4.(3): RETURN ON INVESTMENT FROM 2014-15 TO 2018-19…………………………….….45
6.5.(1): WACC FROM 2014-15 TO 2018-19………………………………………………………..48

[viii]
 CHAPTER -1
INTRODUCTION TO PROJECT
1. INTRODUCTION TO PROJECT:

1.1. INTRODUCTION TO CAPITAL STRUCTURE:

Capital Structure of a Company refers to the composition or make up of its Capitalization and it
includes all long-term Capital resources i.e. loans, reserves, shares and bond. It shows the mix of a
company's long-term debt, specific short-term debt, common equity and preferred equity. The capital
structure is how a firm finances its overall operations and growth by using different sources of funds.

In finance, capital structure refers to the way a corporation finances its assets through some
combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or
'structure' of its liabilities.

For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equity-
financed and 80% debt financed. The firm's ratio of debt to total financing, 80% in this example is
referred to as the firm's leverage.

In reality, capital structure may be highly complex and include tens of sources. Gearing Ratio is the
proportion of the capital employed of the firm which come from outside of the business finance, e.g.
by taking a short-term loan etc. Debt comes in the form of bond issues or long-term notes payable,
while equity is classified as common stock, preferred stock or retained earnings.

Short-term debt such as working capital requirements is also considered to be part of the capital
structure. A company's proportion of short and long-term debt is considered when analysing Capital
Structure.

When people refer to capital structure, they are most likely referring to a firm's debt-to-equity ratio,
which provides insight into how risky a company is. Usually a company more heavily 8 financed by

2
debt poses greater risk, as this firm is relatively highly levered. The long-term creditors would judge
the soundness of the firm on the basis of the long-term financial strength measured in terms of ability
to pay the interest regularly as well as repay the instalment of the principal on due dates or in one lump
sum at the time of maturity.

1.2 WHY CAPITAL STRUCTURE: IMPORTANCE OF CAPITAL

STRUCTURE:

 VALUE MAXIMISATION:
Capital Structure maximizes the market value of a firm, that is, a firm with a properly structured
capital has increased value of the firm.

 COST MINIMISATION:
Capital Structure minimizes the firm’s cost of capital or cost of financing. By determining a
proper mix of the fund sources, a firm can keep the overall cost of capital to the lowest.

 INCREASE IN SHARE PRICE:

Capital Structure maximises the company’s market price of share by increasing Earning Per
Share of the ordinary shareholders. It also increases the dividend receipt of the shareholders.

 INVESTMENT OPPORTUNITY:
Capital Structure increases the ability of the company to find new wealth- creating investment
opportunities. With proper Capital Gearing it also increases the confidence of suppliers of debt.

3
 GROWTH OF THE COMPANY: Capital Structure increases the company’s rate of
investment and growth by increasing the firm’s opportunity to engage in future wealth-creating
investments.

4
 CHAPTER-2
COMPANY PROFILE AND MARKET SCENERIO
2.COMPANY’S ROFILE AND MARKET SCENERIO:

2.1 COMPANY PROFILE:

INDIAN OIL CORORATION LIMITED (IOCL) is a government owned oil and gas company
headquarters in New Delhi and is also known as INDIANOIL. It is the largest commercial oil company
in the country, with a net profit of INR 19,106 crore (USD 2.848 billion) for the financial year 2016–
17. It is ranked 1st in Fortune India 500 list for year 2016 and 117th in Fortune Global 500 list of
world's largest companies in the year 2019.

It is India's largest downstream oil company, with a workforce of more than 33,000 employees, a
turnover of Rs. 506,428 crore and a net profit of Rs. 21,346 crores in 2017-18. In May 2018, IOCL
become India's most profitable state-owned company for the second consecutive year, with a record
profit of ₹21,346 crore in 2017-18, followed by Oil and Natural Gas Corporation, whose profit stood
at ₹19,945 crore.

6
2.2 OPERATIONS:

2.2.1 BUSINESS DIVISION:

There are 7 major Business Divisions in the organisation:

 Refineries Division
 Pipelines Division
 Marketing Division
 R&D Division
 Petrochemicals Division
 Exploration & Production (E&P) Division
 Explosives and Cryogenics (E&C) Division

R&D DIVISION
MARKETING PETROCHEMICAL
DIVISION DIVISION

PIPELINE
E&P DIVISION
DIVISION

REFINERY BUSINESS E&C DIVISION

DIVISION
DIVISION

Fig.2.1: BUSINESS DIVISION

7
 2.2.2 PRODUCT AND SERVICES:

Indian Oil accounts for nearly half of India's petroleum products market share, 35% national refining
capacity (together with its subsidiary Chennai Petroleum Corporation Ltd., or CPCL), and 71%
downstream sector pipelines through capacity. The Indian Oil Group owns and operates 11 of India's
23 refineries with a combined refining capacity of 80.7 million tonnes per year.

Indian Oil's cross-country pipeline network, for transport of crude oil to refineries and finished
products to high-demand centres, spans over 13,000 km the company has a throughput capacity of
80.49 million tonnes per year for crude oil and petroleum products and 9.5 million cubic metre per day
at standard conditions for gas.

On 19 November 2017, IOC, in collaboration with Ola, launched India’s first electric charging station
at one of its petrol-diesel stations in Nagpur. Indian governments’ National Electric Mobility Mission
Plan launched in 2013 aims at gradually ensuring a vehicle population of 6 to 8 million electric and
hybrid vehicles in India by 2020.

2.3 HISTORY:

Indian Oil Corporation (IOC), India’s flagship national oil company and downstream petroleum major,
was incorporated on June 30, 1959 as Indian Oil Company. The company was renamed as Indian Oil
Corporation on September 1, 1964 following the merger of Indian Refineries (established 1958) with
it.

The company operates the largest and the widest network of petrol and diesel stations in the country,
numbering over 18,278. It reaches Indane cooking gas to the doorsteps of over 53 million households
in nearly 2,700 markets through a network of about 5,000 Indane distributors.

Indian Oil's ISO–9002 certified Aviation Service commands over 63% market share in the aviation
fuel business, meeting the fuel needs of domestic and international flag carriers, private airlines and
the Indian Defence Services.

IOC's world–class R&D Centre is perhaps Asia's finest. Besides pioneering work in lubricants
formulation, refinery processes, pipeline transportation and alternative fuels.

8
In E&P, Indian Oil has non–operator participating interest in seven oil and gas blocks awarded under
various NELP (New Exploration Licensing Policy) rounds and two Coal Bed Methane (CBM)
blocks in India, in consortium with other companies.

IOC is currently forging ahead on a well laid–out road map through vertical integration– upstream
into oil exploration and production (E&P) and downstream into petrochemicals–and diversification
into natural gas marketing, bio fuels, wind power projects, besides globalisation of its downstream
operations.
In all, Indian Oil has 12 domestic exploration blocks, including two blocks where gas discoveries
have been made and nine overseas exploration blocks, and the Farsi block in Iran where
commerciality of gas discovery has been established.
To straddle the complete bio–fuel value chain, the company has formed a joint venture with the
Chhattisgarh Renewable Development Authority (CREDA) with an equity holding of 74% and 26%
respectively. Indian Oil CREDA Biofuels Limited has been formed for carrying out farming,
cultivating, manufacturing, production and sale of biomass, bio–fuels and allied products and
services.
IOC has also signed an MoU with Ruchi Soya Industries Limited to take up contract farming on one
lakh hectare of private and panchayat wasteland in the state of Uttar Pradesh.
It has forayed into wind energy business with the commissioning of a Rs 130 crore, 21 MW wind
power project in the Kutch district of Gujarat. The company has also commissioned two pilot solar
lantern charging stations at its Kisan Seva Kendra at Sathla near Meerut and Chokoni near Bareilly.
For over two decades now, Indian Oil has been providing technical and manpower secondment
services to overseas companies. Such services have been extended to Emirates National Oil
Company (ENOC), Kenya Pipeline Company and Aden Refinery, Yemen. For the first time, SAP
implementation / IT consultancy was provided in Sri Lanka. Consultancy on pipelines was provided
to Greater Nile Petroleum Operating Company (GNPOC), Sudan.
Indian Oil has set up subsidiaries in Sri Lanka, Mauritius and the United Arab Emirates (UAE), and
is simultaneously scouting for new business opportunities in the energy markets of Asia and Africa.

9
2.4 IOCL GROUP SUBSIDARIES:
 Lanka IOC Ltd
 Indian Oil (Mauritius) Ltd
 IOCL Middle East FZE
 Indian Oil Technologies Ltd
 Chennai Petroleum Corporation Ltd. (CPCL)
 Bongaigaon Refinery & Petrochemicals Ltd (BRPL)

2.5 MARKETSHARE OF IOCL:

IndianOil accounts for nearly half of India's petroleum products market share, with sales of about 90
million tonnes in 2018-19. Over 32% national refining capacity and 71% downstream sector
pipelines throughput capacity are with IndianOil. What's more, the IndianOil Group owns and
operates 11 of India's 23 refineries, with a combined refining capacity of 80.7 million metric tonnes
per annum (MMTPA). IndianOil refineries are on the last leg of upgradations to produce world-class
BS-VI compliant automotive fuels for supplies across the country from 1st April, 2020.

2.6 POLICIES OF IOCL:

 Establish and maintain good standards for safety of the people, the processes and the assets.
 Comply with all Rules and Regulations on Safety, Occupational Health and Environmental
Protection.
 Plan, design, operate and maintain all facilities, processes and procedures to secure sustained
Safety, Health and Environmental Protection.
 Remain trained, equipped and ready for effective and prompt response to accidents and
emergencies.
 Welcome audit of our Safety, Health & Environment conduct by external body, so that
stakeholder confidence is safeguarded.
 Adopt and promote industry best practices to avert accidents and improve our S, H&E
performance.

10
 Remain committed to be a leader in Safety, Occupational Health and Environment Protection
through continuing improvement.
 Make efforts to preserve ecological balance and heritage.

11
Fig.2.2: Refinery and Pipeline networks

12
 CHAPTER-3
COMPANY PRODUCT PROFILE
3.1 INDIAN OIL CORP. LTD.

The company is the leading Indian corporate in the Fortune 'Global 500' listing, ranked at the 168th
position for the year 2017. IOCL is a public sector undertaking. Government of India held 56.98%
stake in IOCL as on 31 December 2017. The company's operations include refineries, pipelines and
marketing.

The COMPANY’S MAIN OPERATIONS include:

 REFINERIES
 PIPELINES
 MARKETING

IOCL’S PORTFOLIO BRANDS:

 INDANE LPGAS
 SERVO LUBRICANTS
 XTRAPREMIUM PETROL
 XTRAMILE DIESEL
 PROPEL PETROCHEMICALS

INDIAN OIL’S DOMESTIC PORTFOLIO INCLUDES 11 OIL AND GAS BLOCKS AND 2
COAL BED METHANE BLOCKS.
INDIAL OIL’S OVERSEAS PORTFOLIO CONSISTS OF 10 BLOCKS SPREAD ACROSS
 LIBYA
 IRAN
 GABON
 NIGERIA
 TIMOR-NESTE
 YEMEN
 VENEZUELA

14
3.2 INDANE LPGAS:

Indane is today one of the largest packed-LPG brands in the world and has been conferred the coveted
Consumer Super brand status by the Super brands Council of India

IndianOil has been credited with bringing about a kitchen revolution, spreading warmth and cheer in
millions of households with the introduction of the clean and efficient cooking fuel. It has led to a
substantial improvement in the health of women, especially in rural areas by replacing smoky and
unhe-althy chulha. Indane is today an ideal fuel for modern kitchens, synonymous with safety,
reliability and convenience.

With the status of an exclusive business vertical within the Corporation, Indane is delivered to the
doorsteps of 11 crore households. IndianOil's 91 Indane bottling plants in upcountry locations roll out
2 million cylinders a day, making IndianOil the second largest marketer of LPG globally, after SHV
Gas of The Netherlands. Indane is available in compact 5 kg cylinders for rural, hilly and inaccessible
areas, 14.2 kg cylinders for domestic use, and 19 kg and 47.5 kg for commercial and industrial use.

At the world's highest altitude, Indane LPG bottling plant situated at 11,800 ft. in Phey Village
of Ladakh district, is operated by a team of 11 women, carrying out both technical and non-
technical activities

Indane serves more than 90 million families through a network of 9100 distributors. 27% of its
customers reside in semi-urban or rural markets and every second LPG cooking gas connection in
India is that of Indane. The sales network is backed by 45 Indane Area Offices.

Bulk LPG is packed in LPG cylinders in bottling plants. IOCL currently has 91 bottling plants in the
country to do such bottling. In a bottling plant, bulk LPG is received from the sources through

15
pipelines, by road or by rail. This is then stored in the vessels and then filled in cylinders using
sophisticated filling machines called Carousals. The world’s highest LPG bottling plant – situated 3500
metres above sea level – is the Indane plant at Leh.

TABLE:3.1: NON-SUBSIDISES PRICE IN METROS

(Rs./14.2per kg cylinder)

METROS PRICES
DELHI 714.00
KOLKATA 747.00
MUMBAI 684.50
CHENNAI 734.00
Applicable from January 01,2020

TABLE:3.2: PRICES IN METROS

(Rs. /19.0per kg cylinder)

METROS PRICES
DELHI 1466.00
KOLKATA 1540.50
MUMBAI 1416.00
CHENNAI 1589.50
Applicable from February 01, 2020

16
3.3. SERVO LUBRICANTS:

The lubes and grease market are a complex amalgam of commercial and passenger vehicles, 2- and 3-
wheelers, agricultural equipment, stationary engines and industries that range from steel and cement
to textiles, automobiles and glass.

It is India’s biggest lubricant brand and enjoys a market share exceeding 27% in Finished Lubes and
a turnover nudging Rs.8000 crores. SERVO has more than5200 formulations and 1600 grades of
lubricants available in more than 1700 active SKUs that it markets in the country.

For 44 years after independence, the Indian economy lurched forward in fits and starts. Then in a
magical moment in 1991 it threw away repressive policies and announced to the world that the country
was ready to bite the bullet. India has never looked back since and the only time it may have appeared
to pause is possibly to consolidate its gains.

Of the many industries that benefited, the oils and lubes business was one. With restrictions lifted on
the import of base oils, additives and finished lubricants, the market witnessed a resurgence.

The toss-up has still left the three public sector oil companies with a commanding 50% share of the
market with the rest being distributed amongst the others. The size of the Indian lubricant market is
estimated at Rs. 35000 crores with a volume of approximately 3.0 million metric tonnes (MMT) of
Lubes (1.65 MMT of Finished Lubes). The cumulative average growth rate (CAGR) over the past five
years is pegged at 1.50%. While this growth may appear to be modest compared to other categories,
it’s more to do with the improved performance of the oils and lubes.

Automotive lubricants constitute 65% of the total lube market (Source: internal data). Of this, the
commercial vehicle segment accounts for half of the volume while the passenger car segment – the

17
image builder for lubricant brands – constitutes a mere 7%. The two-wheeler segment, witnessing
explosive growth, constitutes about 25%. The balance 18% is split between agriculture equipment,
stationary engines and other miscellaneous applications.

SERVO has been in the forefront of introducing technologically advanced products. Its SERVO RR
606 MG Plus II and synthetic greases– especially formulated for the Indian Railways is a case in point.
The lubricating oils and greases supplied by SERVO have saved them several tens of crores in of
operating costs for Railways.

Similarly, many energy-efficient spindle and gear lubricants, bio-degradable lubricants, long drain
diesel engine oils, fuel efficient hydraulic oils, hot rolling oils and a series of synthetic-based lubricants
are some recent innovations. Another spin-off of SERVO’s research is a non-toxic, bio-degradable,
residue-free, non-pesticide spray oil which has no side effects. SERVO Agro spray oils are a viable
alternative for farmers riddled with problems emanating from the side effects of currently used
chemical, toxic pesticides.

LUBRICANTS MARKETSHARE
7%
18%
8%

12%

6% 25%

8%

3%
3% 10%

SERVO CASTROL VEEDOL SAVSOL VALVOLINE GULF OIL HPCL MAK SHELL TOTAL

FIG.3.3: MARKETSHARE OF LUBIRICANTS

18
3.4. XTRAPREMIUM PETROL:

Automotive gasoline and gasoline-oxygenate blends are used in internal combustion spark-ignition
engines. These spark ignition engine fuels are primarily used for passenger cars. They are also used in
off-highway utility vans, farm machinery and in other spark ignition engines employed in a variety of
service applications.

Gasoline is a complex mixture of relatively volatile hydrocarbons that vary widely in chemical &
physical properties and are derived from fractional distillation of crude petroleum with a further
treatment mainly in terms of improvement of its octane rating. The hundreds of individual
hydrocarbons in gasoline range from c4 to c11

An oxygenate is an oxygen-containing, ash less organic compound (such as an alcohol or ether) which
can be used as a fuel or fuel supplement. Motor gasoline is sold at retail outlets where it is directly
delivered into the automobile tank. The Indian Standard governing the properties of motor gasoline &
gasoline-oxygenate blends is IS 2796: 2000.

XTRAPREMIUM petrol is a much sought-after fuel among discerning motorists who are in many
ways emotionally attached to their wheels.

The 'Clean and Keep Clean' function of the super cleanser additive in XTRAPREMIUM reduces
deposits at the port fuel injector, intake valve and controls combustion chamber deposits to maintain
"like new" performance of the vehicle. Regular use of XTRAPREMIUM gives the vehicle a superior
pick-up, smoother drive, better mileage and lower emission. XTRAPREMIUM is designed not only
to optimise performance of new generation vehicles but also rejuvenate old vehicles to perform
better.
IndianOil's XTRAPREMIUM petrol is the largest selling branded petrol in India.
19
3.5. XTRAMILE DIESEL:

IndianOil's XTRAMILE Super Diesel, the leader in the branded diesel segment, is blended with world-
class multi-functional fuel additives. Commercial vehicle owners choose XTRAMILE because they
see a clear value benefit in terms of superior mileage, lower maintenance costs and improved engine
protection. A growing section of customers who own diesel automobiles, both in the 'lifestyle' and
'passenger' category, prefer XTRAMILE as a fuel for its added and enhanced performance.
XTRAMILE has brought in a huge savings in the high mileage commercial vehicles segment.
Transport fleets that operate a large number of trucks crisscrossing the country are using XTRAMILE
to benefit from higher mileage and reduced maintenance costs.

Petroleum derived diesel (called as petrodiesel) is a mixture of straight run product (150 'C and 350
'C) with varying amount of selected cracked distillates and is composed of saturated hydrocarbons
(primarily paraffins including n, iso, and cycloparaffins), and aromatic hydrocarbons (including
naphthalene and alkylbenzenes).

Diesel is used in diesel engines, a type of internal combustion engine. Rudolf Diesel originally
designed the diesel engine to use coal dust as a fuel, but oil proved more effective. Diesel engines are
used in cars, motorcycles, boats and locomotives. Automotive diesel fuel serves to power trains, buses,
trucks, and automobiles, to run construction, petroleum drilling and other off-road equipment and to
be the prime mover in a wide range of power generation & pumping applications. The diesel engine is
high compression, self-ignition engine. Fuel is ignited by the heat of high compression and no spark
plug is used.

Diesel fuel often contains higher quantities of sulphur. In India, emission standards (equivalent to Euro
II, Euro III, Euro IV) have necessitated oil refineries to dramatically reduce the level of sulphur in
diesel in view of the auto fuel policy brought in force by Govt of India.

20
3.6. PROPEL PETROCHEMICALS:

Petrochemicals have been identified as a prime driver of future growth by IndianOil. The Corporation
is envisaging an investment of Rs 30,000 crore in the petrochemicals business in the next few years.
These projects will utilise product streams from the existing refineries of IndianOil, thereby achieving
better exploitation of the hydrocarbon value chain.

Beginning with a low-investment, high-value projects such as Methyl Tertiary Butyl Ether (MTBE)
and Butene-1 at Gujarat Refinery, Vadodara, IndianOil has set up a world-scale Linear Alkyl Benzene
(LAB) plant at Gujarat Refinery and an integrated Paraxylene/Purified Terephthalic Acid (PX/PTA)
plant at Panipat. A Naphtha Cracker complex with downstream polymer units is also in operation at
Panipat. These initiatives are designed to catapult IndianOil among the top three petrochemicals
players in Southeast Asia in the long term.

To penetrate the petrochemicals market effectively, a separate Strategic Business Unit (SBU) has been
created in IndianOil for marketing of petrochemicals. This SBU has five exclusive sub-groups,
classified product wise (LAB, Aromatics & Chemicals, Polymers) and function wise (Logistics &
Exports), in addition to regional/field set-ups to offer reliable customer service. This SBU has already
established IndianOil's LAB business both in India and abroad.

IndianOil is catering to polymer industry in domestic as well as international level. This SBU is
exporting products to 76 countries. A robust logistics model has been the key to IndianOil's success
story and facilities have been put in place for seamless product dispatches to customers by rail, road
and sea.

IndianOil is a major supplier to the key players in the detergent industry, both national and
international. Similarly, in PTA business, all major domestic customers are catered to by IndianOil.

21
 3.6.1 MEGA PLANTS:

 Linear Alkyl Benzene (LAB) plant, Gujarat Refinery:

IndianOil made its big-ticket entry into petrochemicals with the commissioning of the country's largest
Linear Alkyl Benzene (LAB) plant at Gujarat Refinery in August 2004. It is also the largest grassroots
single train Kerosene-to-LAB unit in the world, with an installed capacity of 1,20,000 metric tonnes
per annum (MTPA). Currently, two grades of LAB - HMW (high molecular weight) and LMW (low
molecular weight) are being produced for manufacture of environment friendly biodegradable
detergents. The quality of the LAB produced here has found wide acceptance in the domestic and
overseas markets

Built at a cost of Rs. 1,248 crore and commissioned in a record 24 months' time, the plant produces
superior quality LAB for manufacturing environment-friendly biodegradable detergents. The key raw
materials for the plant, catering to domestic as well as export market requirements meeting the latest
and most stringent quality standards, are Kerosene and Benzene produced at Koyali Refinery.

LAB PLANT, GUJARAT REFINERY

22
  Paraxylene/Purified Terephthalic Acid (PX/PTA), Panipat:

The most technologically advanced plant in the country, the PX/PTA plant marks IndianOil's major
step towards forward integration in the hydrocarbon value chain by manufacturing Paraxylene (PX)
from captive Naphtha and thereafter, converting it into Purified Terephthalic Acid (PTA).

The PTA Plant is the single largest unit in India with a world-scale capacity of 5,53,000 MTPA,
achieving economy of scale. The process package for the PTA plant was prepared by erstwhile M/s
Dupont, UK (now M/s. Invista) and that of the Paraxylene Unit was prepared by M/s UOP, USA. M/s
EIL and M/s Toyo Engineering were the Project Management Consultants (PMC) for executing the
PTA and PX respectively.

The Paraxylene plant is designed to process 5,00,000 MTPA of heart-cut Naphtha to produce about
3,60,000 MTPA of PX. Naphtha is sourced from IndianOil's Panipat and Mathura refineries, for which
Naphtha splitter units are set up at the respective refineries. The PTA unit produces 5,53,000 MTPA
of Purified Terephthalic Acid from Paraxylene.

PX/PTA, PANIPAT

23
  Naphtha Cracker Plant, Panipat:

The world-class Naphtha Cracker at Panipat, built at a cost of Rs 14,400 crore, is the largest operating
cracker capacity in India.

The feed for the unit is sourced internally from IndianOil's Koyali, Panipat and Mathura refineries.
The Naphtha Cracker comprises of the following downstream units - Polypropylene (capacity: 600,000
tonnes), High Density Polyethylene (HDPE) (dedicated capacity: 300,000 tonnes) and Linear Low
Density Poly Ethylene (LLDPE) (350,000 tonnes Swing unit with HDPE), Mono Ethylene Glycol
(MEG) plant (capacity: 325,000 tonnes).

The cracker will produce over 800,000 tonnes per annum of ethylene, 600,000 tonnes per annum of
Propylene, 125,000 tonnes per annum of Benzene, and other products viz., LPG, Pyrolysis Fuel Oil,
components of Gasoline and Diesel.

The Polypropylene (PP) unit is designed to produce high quality and high value niche grades including
high speed Bi-axially Oriented Polypropylene (BOPP) (used for food packaging and laminations), high
clarity random co-polymers (used for food containers and thin walled products) and super impact co-
polymer grades (used for batteries, automobile parts, luggage and heavy duty transport containers).
Polyethylene is used for making injection moulded caps, heavy duty crates, containers, bins, textile
bobbins, luggage ware, thermoware, storage bins, pressure pipes (for gas and water), small blow-
moulded bottles, jerry cans, etc.

IndianOil is setting up a world class 700 KTA Polypropylene Plant at a cost of Rs. 3150 crores at
Pradip, Odisha to support plastic industry of Eastern Region. This is likely to commissioned by
December 2018.

Indian Oil Corp plans to expand capacity at its naphtha cracker in Panipat in North India to 1.2 million
tonnes per year (tpy) by 2019. The expansion would increase capacity of the cracker from about
850,000 tpy. The Panipat cracker uses naphtha from nearby refineries, including IOC's own Mathura
and Haldia plants, as its feedstock. This will continue even after its expansion.

24
NAPHTHA CRACKER PLANT, PANIPAT

25
 CHAPTER-4
OBJECTIVE AND SCOPE OF CAPITAL STRUCTURE
4.1. OBJECTIVES OF CAPITAL STRUCTURE:

 To understand the structure of IOCL’s capital structure, whether it has more equity then debt,
what are its authorised and issued capital?
 To understand the effect of the structure of capital on the profitability of the business.
 To identify the different sources of finance which could be used and are most appropriate for
the company.
 To understand the concept of the hybrid sources of finance
 To understand the applicability and use of different source of finance over large finance
company
 To carry out different and critical examination about how the structure of capital helps he firm
in planning and achieving the organisational goals.
 To understand the relationship between the debt and the equity of the company.
 Helps the investors to understand the reliability of the company.

27
4.2 SCOPE OF CAPITAL STRUCTURE:

Capital structure is playing a vital role in success of the business. As the organisations now a days
prefers and also uses hybrid sources of finance for raising the capital. The hybrid source of finance
must have proper mix and blend of the required sources and proper implementation of the capital
structure which will benefit the company in the long run.

The proper blend and structure of the capital helps the investors to know about the risks and returns of
the firm, which helps them to make the decision of investment in the company.

28
 CHAPTER-5
RESEARCH METHODOLOGY
5.1 RESEARCH DESIGN:

A research design is the specification of method and procedure for accruing the information needs. It
is overall operational pattern of frame work of project that stipulates what information is to be collected
for source by the procedures.

Descriptive Research design is appropriate for this study.

Descriptive study is used to study the situation. This study helps to describe the situation. A detail
description about present and past situation can be found out by the descriptive study.

5.2 DATA SOURCES AND COLLECTION:

This research is based on secondary data. This means the data are already available, i.e. the data which
have been already collected and analysed by someone else.

Secondary data are used for the study of capital structure, ratio and other financial components of this
company and also its competitors. To collect the data, company annual report, internet websites has
been used.

Analysing and Interpreting the information available in the financial statements and drawing
meaningful conclusions from them.

5.3 STRUCTURE OF THE FIRM:

INDIAN OIL CORPORATION LIMITED is a company with a mixed capital structure. From 1989 to
2018 it has been issuing equity shares and taking up long term borrowing in the form for secured and
unsecured form which include bonds and term loans.

The face value at the earliest where 1000.0/ share and the present it is decreased to 10.0/ share. The
authorised capital where only 150 crores at the earliest now it is increased to 15000 crores.

The stock of IOCL can be purchased from NSE and BSE.

30
 CHAPTER-6
ANALYSIS AND INTERPRETATION
6.1 ANALYSIS OF CAPITAL STRUCTURE:
6.1.1 SHARE CAPITAL:

16000 15000 15000

14000

12000

10000 9478 9181

8000
6000 6000 6000
6000
4855

4000
2428 2428
2000

0
2014-15 2015-16 2016-17 2017-18 2018-19

AUTHORISED CAPITAL ISSUED CAPITAL

GRAPH: 6.1.1(1) GRAPH OF SHARE CAPITAL OF IOCL

 AUTHORISED CAPITAL:

The Authorized Capital of a company is the maximum amount of share capital that the company is
authorized by its constitutional documents to issue (allocate) to shareholders. Part of the authorized
capital can remain unissued. The authorized capital can be changed with shareholder’s approval. The
part of the authorized capital which has been issued to shareholders is referred to as the issued share
capital of the company.

The maximum amount of share capital a company can issue is mentioned on Memorandum of
Association and Article of Association of a company. However, share premium is excluded from the
definition of authorized capital.

Here, the authorised capital for IOCL remains same for the first 3 years i.e. 2014-15, 2015-16, 2016-
17 and again for the next 2year it remains same i.e.2017-18 and 2018-19. The amount of authorised

32
capital in the first 3years are 6000.0crores and in the next 2years it is 15000.0crores, which is an
increase of 250% in authorised capital.

 ISSUED CAPITAL:

Issued Capital is a term of law and finance for the number of shares of a corporation which have been
allocated (allotted) and are subsequently held by shareholders. After allotment, a subscriber becomes
a shareholder, though usually that also requires formal entry in the share registry.

The number of shares that can be issued is limited to the total authorized shares. Issued capital are
those shares which the board of directors and/or shareholders have agreed to allocate. The issued
shares of a corporation form the equity capital of the corporation, and some corporations are required
by law to have a minimum value of equity capital, while others may not need any or just a nominal
number. The value of the issued shares is determined at the time they are issued and the value does not
change, in relation to the issuing corporation after that time.

Here, the issued capital of IOCL is comparatively low as compared to the authorised capital. The issued
capital is same for the first 2 years then on the next year it increased and is more than 50% of the
authorised capital. The authorised capital is same for the first 3years. On 4 th year the authorised capital
as well as issued capital is increased, while the authorised capital remains same in the last year the
issued capital is decreased.

The first 2years i.e. 2014-15 and 2015-16 has the issued capital lower than the half of authorised
capital. The issued capital for 2014-15 and 2015-16 is 2428.0 crores.

In the year 2016-17 the issued capital increased and is more than half of the authorised capital, given
authorised capital 6000.0crores and issued capital 4855.0crores.

Year 2017-18 the authorised capital increased by 250%, given authorised capital 15000.0crores and
the issued capital is 9478.0crores which in which is approximately 65% of the authorised capital.

In the year 2018-19 the authorised capital remained same as the year 2017-18 i.e.15000.0crores but
the issued capital is decreased from the earlier year by approximately 297.0crores.

33
  PAID-UP CAPITAL:

YEAR INSTRUMENT NO. OF SHARE FACE VALUE CAPITAL

(Rs.cr)
2014-15 Equity shares 2,42,79,52,482 10.0 2,428.0
2015-16 Equity shares 2,42,79,52,482 10.0 2,428.0
2016-17 Equity shares 4,85,59,04,964 10.0 4,588.9
2017-18 Equity shares 9,47,86,91,472 10.0 9,478.7
2018-19 Equity shares 9,18,10,40,466 10.0 9,181.6
TABLE:6.1.1(2): PAID-UP CAPITAL PER YEAR

Paid-up capital is capital that is contributed to a corporation by investors by purchase of stock from
the corporation, the primary market, not by purchase of stock in the open market from other
stockholders. It includes share capital (capital stock) as well as additional paid-up capital.

The paid-up capital account does not reflect the amount of capital contributed by any specific investor.
Instead, it shows the aggregate amount of capital contributed by all investors.

Paid-up capital can be less than a company's total capital because a company may not issue all of the
shares that it has been authorized to sell. Paid-up capital can also reflect how a company depends on
equity financing.

Here, the paid -up capital of IOCL is same for the first 2years i.e.2014-15and 2015-16, no. of share
issued are same for both the years. In 2016-17, the no. of share issued by IOCL is increased and reaches
more than half of the authorised capital.

In 2017-18, the no. of authorised share increased as well as the paid-up capital increased from the last
year. In 2018-19, the authorised capital remains same but the paid-up capital is decreased as compared
to the previous year.

34
 6.1.2. TOTAL DEBT:

Debt is a liability that a company incurs when running its business. The debt ratio gives company
leaders insight into the financial strength of the company. This ratio is calculated by taking total debt
and dividing it by total assets. Total debt is the sum of all long-term liabilities and is identified on the
company's balance sheet. Total debt here included debenture, Bonds, Long term loans, short term loan
etc.

IOCL does not issue debentures, bonds etc. The debts IOCL has is loan Secured and Unsecured.

SECURED LOANS:

A secured loan is a loan in which the borrower pledges some asset e.g. a car or property
as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan.
The debt is thus secured against the collateral, and if the borrower defaults, the creditor takes
possession of the asset used as collateral and may sell it to regain some or all of the amount originally
loaned to the borrower.

Secured debt may attract lower interest rates than unsecured debt because of the added security for the
lender; however, credit risk (e.g. credit history, and ability to repay) and expected returns for the lender
are also factors affecting rates.

There are two purposes for a loan secured by debt. In the first purpose, by extending the loan through
securing the debt, the creditor is relieved of most of the financial risks involved because it allows
the creditor to take ownership of the property in the event that the debt is not properly repaid. In
exchange, this permits the second purpose where the debtors may receive loans on more favourable
terms than that available for unsecured debt, or to be extended credit under circumstances
when credit under terms of unsecured debt would not be extended at all.

35
 SECURED LOANS

12000
10888.67

10000

8000

6088.47
6000 5558.03

3912.27
4000 3486.58

2000

0
2014-15 2015-16 2016-17 2017-18 2018-19

SECURED LOANS

GRAPH:6.1.2(1): SECURED LOANS OF IOCL

Here, the secured loan is decreasing with each year. The secured loan of 2014-15 is higher than that
of any year. The graph shows that IOCL is trying to reduce the secured loan as it affects the assets of
the company in future, so IOCL is moving towards the unsecured loans in each passing year to free up
the assets of the company. The year 2017-18 has the lowest amount or secured loan. From the year
2014-15 to 2018-19 the secured loan has been decreased to approximately 65%.

Secured loans have the largest positive impact on Company’s credit when they are repaid. If company
have never taken a secured loan, company’s credit may be low despite your good record of repayment.

UNSECURED LOANS:

An unsecured loan is a loan that is issued and supported only by the borrower’s creditworthiness, rather
than by any type of collateral. Unsecured loans—sometimes referred to as signature loans or personal
loans—are approved without the use of property or other assets as collateral. The terms of such loans,
including approval and receipt, are therefore most often contingent on the borrower’s credit score.

36
In event of the bankruptcy of the borrower, the unsecured creditors have a general claim on the assets
of the borrower after the specific pledged assets have been assigned to the secured creditors. The
unsecured creditors usually realize a smaller proportion of their claims than the secured creditors.

Unsecured loans are often sought out if additional capital is required although existing (but not
necessarily all) assets have been pledged to secure prior debt. Secured lenders more often than not
include language in the loan agreement that prevents debtor from assuming additional secured loans
or pledging any assets to a creditor.

UNSECURED LOANS

35000
31179.78
30000
25907.22
25000

20000 18854.77

14754.01 14805.33
15000

10000

5000

0
2014-15 2015-16 2016-17 2017-18 2018-19

UNSECURED LOANS

GRAPH:6.1.2(2): UNSECURED LOANS OF IOCL

Here, in the graph above we can see the amount for unsecured loan is decreasing gradually from2014-
15 to 2016-17. To reduce the burden of high interest, IOCL has to reduce its unsecured loans.

From 2016-17 to 2017-18 the unsecured loan has an insignificant increase. From 2017-18 to 2018-19
there has been a rapid increase of approximately 210% from the last year in the unsecured loans of
IOCL. IOCL has to increase its unsecure loans in the last 2 years to maintain a proper debt equity ratio
and also to prevent an increase in secure loan which reduces the risk to the assets of the company.

37
In some cases, IOCL may be able to reduce IOCL unsecured debts by negotiating with creditors for a
lower balance. Either IOCL can talk to creditors on IOCL own, or IOCL can solicit the help of a credit
counselling organization. In some cases, credit counsellors can negotiate with creditors better than
debtors can. However, if IOCL choose to work with a credit counsellor make sure the organization is
reputable.

6.2. EARNING BEFORE INTEREST AND TAX (EBIT):

Earnings Before Interest and Taxes (EBIT) is a measure of a firm's profit that includes all incomes
and expenses (operating and non-operating) except interest expenses and income tax expenses.

A professional investor contemplating a change to the capital structure of a firm (e.g., through
a leveraged buyout) first evaluates a firm's fundamental earnings potential (reflected by earnings
before interest, taxes, depreciation and amortization (EBITDA) and EBIT), and then determines the
optimal use of debt vs. equity.

Earnings before interest and tax is a measure of an Indian oil corporation limited (IOCL) to evaluate
earning power from ongoing operations, equal to earnings before deduction of interest payments and
income tax. EBIT excludes income and expenditure from unusual, non-recurring or discontinued
activities. In the case of an IOCL with minimal depreciation and amortization activities, EBIT is
watched closely by creditors.

Formula to calculate EBIT:

EBIT = Net income + Interest + Taxes = EBITDA – Depreciation and Amortization expenses

Operating income = operating revenue – operating expenses (OPEX) = EBIT – non-operating

profit + non-operating expenses

To calculate EBIT, expenses (e.g. the cost of goods sold, selling and administrative expenses) are
subtracted from revenues. Net income is later obtained by subtracting interest and taxes from the result.

The calculation is useful because it provides a look at how profitable a business is before loan decisions
and tax considerations are included to arrive at net income. If a company plans on improving EBIT
while holding sales constant, your only option will be to reduce costs.

38
 45000
39673.07
40000

35000 33827.02
31793.7
30000

25000
21048.59
20000

15000
10154.64
10000

5000

0
2014-15 2015-16 2016-17 2017-18 2018-19

EBIT

GRAPH:6.2(1): EARNING BEFORE EARNING AND TAXES

Here, the EBIT is increasing at an increasing rate and then it is increasing at a decreasing rate and
then it finally decreases.

Form the year 2014-15 to 2015-16 the EBIT is increasing at an increasing rate. This means that the
company has reduced its long term borrowed funds and issued more shares. This also means that the
earning power of IOCL has increased in between these 2years.

From the year 2015-16 to 2017-18 the EBIT has been increasing at a decreasing rate. This means that
the increase of earning is lesser than the previous year, the reduction of the long-term funds and the
increase of issuance of shares has been gradually less.

From the year 2017-18 to 2018-19 the EBIT has been decreasing. This means that there is an
increase in the long-term funds and decrease in the issuance of the equity capital.

Only in the year 2015-16 IOCL has maximum increase in Earnings Before Interest and Taxes.

39
6.3. EARNING PER SHARE (EPS):

Earnings per share (EPS) is calculated as a company's profit divided by the outstanding shares of its
common stock. The resulting number serves as an indicator of a company's profitability. It is common
for a company to report EPS that is adjusted for extraordinary items and potential share dilution. The
higher a company's EPS, the more profitable it is considered.

The earnings per share value are calculated as the net income (also known as profits
or earnings) divided by the available shares. A more refined calculation adjusts the numerator
and denominator for shares that could be created through options, convertible debt, or warrants.
The numerator of the equation is also more relevant if it is adjusted for continuing operations.

Formula of Earning Per Share:

Earnings per Share = Net income – Preferred Dividend / End- of- Period Common Shares
outstanding

50 46.3
45
39.35
40
35
30
25 21.75 21.98
20 17.95

15
10
5
0
2014-15 2015-16 2016-17 2017-18 2018-19

EPS

GRAPH:6.3. (1): EARNING PER SHARE FROM 2014-15 TO 2018-19

Here, the EPS of IOCL is highest in the year 2015-16. This means that the shareholders earned more
in the year 2015-16 than the previous year.

After 2015-16 the EPS has been decreasing gradually, which is constantly decreasing the earning of
the shareholders.

40
IOCL has to increase the earning and decrease the number of shares. In order to increase earnings, a
business has to increase revenues, reduce expenses or both. In order to decrease the number of shares,
do a share buyback from shareholders.

6.4 RATIOS:

Ratios are used by a company to determine different aspect of the company. Different ratios help in
determining in different aspects.

For IOCL we will be analysing 6 different ratios,

 CURRENT RATIO
 DEBT-EQUITY RATIO
 RETURN ON INVESTMENT

 CURRENT RATIO:

The current ratio is a liquidity ratio that measures whether a firm has enough resources to meet its
short-term obligations. It compares a firm's current assets to its current liabilities, and is expressed as
follows:

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITY

The current ratio is an indication of a firm's liquidity. Acceptable current ratios vary from industry to
industry. In many cases, a creditor would consider a high current ratio to be better than a low current
ratio, because a high current ratio indicates that the company is more likely to pay the creditor back.

Large current ratios are not always a good sign for investors. If the company's current ratio is too high
it may indicate that the company is not efficiently using its current assets or its short-term financing
facilities. Ideal current ratio is 2:1.

41
 TABLE:6.4(1): VALUE OF CURRENT ASSETS AND LIABILITY

YEAR CURRENT ASSESTS CURRENT LIABILITIES CURRENT RATIO

(Rs.cr) (Rs.cr)
2014-15 95,931.02 96,801.35 0.99
2015-16 89,349.74 98,208.65 0.91
2016-17 92,787.70 1,08,522.78 0.85
2017-18 1,03,054.97 1,35,882.28 0.75
2018-19 1,24,443.12 1,53,463.00 0.81

1.2

0.99
1
0.91
0.85
0.81
0.8 0.75

0.6

0.4

0.2

0
2014-15 2015-16 2016-17 2017-18 2018-19

CURRENT RATIO

GRAPH:6.4(1): CURRENT RATIO FROM 2014-15 TO2018-19

Here, the current ratio is decreasing from 2014-15 to 2017-18 this means that the liabilities of IOCL
is more than that of the assets. There has been a slight increase in ratio in the year 2018-19 which
means that there has been an increase in asset.

IOCL has low short-term liquidity capacity as the value of assets in the company is very less that
liability.

42
  DEBT-EQUITY RATIO:

The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders'
equity and debt used to finance a company's assets.[1] Closely related to leveraging, the ratio is also
known as risk, gearing or leverage. Higher leverage ratios tend to indicate a company or stock with
higher risk to shareholders. Investors often modify the D/E ratio to focus on long-term debt only
because the risk of long-term liabilities are different than for short-term debt and payables.

Ideal debt-equity ratio is 1:1

FORMULA:

DEBT-EQUITY RATIO = TOTAL LIABILITIES / TOTAL SHAREHOLDER’S FUND

Creditors usually like a low debt to equity ratio because a low ratio (less than 1) is the indication of
greater protection to their money. But stockholders like to get benefit from the funds provided by the
creditors therefore they would like a high debt to equity ratio.

Debt equity ratio vary from industry to industry. Different norms have been developed for different
industries. A ratio that is ideal for one industry may be worrisome for another industry.

TABLE:6.4(2): VALUE OF DEBT AND EQUITY

YEAR DEBT (Rs.cr) EQUITY (Rs.cr) D/E RATIO

2014-15 32,731.26 67,969.97 0.48
2015-16 24,943.24 73,948.73 0.34
2016-17 20,312.04 99,728.72 0.20
2017-18 18,717.60 1,10,171.02 0.16
2018-19 34,666.36 1,08,657.51 0.32

43
 0.6

0.5 0.48

0.4
0.34
0.32
0.3

0.2
0.2 0.16

0.1

0
2104-15 2015-16 2016-17 2017-18 2018-19

D/E RATIO

GRAPH:6.4(2): DEBT-EQUITY RATIO FROM 2014-15 TO 2018-19

Here, the debt equity ratio is decreasing in the first four years i.e. from 2014-15 to 2017-18 and then
at the last year it increased i.e. on 2018-19.

The debt- equity ratio of IOCL for all the 5 years is less than 1, this indicates that the portion of assets
provided by stockholders is greater than the portion of assets provided by creditors.

 RETURN ON INVESTMENT:

Return on investment (ROI) is a ratio between net profit (over a period) and cost of investment. A high
ROI means the investment's gains compare favourably to its cost. As a performance measure, ROI is
used to evaluate the efficiency of an investment or to compare the efficiencies of several different
investments. In economic terms, it is one way of relating profits to capital invested.

The investment with the largest ROI is usually prioritized, even though the spread of ROI over the
time period of an investment should also be taken into account. Return on investment may be extended
to terms other than financial gain.

44
FORMULA:

RETURN ON INVESTMENT = NET INCOME / TOTAL INVESTMENT

TABLE:6.4(3): VALUE OF NET INCOME AND TOTAL INVESTMENT

YEAR NET INCOME TOTAL INVESTMENT RETURN ON

(Rs.cr) (Rs.cr) INVESTMENT
2014-15 5,273.03 23,899.49 22.06
2015-16 11,242.23 37,181.40 30.23
2016-17 19,106.40 47,304.60 40.39
2017-18 21,346.12 47,488.26 44.95
2018-19 16,852.25 49,755.38 33.82

50
44.95
45
40.39
40
33.87
35
30.23
30

25 22.06

20

15

10

0
2014-15 2015-16 2016-17 2017-18 2018-19

ROI

GRAPH:6.4(3): ROI FROM 2014-15 TO 2018-19

Here, the ROI is increasing in the first 4 years i.e, from 2014-15 to 2017-18, 2017-18 has the highest
ROI in comparision to the 5 years, this means that the best return IOCL would have got over its
investment would be in this year only.

Comparing ROI in these 5 years , the investemnt in the year 2017-18 would be prioritised as it has the
highest ROI over the other.

45
6.5. WEIGHTED AVERAGE COST OF CAPITAL (WACC):

The weighted average cost of capital (WACC) is a financial ratio that calculates a company’s cost of
financing and acquiring assets by comparing the debt and equity structure of the business. In other
words, it measures the weight of debt and the true cost of borrowing money or raising funds through
equity to finance new capital purchases and expansions based on the company’s current level of debt
and equity structure.

Management typically uses this ratio to decide whether the company should use debt or equity to
finance new purchases. This ratio is very comprehensive because it averages all sources of capital;
including long-term debt, common stock, preferred stock, and bonds; to measure an average cost of
borrowing funds. It is also extremely complex.

FORMULA;

COST OF EQUITY (ke) = D/ P + g OR EPS/P

Where, D = dividend per share, P = market price, g = growth rate

COST OF DEBT (kd) = I (1- t)

Where, I = interest rate, t = tax rate

TABLE: 6.5.(1): WACC FOR YEAR 2014-15

Source Amt Proportion Cost of Capital WACC

Equity Shares 6,000.00 0.06 0.24 0.01
Reserves and surplus 65,545.00 0.60 0.24 0.14
Long term borrowing 36,796.00 0.34 0.07 0.02
1,08,341.00 1.00 0.18

TABLE: 6.5.(2): WACC FOR YEAR 2015-16

Source Amt Proportion Cost of Capital WACC

Equity Shares 6,000.00 0.06 0.47 0.03
Reserves and surplus 71,520.00 0.70 0.47 0.33
Long term borrowing 24,945.00 0.24 0.07 0.02
1,02,465.00 1.00 0.37

46
 TABLE: 6.5.(3) : WACC FOR THE YEAR 2016-17
Source Amt Proportion Cost of Capital WACC

Equity Shares 6,000.00 0.05 0.20 0.01

Reserves and surplus 94,990.00 0.78 0.20 0.16

Long term borrowing 20,315.00 0.17 0.07 0.01

1,21,305.00 1.00 0.18

TABLE : 6.5.(4) : WACC FOR THE YEAR 2017-18

Source Amt Proportion Cost of Capital WACC
Equity Shares 15,000.00 0.11 0.12 0.01
Reserves and surplus 1,00,695.00 0.75 0.12 0.09
Long term borrowing 18,720.00 0.14 0.07 0.01
1,34,415.00 1.00 0.12

TABLE : 6.5.(5) : WACC FOR THE YEAR 2018-19

Source Amt Proportion Cost of Capital WACC
Equity Shares 15,000.00 0.10 0.11 0.01
Reserves and surplus 99,480.00 0.67 0.11 0.07
Long term borrowing 34,670.00 0.23 0.07 0.02
1,49,150.00 1.00 0.10

47
 0.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
2014-15 2015-16 2016-17 2017-18 2018-19

WACC

GRAPH: 6.5.(1) : WACC FROM 2014-15 TO 2018-19

Here, the WACC for the year 2015-16 is the highest and after that it keeps on decreasing . the last
year i.e. 2018-19 has the lowest WACC anong the years.

Lower WACC means higherthe value of the firm and lower risk , higher WACC is associated with
higher risks.

48
CHAPTER-7
FINDINGS
7.1 FINDINGS:

 IOCL has issued less shares capital to the shareholders, constantly from 2014-15 to 2018-19.
IOCL does not fulfil the of authorized share capital which is mention in memorandum of
association.
 The authorised capital for the year 2014-15 to 2016-17 is same i.e.6000crs and on the year
2017-18 the authorised capital has been increased to 15000crs.
 Other kind of equity (Preference Share, Debenture etc) does not exist in the firm.
 The Return on Investment ratio of IOCL is lowest in the year in 2014-15 and highest in the
year 2018-19, the investment in this year would be prioritised.
 IOCL has maximum number of total debts in the year 2014-15 and lowest number of total debts
in the year 2017-18 while comparing the chosen 5 years.
 IOCL has the maximum amount of unsecured loan and the lowest amount of secured loan in
the year 2018-19 , which means that IOCL has reduced the risk over the assets of the company
by increasing unsecured loans and decreasing secured loans.
 The EBIT of IOCL has increased from the year 2014-15 to 2017-18 , this means that the
issuance of equity share is increasing and long term borrowing are decreasing.
 In the year 2018-19 the EBIT is decreased which means there is a decrease in the issuance of
equity share and long term borrowing have been increased.
 The shareholders have earned more in the year 2015-16 than in any other year and earned
lowest in the year 2018-19.
 IOCL does not reach the ideal ratio of current ratio, this means that IOCL has more liabilty
than assets. Current ratio is below 1 in the compared 5 years.
 The D/E Ratio is less then 1 in all the 5 years which is good for the creditors but bad for the
shareholders. IOCL has lowest D/E Ratio in the year 2017-18.
 The WACC for the year 2018-19 is the lowest ie. 10% and the year 2015-16 has the highest
WACC among the years i.e. 35%. This means that IOCL is decreasing its risk.

50
CHAPTER-8
SUGGESSTIONS
8.1: SUGGESSTIONS:

 The company should utilise the debt funds more efficiently to maximise the returns of
shareholders.
 Increasingly, the firm is moving towards the unsecured loans from the secured loans to free up
the risk over assets.
 IOCL must try to fulfil the limit of authorised share capital and issue maximum number of the
share to the public.
 IOCL must have to reduce the total debt of the company against the issuance of the share.
 IOCL must increase their current assets as the short-term liquidity power of the firm is low.
 IOCL must try to fix the D/E Ratio of the firm as it is good only for the creditors not for the
shareholders.
 The company should try to increase the profit before interest and tax so that the Investments in
the firm are attractive as the investors would like to invest only where the return is higher.
 The company can invest in marketable securities to improve its cash position.

52
CHAPTER-9
CONCLUSION
9.1. CONCLUSIION:

From the above discussion it can be concluded that Indian Oil Corporation limited running with low
debt fund. Therefore, they may increase it to get benefits of low-cost capital. It has found that IOCL
largely employing shareholders’ funds in their assets. Moreover, EOL is on high degree financial risk.
Therefore, they may reduce the debt capital and employ more equity fund.

The study undertaken has brought in to the light of the following conclusions .

According to the project it can be seen that Indian Oil Corporation Ltd. has been doing a satisfying
job. But the firm has certain areas to ponder upon like capital employment. So, the firm should focus
on getting of profits in the coming years by taking care internal as well as external factors. And with
regard to resources, the firm is taking utilization of the borrowed fund in a right place. The firm must
increase the issued capital as it does not fulfil the authorised capital as mentioned in the Memorandum
of Association. Indian Oil Corporation Ltd. Has increased its authorised capital in the year 2017-18
about 150% than the last year.

54
CHAPTER-10
ANNEXURE
Balance sheet
(Rs crore)

Mar ' 19 Mar ' 18 Mar ' 17 Mar ' 16 Mar ' 15

Sources of funds

Owner's fund

Equity share capital 9,181.04 9,478.69 4,739.34 2,369.67 2,427.95

Share application money - - - - -

Preference share capital - - - - -

Reserves & surplus 99,476.47 1,00,692.33 94,989.38 85,764.64 65,523.35

Loan funds

Secured loans 13,347.62 12,997.75 13,311.13 14,322.96 16,237.65

Unsecured loans 69,912.29 42,527.41 37,073.67 28,160.41 33,491.59

Total 1,91,917.42 1,65,696.18 1,50,113.52 1,30,617.68 1,17,680.54

Uses of funds

Fixed assets

Gross block 1,43,599.26 1,31,503.81 1,18,598.38 95,988.48 1,20,624.65

Less: revaluation reserve - - - - -

Less: accumulated
depreciation 24,891.43 17,576.49 10,718.89 4,641.51 54,373.18

Net block 1,18,707.83 1,13,927.32 1,07,879.49 91,346.97 66,251.47

Capital work-in-progress 23,598.96 14,348.43 10,737.82 21,025.08 36,323.50

Investments 49,755.38 47,488.26 47,304.60 37,181.40 23,899.49

Net current assets

Current assets, loans &

advances 1,23,645.55 1,04,975.90 93,291.36 70,950.72 93,375.01

56
 Mar ' 19 Mar ' 18 Mar ' 17 Mar ' 16 Mar ' 15

Less: current liabilities &

provisions 1,23,790.30 1,15,043.73 1,09,099.75 89,886.49 1,02,168.93

Total net current assets -144.75 -10,067.83 -15,808.39 -18,935.77 -8,793.92

Miscellaneous expenses
not written - - - - -

Total 1,91,917.42 1,65,696.18 1,50,113.52 1,30,617.68 1,17,680.54

Notes:

Book value of unquoted

investments 1,884.92 15,060.59 14,142.08 8,830.37 20,629.37

Market value of quoted

investments - 38,999.10 39,440.72 32,031.68 25,454.23

Contingent liabilities 46,827.58 39,238.80 44,531.56 44,150.49 43,123.81

Number of equities shares

outstanding (Lacs) 91810.40 94786.91 47393.40 23696.70 24279.52

57
CHAPTER-11
BIBLIOGRAPHY
11.1. WEBSITE REFERENCES:

 https://www.iocl.com/home.aspx
 https://money.rediff.com/companies/Indian-Oil-Corporation-Ltd/12140022/balance-
sheet
 https://economictimes.indiatimes.com/indian-oil-corporation-
ltd/capitalstructure/companyid-11924.cms
 https://craytheon.com/financials/fundamental_stock_analysis_cagr_annual_growth_rate
_trend_chart.php?company=IOC
 https://www.moneycontrol.com/india/stockpricequote/refineries/indianoilcorporation/IO
C
 https://en.wikipedia.org/wiki/Indian_Oil_Corporation

11.2. BOOK REFERENCE:

 LONG-TERM FINANCE- NIRALI AND THAKUR PUBLICATION

 CASES IN FINANCE - NIRALI AND THAKUR PUBLICATIONS
 K.R DAS, PRITI CHANDA B.B DAM, & ANJU KAKOTY: FINANCIAL
STATEMENT ANALYSIS

59