CHAPTER I

INTRODUCTION

The origin of the oil industry in India can be traced back to the last
part of the 19th century when petroleum was discovered in Digboi in
Northeast. After independence, industry-which had Burmah Shell, Esso
and Caltex as majors players-was nationalized. Every activity exploration,
development production and refining, rnarketing distribution was
controlled by the various oil companies. Since Indian economic
liberalization programmer started however, the Indian oils and gas
sectors has gone through some every fundamental changes.

But post

April, 2002, the oil segment has been totally freed from the shackles if
the government with the dismantling of the administered pricing
mechanism and oil companies being given the right to price mechanism
and oil companies being given the right to price their products at the
retail outlets.
INDUSTRY STRUCURE :
The domestic oil industry is largely controlled by the government
with the Ministry of Petroleum and Natural Gas at the helm and was
being assisted by directors general of hydrocarbon (DGH), Gas Linkage
Committee, Oil Industry Development Board (OIDB) and Oil coordination
committee (OCC) till OCC was replaced by another regulatory board. The
Present board has been named as Petroleum Planning and Analysis
Cell. In line with the proposed the formation of the single regulatory
authority for both natural gas has both natural gas and downstream
petroleum

activities

instead

of

two

separate

authorities

for

the

downstream and upstream Petroleum activities that was announced post

liberalization.
This regulatory body will take care of the followings.
1)

Administer subsidy on kerosene for public distribution system and

domestic cooking gas and freight subsidy for far - flung areas.

2)

Maintain information data bank and communication system to

deal with emergencies and unforeseen situations.

3)

Forecast arid evaluate petroleum import arid export trends and

Operationalize the sector specify surcharge schemes.

Besides the above, the cell is also is expected to take care of the
following:
1)

The availability of petroleum and gas products in different regions

of the country especially remote areas.

2)

Establishing the quality specifications ,monitoring compliant,

environmental

standards

and

targets

for

technological

achievements.
3)

Ensuring equitable access to the pipelines and monitoring of the

tariff. Monitors arid regulate tariff of common usage facilities.

4)

To monitor the implementation of polices pertaining to downstream

oil Sector activities lay down or pronounced by the Govt.

5)

Protection of consumer interest with respect to price quality and

availability of products.

6)

Prevent unfair trade practices and cartelization.

Among exploration and production companies oil & natural gas

corporation (ONGC) and oil have a virtual monopoly with more than 84%
of the production in upstream crude oil and gas industry. However
private players are allowed in this segment with the launch of new
exploration and licensing policy (NELP)in marketing and distribution of
gas, GAIL is the largest company.
The refining sector is again ,dominated by PSUs like Indian Oil
Corporation (HPCL), Chennai Petroleum Corporation (IOCL), Bharat
petroleum corporation (BPCL), Hindustan Petroleum Corporation (HPCL)
Chennai petroleum corporation (CPCL),

Kochi Refineries (KRL), and

Bongaigaon Refinery & Petrochemicals (BRPL) of which the first three has
the rights to marks its product like Petrol ,diesel and kerosene. The last
three are stand alone refineries.
From 1st April 2002 administer price mechanism (APM) was
dismantled. State subsidies were scrapped for all products, excepts for
kerosene and cooking gas (LPG). Subsidies for these politically sensitive
items would continue for three to five years before being phased out.
However, now subsidies will be provided for in the budget. In addition to
that, Oil companies will be free to set to their own prices at the pump.
But the petroleum ministry would cushion the impact of the same for at
least the coming three months to prevent consumers being hit by big
price fluctuations.
.
Petrol., Diesel, LPG and kerosene are the four main petroleum
products whole sale accounts for about 70% of the total sales in India. In
volume the terms it IS roughly around 77MT and in value terms it is

roughly Rs. I,45,000 Crores sold every year. Margins for petrol is
marginally higher than. that of diesel, by about 1.3 dollars/barrel.
The four major products in a snapshot:
HSD: It is the largest selling of all fuels and accounts for 85% of the
automotive fuels. It accounts for 42% of sales volume of oil companies.
The diesel market roughly amounts to Rs 92,000 corer per annum.
It is sold mainly in two ways. One is sold at low-margins
wholesales to bulk consumers like the railways and state transport
companies. The other way, (highest volume sold in this way) are to retail
sales to truck, heavy vehicles and agricultural segment.
Diesel sales have roughly fallen by 8% over the last one-year due to
the downturn in the economy.
Petrol: It accounts for roughly 9.3 MT of fuel sales. In volume terms it is
roughly around its 28,000 corer per year. Sales are growing @ 1.7% over
the past one year.
Kerosene: It amounts to Rs. 13,000 crore in term of sales. It is sold two
ways. One through the public distribution system and the second though
free market operation kerosene, till date subsidized though it is going to
be phased out in the next 3-5 years.
LPG: Sales of about Rs.12,000 crores accrued from his last year. Though
this product provided the maximum margins to the oil companies (about
$5/barrel). Though private players are allowed to sell this products since
1994, all the made losses due to the subsidy to the LPG sold by the oil

companies. But imports of petrol and diesel would be continued to be

regulated and would be allowed only after established norms of a free
market and a credible regulatory mechanism.
ENERGY: Demand for energy has been growing and the market is bound
to expand with an ever growing population. While the sale has been
witnessing a steady growth over the past few year, the bottom line that oil
and gas companies have seen a sharp and consistent rise in profits.
Right now, oil, gas, colas, hydel and nuclear are the five sources of energy
supply. Going forward in the energy sector, gas is expected to replace the
demand for oil and is expected to constitute 20% of the energy supply by
2025.

OIL
GAS
COAL
HYDEL
NUCLEAR
TOTAL

FY 2002
33.8
10.4
52.1
2.5
1.2
100

FY 2007
35.8
10.2
49.3
3.2
1.5
100

FY 2012
33.7
10.1
50.3
3.4
2.5
100

FY 2025
25
20
50
2
3
100

CURRENT SCENARIO :
The administered pricing mechanism dismantled w.e.f April 1
2002. Deregulation has brought for the industry and protection of
consumer interest. The APM was designed to keep price of essential
Petroleum products (such as LPG and Kerosene) with in the common
man's reach. Thus, the government kept prices of petroleum products
loan ,by subsidizing the prices of these products with recourse to the oil
pool account the kept on growing to unsustainable proportions. The
APM mechanism functioned on retention price concept, where in oil
marketing companies were assured a post-tax return of 12% on their net
worth. With the dismantling of APM, the oil pool account too was scraped
with nearby Rs 15,000 crore due too oil companies till March 31,2002.
From 1st April 2002 administered price mechanism (APM) was
dismantled. State subsidies were scrapped fro all products, except for
kerosene and cooking gas )LPG). Subsidies for these politically sensitive
items would continue for three to five years before being phased out.
However, now subsides will be provided for the budget. In assist to that, il
companies will be free to set their own prices at the pump. But the
petroleum ministry would cushion the impact of the same for at least the

coming three months to prevent consumer being hit by big price

fluctuations. Post-APM, the market based environment ensures better
pricing, efficient working capital management and higher emerging for oil
PSUs. Deregulation has made PSUs more competitive and has let to a
strong performance at the bourses.
Petrol, Diesel, LPG and Kerosene re the four main petroleum products
whose sales account for about 70% of the total sales on India. In volume
terms it is roughly around 77MT and in value terms it is toughly
Rs1,45,000 crores sold every year. Marginally higher than that of diesel,
by about 1.3 dollars/barrel.
Some of the key highlights were :
1.

Sector moves from APM to market determining pricing mechanism

(MUPM).

2.

Dis-investment of HPCL and BPCL announced by Government.

3.

IOC, ONGC & GAIL to remain national oil companies on near

future.

4.

Enter of private and multinational companies in the oil sector

imminent.

Demand drives :
The major demand drivers in this sector are the growth in GDI rate
overall industrial growth and increase in transportation. With the
commissioning of Reliance Petroleum, the country has become more
than self reliant in refining. But crude oil imports continue to increase
even though these will be reduction in petro-products imports. India
currently imports about 70% of its total crude requirements with the

launch of NELP, many private players are permitted for exploration and
production of crude oil and expansion in refining sector companies is
expected to cater the demand.

Risk factors :
Inter firm rivalry.
Competition in the sector is likely to intensify.
The government as stipulated a fixed investment of minimum Rs
200 crores for new entrant.
Entry barriers.
Limited bargaining power on raw materials.
Critical success factors :
Gross Refining Margins : High.
Cost of crude: buy crude by entering into terms contracts and
through tender process.
Crude which will give lesser quantity of heavier distillate products
and more of a heavier refinery important.
Location of a refinery important
Tariff protection
Pipeline network
Environment regulations
Marketing network and infrastructure.
Sales composition.
Mergers & Acqusitions :
As part of its plan of restructuring the oil sector, the government
decided on the integration of standalone refineries in public sector and
accordingly, sold its stakes in and Numaligarah are made subsidiaries of
BPCL, while and CPCL became subsidiaries of IOCL.

This arrangement will strength the standard the stand- alone

refineries to face the increasing challenges of deregulation and enhance
supply of petroleum products to LOC and BPCL in the southern and
northeastern regions.
In private sector, Reliance Petroleum has decided to merge itself
with the parent Reliance Industries to become the first private company
to enter the list of fortune 500. Globally, mergers paved the way for
higher returns with lower ratio of labour to assets.
.
Government policy:
The following key recommendations were announced in the union
Budgets 2002-03.
The pricing of Petroleum products will become market determined.
The oil pool account will dismantled on April 1, 2002 and the
outstanding balances will be liquidated by issued of oil bonds to
the concerned oil companies.
Private companies will be permitted in distribution subject to
specified guidelines.
A petroleum Regulatory Board will be set up to oversee the sector.
Subsidies to refineries in the North-East will continue on a
rationalized basis.
Freight subsidies will continue to be provided for LPG and
kerosene to far-flung areas.
As a result of the dismantling of APM, the price of diesel will come
down by around 50 paisa per liter and of petrol by around Re 1 per
liter. These changes in prices will come into effect from March 1,
2002, initially as part of the Oil Pool Account.

Need for the study:

Financial performance Appraisal is the process of identify the financial
strength and weakness of the firm by properly establishing relationships
between the items of the balance sheet and profit and loss account.
Management of the firm can undertake financial analysis or by parties
out side the firm, viz., owners, creditors investors and others. The nature
of analysis will differ depending on the purpose.
Trade creditors: Trade creditors are interested in firm ability to meet
this claims over a very short period of time this analysis will therefore
confine to the evaluation of the firm's liquidity position.
.
Suppliers of the long term debt: Suppliers of long term debt are
concerned with the firm's long term solvency and survival they analysis
the firm's profitability over time its ability to generate cash to be able to
pay interest and repay principal and the relationship between various
source of funds (Capital structure relationships).
.
Investors: Investors are most concerned about the firm's earning they
concentrate on the analysis of the firm that show steady growth in
earning they concentrate on the analysis of the firm's present and future
profitability they are also interested in the firm's financial structures to
the extent it influences the firm's earning ability and risk..
Management: Management firm would be interested in every aspects of
the financial analysis it is there overall responsibility to see that the
resource of the firms are used most effective and efficiently that the
firm's financial condition is sound.

In financial analysis, a ratio is used as a bench marks for

evaluating the financial position and performance of a firm. The
relationship between two accounting figures expressed mathematically is
known as financial ratio (or simply as a ratio). Ration help to summarizes
of financial data and to make qualitative judgment about the firm's
financial performance.
Many diverse groups of people are interested in analyzing the
financial information to indicate the operating and financial efficiency,
and growth of he firm these people use ration to determine those
financial characteristics of the firm to which they are interest with the
help of ratios, one can determine.
The ability of the firm to meet its current obligations.
The extent to which the firm has used its long term solvency by
borrowing funds.
The efficiency with the firm is utilizing its assets in generating
sales Revenue.
The overall operating efficiency and performance of the firm.
In the financial literature of a lot of importance has been attached
to financial ratios for assessing the financial health of the firm the
importance of ratios analysis lies in the fact that it present facts on a
comparative basis ands enable the drawing of inference regarding the
performance of firm. Ratio analysis is relevant in assessing the
performance of a firm in respect of following aspects.
Liquidity position :

With the help of ratio analysis conclusion can be drawn regarding

the liquidity position of a firm. The liquidity of a firm would be
satisfactory if it is able to meet its current obligations when they become
due. A firm can be said to have the ability to meet its short-term
liabilities if it has sufficient liquid funds to pay the interest on its short
maturing debts usually within a year as well as the principal. This ability
is reflected in the liquidity ratios of a firm. The liquidity ratios
particularly useful in credit analysis by banks and others suppliers of
short term loans.

Long term solvency :

Ratio analysis is equally useful for assessing the long term
financial viability of a firm. This aspect of the financial position of a
borrower is of concern to the long term creditors, security analyst and
the present and potential owner of a business. The long term solvency is
measured by the leverage/capital structure and profitability ratios which
focus on earning power and operating efficiency. Ratio analysis reveals
the strength and weakness of a firm in this respect.
The leverages ratios, for instances, will whether a firm has a
reasonable proportions of various sources of financer or whether heavily
loaded with debt in which case its solvency of financer or whether heavily
loaded with debt un which case its solvency is exposed to serious strain.
similarly, the various profitability ratios would reveal whether or not the
firm is able to offer adequate returns to its owners consistent with the
risk involved.
Operating Efficiency :
Yet another dimension of the use of the ratio analysis, relevant
from the view point of management is that it throws light on the degree of
efficiency in the management and utilization of its assets. It would recall
that the various activity ratios measure this kind of operational
efficiency. In fact, the solvency of a firm is, in the ultimate analysis,
dependent upon the sale generated by the users of its assets- total as
well as its components.
Over all profitability :

Unlike the outsider parties which are interested in one aspect of

the financial position of a firm, the management is constantly concerned
about the overall profitability of the enterprise.
That is, they are concerned about the ability of the firms to meet
its short term as well as the long term obligations to its creditors, to
ensure a reasonable return to its owners and secure optimum utilization
of the assets of the firm. This is possible if an integrated view is taken
and all the ration are considered together.
Inter-firm comparison :
Ratio analysis not only throws light on the financial position of a
firm but also Serves as a stepping stone to remedial measures .This is
made possible due to inter-firm Comparison /comparison with industry
averages. A single figure of particular ratio is meaningless unless it is
related to some standard or norm. one of the popular techniques is to
compare the ratios of a firm the industry average. It should be
reasonable expected that the performance of the firm should be in broad
conformity with that of the industry to which it belongs .An inter-firm
comparison would demonstrate.
The relatives position vis-a-vis its competitors. if the results are at
various either with The industry average or with those of the competitors,
the firm can seek to identify the Probable reasons and ,in that light, take
remedial measures.
The above aspects of important to predicate the firms ability to
meet the Sustainable growth these are all applicable to oil industry like

HPCL also. The Following are the reasons take up financial analysis as
subject to study.
To review the whole financial performance of HPCL
To analyses the various reasons which are resulting in profitability
of the firm.
To analyse how effectively does the company utilise its assets in
generating the sales
To analyse the level of current assets relative to current liabilities.
To know how efficiently and frequently does the company convert
current
assets into cash
To analyze the trends in collection period and fixed assets turnover
in this Context HPCL as sampling unit is selected to study the
financial performance.
OBJECTIVES
I.

To review the position of the petroleum industry in India.

2.

To review the profile of the organization.

To appraise the financial performance of the HPCL .

To offer the suggestion wherever necessary basing on the study.

To make comparative study of different years.

METHODOLOGY:
Data collection: there are two methods of collecting data "Primary Data"
and "Secondary Data".
Primary Data:

Having personal interaction with officials and staff in the finance

department collects primary data for the study.
Secondary Data
Secondary data is the existing data from published sources
obtained from firm annual reports balance sheets and other financial
statements etc. In the study maximum information is collected from
secondary data only.
Period of study: five (5) years i.e. the financial years of 2000-01 to 200405 details were examined.
Statistical Techniques:
Graphs, Averages, Correlation are used.
Chapterization
The study is presented in four (IV)chapters
Chapter-1

Deals with introduction to petroleum industry in India .need

for the study the study ,objectives of the study along with methodology.
Chapter-2 : Deals with financial a profile of Hindustan corporation Ltd.
Chapter-3 : Deals with financial performance HPCL with the help of the
appropriate Financial management techniques (ratio analysis) and there
interpretation.
Chapter-4 : finally this chapter deals with summary ,suggestion and
Bibliography will be presented.

CHAPTER-II
PROFILE OF HINDUSTAN PETROLEUM CORPORATION LTD.
COMPANY PROFILE:
HPCL accounts for about 20% of the nation's refining capacity .On
west Coast is the Mumbai refinery with a capacity of 5.5 million metric
tones per annum While the other at Visakhapatnam, on the east coast,
has a capacity of7.5 million Metic Tones per annum.
HPCL is mega public sector undertaking (PSU) and is the second
largest Integrated oil company in India, with Nav Ratna status .it has two
refineries producing a wide variety of petroleum products fuels,
Lubricants and specially products; one in Mumbai (west coast) started in
1954 with refining capacity of 1.25 MMPTA .Now Mumbai refinery having
a capacity of 5.5 MMPY A and the in Visakhapatnam east coast with a
capacity of7.5 MMTA. The corporation also operates the only joint
venture refinery in flee country. The corporation also operates the only
joint venture refinery in flee country. The 9 MMPTA, in associated with
Aditya Birla Group of companies and is progressing towards second joint
venture in the state of Punjab. HPCL is the results of successful of four
establish companies HPCL was born of di, successful merger of ESSO,
lude Indian Ltd., Caltex oil refinery India Ltd., and Kosan gas company of
India Ltd. the company was renamed HPCL with effect from July 5 th 1947
Indian oil & gas sector accounts for more than 30% of Indian's oil import
bill and the sector contributes over 20% to the national exchequer
through customers and excise.

India's share to world oil & gas production is less than 1 % with
petro-product consumption of less than 3%. The objective of self-reliance
in th4 sector has become a distant dream far exceeding production and
with crude prices souring high in international markets.
CORPORATE VISION STATEMENTS :
To be a leading world class company in hydrocarbons and energy
related sectors with a global presence.
CORPORATE MISSION STATEMENT :
HPCL will be a fully integrated company in the hydrocarbons sector
pf exploration and production refining marketing and petrochemicals
focusing on enhancement of productivity, quality and profit ability, caring
for customers and employees, environment protection and cultural
heritage.
It will also attain international dimension by diversity into other
energy related fields and by taking up translational operations. The above
statement would be the guiding forces for defining the scope and reach of
HPCL during the next 25 years HPCL would provide the full range of
services integrated across the business in energy sectors and geographic
boundaries and distinguish itself on the corporate horizons.
VISION 2020:
The long perspective plan vision 2020 was prepared with the active
involvement of different functional departments so that the corporations
strategies and action plans are fully integrated swot analysis and a
survey on managing the changes was undertaken in the contest of the
present in peratives and in orders prepare suitable strategies and action

plans. The corporation formulated its vision mission statements and

developed corporate values, objectives and goals.
REFINING PROCESS :
Crude Oil itself is in an unrefined form and has no direct use. Its
value as a commodity is realized only when many different hydrocarbons
components are separated out, broken down or combines with other
chemicals in refinery to provide products than can be marketed. Each
crude oil has its own unique characteristics that determine the products
it will yield after refining built to meet specific demands for particular
markets. The trend is away from heavier products towards maximization
of middle distillates and gasoline. As a result, the processes are
continually getting upgraded.
PRODUCTS :
Light distillates:
1. Liquid Petroleum Gas (LPG) mainly used for cooking purpose.
2. Naphtha

Low Aromatic Naphtha (LAN)

High Aromatic Naphtha (HAN)

3. Motor Spirit (M.S)/Gasoline/petrol

Use for indigenous vehicles M.S.
93R- use for foreign vehicles.
4. propylene

Raw materials for petrochemicals.

MIDDLE DISTILATES :
1. Mineral Turpentine Oil (MTO)

Used in paint industry

2. Aviation Turbine Fuel (A TF)Used as fuel planes

3. Superior Kerosene Oil (SKO)

Kerosene

4. High Speed Diesel (HSD)

Used as fuel for heavy vehicles.

5. Jute Batching Oil (JBO)

Used for jute machines lubrication.

6. Light Diesel Oil (LDO)

Used as fuel for ships.

7. Wash Oil (WO)

Used as lubricants for lather machines.

HEAVY ENDS :
1. Fuel Oil (Fa)

Used for boilers

2. Low Sulphur Heavy Stocks (LSHS) Used as oil usually blended

3. Bitumen / Asphalt

Used for laying roads.

SWOT ANALYSIS :
Strengths
1)

Profit snaking

2)

Adequate surplus

3)

Technically strong management

4)

Qualified employees

5)

Capital market for petroleum products

6)

Ability adapt to high technologies

7)

Dedicated operating staff and experience maintenance crew strong

technical service support

8)

Well laid down systems and producers

9)

Adequate captive power generations better career prospects

10)

Highly experiences and qualified employees

11)

Good water supply

12)

Expansion feasible because expenditure need not be incurred from

grass root level.

WEAKNESS :

1)

R&D being expensive and a long run programmed purchasing of

technology is more feasible and preferably.

2)

Handling of different types of crude mix thereby lending to sub

optimal changes frequently in paint operations.

3)

Lack of infrastructure facilities in and around Visakhapatnam to

take up emergency maintenance jobs.

OPPORTUNITIES :

1)

Scope for further expansion and diversification possible by

incurring one-fourth of expenditure only.

2)
3)

Availability of highly qualified, skilled and experience employees.

Scope of lifting of control on petroleum products prices by
government of India.

4)

Increasing sustained demand of petroleum products.

5)

Highly for by products and petrochemicals feed stocks.

THREAT AND COMPETITORS :

I)

Growing industrial relation problems.

2)

Concern about environmental problems keeping in view increasing

awareness among the public and politicizing of environmental
problems.

3)

To generate sufficient internal resource for financing party/wholly

expenditure on new capital projects.

4)

To develop long term corporate plan to provide adequate growth of

the activities of the operation.

OBJECTIVES OF HPCL :
1)

To serve the nations vital interest in the oil and related sectors.

2)

To maintain continuity of supplies through their refinery and

marketing network at optimum cost to provide up to date technical
assistance to the customer to conserve and put the most efficient
use, valuable energy resources.

3)

To earn a reasonable return of investment.

4)

To work towards achievements of self - reliance in the field of oil

refining for formulation and distribution systems.

5)

To create strong research and development base the field of oil

refining and stimulate R&D in developing new petroleum products
so as to minimize their imports.

6)

To maximize utilization of the existing facilities in order to improve

efficiency and increase productivity.

7)

To keep in pace with the developments of international petroleum

refining technology.

THE PRODUCTS STATE OF HPCL :

1) MS

MOTOR SPIRIT

2) HSD

HIGH SPEED DIESEL

3) SKO

SUPERIOR KEROSENE OIL

4) LPG

LIQUIFIED PETROLEUM GAS

5) LDO

LIGHT DIESEL OIL

6) JDO

JUTE BATTING OIL

7) FO

FURNANCE OIL

8) ATF
9) NAPTHA

A VIATION TURBINE FUEL

10) LUBRICNATS
11) MINERAL TURPENTINE
12) FUEL OIL
13) ASPHALT
14) LSHS
VISAKHA REFINERY :
HPCL Visakha refinery was commissioned in private sector in the
year 1957 as Caltex oil refining India Ltd., (CORIL). It was the first oil

refinery on east coast and the first oil refinery on the east and the first
major industry in the city of Visakhapatnam in the state of Andhra
Pradesh. The installed capacity of the refinery was 0.65 MMTPA in 1957.
The government of India acquired the unit in the year 1976 by paying a
compensation of Rs.13 00 Lakhs and amalgamated the same with HPCL
effect from 9th may 1978 with the commissioning of VREP during JanSept 1985 at a coast of 16144.64 Lakhs the capacity of Visakha refinery
has increased to 4.5 MMTPA. CORIL was taken over by the government of
India and merged with HPCL in 1978. The refinery has expanded in a
phased manner over the years. The first expansion of refinery after 1957,
was through de-bottlenecking of units in 1978 where in the crude
processing capacity increased from 0.65 MMTP A.

Another major expansion of the refinery was completed in 1985 in

which the crude processing capacity increased from 1.5 MMTP A to 4.5
MMTPA.

On September 14th 1997 formation of vapor cloud of LPG receiving

facility caused an explosion and fire damaging some refinery and
marketing terminal and other buildings. The damages to various assets
including equipments, stocks, stores and also loss of profit was cleared
under the insurance policy. An amount of Rs. 138.35 crores was received
from the insurance company towards the loss of profit.

REFINERY MAKES THE FOLLOWING PRODUCTS

LPG

DOMESTIC
COMMERCIAL

(COOKG GS)
COOKING GAS

PETROL
#NORMAL PETROL
0.05 WT% SULPHUR PETROL
KEROSENE

TRANSPORTATION
FUEL
DOMESTIC

DIESEL

TRANSPORTATION

#NORMAL PETROL

FUEL

0.05 WT% SULPHUR DIESEL

POWER GENERATION

LOW SULPHUR HIGH FLASH

NAVY GRADE DIESEL

DIESEL
AVIATION TURBO FUEL

AVIATION

PROPYLENE
NAPTHA

TRANSPORTATION
PETROCHEMICALS
INDUSTRIAL, POWER

#FUEL

GENERATION,

#FERTILISERS

PETROCHEMICAL

#PETROCHEMICALS

FEED BACK STO

MINERAL TURPENTINE OIL

PAINT INDUSTRY

JUTE BATCHING OIL

SOLVENT
JUTE INDUSTRY

LIGHT DIESEL OIL

SOLVENT
MARINE DIESEL
(SHIPPING)

FUEL
#LIGHT
#HEAVY

INDUSTRIAL

(COOKING
FUEL)

REFINERY PERFORMANCE :
HPCL refineries have received the highest ever combined crude
through put of 12.93 MMT as against the previous best of 12.33 MMT
achieved during 2001-2002. Mumbai refinery achieved crude through
put of 6.08 MMT as against its installed capacity of 5.5 MMT which
represent a capacity utilization of 110.4 degrees. The fuel loss at Mumbai
refinery was 6.88% which is better than MOD target of 7%. Visakha
refinery achieved the highest crude through put of 6.85 MMT as against
previous best of 607 MMT achieved during 2001-2002. The fuel and loss
at visakha refinery was 5.95% which is better than the MOD target of
6.5%.
AWARDS RECEIVED DURING 2003-2004:
1)

Golden peacock award for good corporate governance from the

institute of directors.

2)

Golden peacock national quality award from institute of directors.

3)

Good corporate citizen award from the Bombay chamber of

commerce and industry .

4)

National safety award for 2002 from national safety council

Maharashtra chapter.

5)

Greenest environment excellence award.

6)

Jawaharlal Nehru centenary award for Visakha refinery.

7)

NPMP award for Vijayawada Secunderabad pipeline project.

LONG TERM SETTLEMENT FOR VISAKHA REFINERY :

A MOD was reached with the unions of VR on wage revision and

settlement

included

increase

of

working

hours,

reduction

in

national/festival holidays, change in overtime formula/divisor, job

flexibility, attendance linked benefits etc.,

1.

Visakha refinery bagged an award for "Best innovate measure" in

environment from honorable mayor of Visakha.

2.

Visakha refinery bagged second prize for best improvements in

energy conservation for the year 2001-2002

FUNCTIONS OF DIRECTORS :
1.

Director Refineries: Director Refineries is the key role in the

organization he is responsible for the production of the finished
products i.e. Refining the crude. Refining is the process of
distillation cracking and treatment. So it comprises complex units
and its operation with sophisticated technology. The duty of the
Director Refineries is to look after operations and Maintenance of
the units mainly.

2.

Director Marketing: Director marketing is the person to convert

the inventory into cash. He will be Responsible for Direct Sales,
Lubes, LPG, Aviation fuel stations etc.

3.

Director Finance: The Director finance is difficult separate from

production (Refineries) Marketing and other functions. Mainly the
finance director functions is raising funds investing them in assets
and distributing returns earned from assets to share holders
respectively.

4.

Director HR: Human Resource Management can be said as the

most important of all resource. HR Directors directly or indirectly
responsible for employing people developing their services in tune
with the job and organization requirements.

REFINING PROCESS :
Crude Oil itself is in an unrefined form and has no direct use. Its
value as a commodity is realized only when many different hydrocarbon
components are separated out, broken down or combined with other
chemicals in refinery to provide products that can be marketed. Each
crude oil has its own unique characteristics that determine the products
it will yield after refining built to meet specific demands for particular
markets.
The trend is away from heavier products towards maximization of
middle distillates and gasoline. As a result, the processes are continually
getting upgraded.
PRODUCTS:
Light Distillates:
1.

Liquid Petroleum Gas (LPG) mainly used for cooking purpose.

2.

Naphtha

Low Aromatic Naphtha (LAN)

High Aromatic Naphtha (HAN)

3.

Motor Sprit (M.S)/Gasoline/Petrol

Use for indigenous M.S.
93R - use for foreign Vehicles.

4.

Propylene

Raw materials for petrochemicals

MIDDLE DISTILATES
1. Mineral Turpentine Oil (MTO)

Used in paint industry.

2. Aviation Turbine Fuel (A TF)Used as fuel for planes.

3. Superior Kerosene Oil (SKO)

Kerosene

4. High Speed Diesel (HSD)

Used as Fuel for heavy vehicles.

5. Jute Batching Oil (JBO)

Used for jute machine lubrication.

6. Light Diesel Oil (LDO)

Used as fuel for Ships

7. Wash Oil (WO) machines.

Used as lubrication for lather

Heavy Ends:
1. Fuel Oil (Fa)

Used for boilers

2. Low Sulphur Heavy Stocks (LSHS)

Used as oil usually blended

3. Bitumen I Asphalt

Used for laying roads

SWOT ANALYSIS:
1.

Profit Making

2.

Adequate surplus

3.

Technically strong management

4.

Qualified employees

5.

Capital market for petroleum products

6.

Ability adapt to high technology

7.

Dedicated operating staff and experienced maintenance crew

strong Technical service support

8.

Well laid down systems and producers

9.

Adequate captive power generation better career prospects

10.

Highly experienced and qualified employees

11.

Good water supply

12.

Expansion feasible because expenditure need not be incurred from

grass root level.

Weakness:
1.

R & D being expensive and a long run programme purchasing of

technology is more feasible and preferably.

2.

Handling of Different types of crude mix thereby lending to sub

optimal changes frequently in paint operations.

3.

Lack of infrastructure facilities in and around Visakhapatnam to

take up Emergency maintenance jobs.

Opportunities :
1.

Scope for the further expansion and diversification possible by

incurring one fourth of expenditure only.

2.

Availability of highly qualified, skilled and experienced employees.

3.

Scope of lifting of control on petroleum products priced by

government of India.

4.

Increasing sustained demand of petroleum products.

5.

High for by-products and petrochemical feed stocks.

Threats and competitors :

1.

Growing industrial relation problems.

2.

Concern about environmental problem keeping in view increasing

awareness among the public and politicizing of environmental
problems.

3.

To generate sufficient internal resources for financing party I

wholly expenditure on new capital projects.

4.

To develop long term corporate plan to provide adequate growth of

the activities of the operation.

Objectives of HPCL:
1.

To serve the nations vital interest in the oil and related sectors.

2.

To maintain continuity of supplies through their refinery and

marketing network at optimum cost to provide up to date technical
assistance to the customer to conserve and put the most efficient
use, valuable energy resources.

3.

To earn a reasonable return of investment.

4.

To work towards achievements of self - reliance in the field of oil

refining, formulation and distributions systems.

5.

To create strong research and development base the field of oil

refining and stimulate R&D in developing new petroleum products
so as to minimize their imports.

6.

To maximize utilization of the existing facilities in order to improve

efficiency and increase productivity.

7.

To keep in pace with the developments of international petroleum

refining Technology.

The product state of HPCL:

1. MS

MOTOR SPIRIT

2. HSD

HIGH SPEED DIESEL

3.SKO

SUPERIOR KEROSENE OIL

4. LPG

LlQUIFIED PETROLEUM GAS

5. LDO

LIGHT DIESEL OIL

6. JDO

JUTE BATTING OIL

7. FO

FURNANCE OIL

8.ATF
9. NAPTHA

AVIATION TURBINE FULE

10. LUBRICANTS
11. MINERAL TURPENTINE
12. FULE OIL
13. ASPHALT
14. LSHS
Memorandum of understanding :

The sustained of the entire HPCL team have instrumental in the

corporation Achieving an all around "Excellent" MOU rating foe eleven
consecutive years up to 2002-03.

It is expected to qualify for "Excellent" rating of the MOU

parameters for the year 2003-04 which will be the 13th consecutive year
of Excellent rating.
Refinery performance:
HPCL refinery achieved the highest ever-combined crude thru put
of 12.93 MMT as against the previous the best of 12.33 MMT achieved
during 2001-02.

Mumbai Refinery achieved a crude thru put of 6.08 MMT, as

against its installed capacity of 5.50 MMT, which represents a capacity
utilization of 110.5. The fuel R loss at Mumbai refinery was 6.88%, which
is better than MOU target of 7%. Visakh, Refinery achieved the highest
ever crude thru put of 6.85 MMT, as against previous best of 6.70 MMT
achieve during 2001-02. The friel & loss at Visakh Refinery was 5.95%,
which is better than the MOU target of 6.5%.

Gross refining margins of Mumbai Refinery averaged at $2.84 per

barrel as against 1.18 per barrel for the year 2001-02. Gross refining
margins of Visakh Refinery averaged at $4.4 per barrel as against $1.67
per barrel for the year 2001-02. Both the refineries have initiated steps to
put new facilities to produce fuels to meet future specifications.

Making the Mumbai Refinery independent of the vagaries of supply

of power initially 3 units of GTG were commissioned with total installed
capacity of 30 MW raging. These units were designed to run on BI-1
gas/Refinery naphtha, which would cause minimum air pollution.
Presently, mumbai Refinery has 5 units of GTC s with a total installed
capacity of 65 MW ISO rating making Mumbai refinery self sufficient oil
power requirement.
Another milestone in increasing the productivity of the refinery was
the replacement of pneumatic control system with latest microprocessor
based Digital Control System in 1995-96.

Yet another step ill the field of automation was commissioning of

Management system (CMMS) called MAXIMO in January 2001. MAXIMO
is considered to be the best of breed of all the modern systems. That
provides Maintenance and materials management support. HPCL is one
of the fete organization in the world who have implemented all the
features of the above package. This has improved our competitiveness
64% regard to increase plant upturned and reduce inventory of
maintenance spares.
The Refinery has over the years, built flexibility to process various
types of crude's. It has processed 43 different types of high sulphur &
low Sulphur crude's, Major crude's processed are:
High Sulphur Crude:
1. Arab Mix
2. Basrah
3. Zakum

4. Iranian Light
Low Sulphur Crude :
1. Bombay High
2. Qua ibone
3. labuan
4. lapis
5. Marib
6. Bonny Light

Visakh Refinerv - Salient Features :

HPCl Visahka Refinery was commissioned a 1957 as caltex oil
Refinery India Limited (COIRIL). It was the first oil Refinery on the last
coast and the First major industry in the city of Visakhapatnam, Andhra
Pradesh. The installed capacity of the Refinery was 0.65 million metric
tonnes per Annum (MMTPA) in 1957. CORIL taken cover by Government
of India merged with Hindustan petroleum Corporation Limited (HPCl) in
1978.
The Refinery has expanded in phased manner over the year. The
first expansion of Refinery after 1957, was though debottleing of units in
1978 where in the crude processing capacity increased turn 0.65 MMTPA
[13200 bbis/day to 1.5 MMTPA 30400 Bbls/day] 1978.
Another major expansion of the Refinery was completed in 1985 in
which the crude processing capacity increased from 1.5 MMTPA [30400
bbls/days] 1978.
In order to meet the growing demand of the petroleum products ill
the country, another major expansion project was carried out and
completed in 1999. After the commissioning of this expansion project,
the crude processing capacity increased from 4.5 MMTPA [91200
bbs/days] to 7.5 MMTPA [152000 bbls/day].
Visakh Refinery is a fuel based Refinery generating major product
of mass consumption life petrol, Diesel and Kerosene. Hence, crude
meeting general purpose characteristics can be processed with the
existing Refinery configuration. Visakh Refinery has flexibility to process
wide range crudes procured across the globe and raging from high

sulphur to low sulphur and non bituminous category to bituminous and

Lubes based crude.
Some of the crude processed at refinery includes:
Country
Kuwait
Iran
Iraq
UAE
Sandi Arab
EQypt
North Yemen
Libya
Nigeria
Angola
Malaysia
UK
Australia
Indonesia
Pakistan

Crudes
Kuwait
Iran Mix. Lavan Blend
Basrah Lt.
Dubai, Ummshaif, Upper Zakum,
Murban
Arab Mix, Arab Medium
Zeit bay suex Mix
Masila
Essider
Qualboe, Bonny
Cabuan, Nemba, Palance
Lubuan Tapis Miri Lt.
Brent Blend
Skua
Minas
Badin Blend

Beside these crudes, Refinery has also processed indigenous

crudes like Bombay high, Ravva, Krishna Godavari Basin crude, Ratna
Hira, Panna etc.
Marketing Performance :
Company Achieved the Highest Sales growth of 4.9% vis-a-vis 1.2%
recorded by the industry for the Year. The Market sales (Including
exports) registered 18.84 MMT Corresponding to 52,605.14 Crores
during the year as against 18.02 MMT Corresponding to Rs 45,309.67
Crores during 2001-02.

Economic Scenario :
The global economy went through a turbulent please in the year
2002-03 due to simmering geopolitical tensions in the Middle East, fall
out from the bursting of the equity market bubble and the outbreak of
SARS in east Asia. Global GDP growth for the year 2002 was estimated at
3.0% compared to 2.3% in 2001. Advanced countries grew at 3% while
the GDP growth in the developing countries was 4.6%. Although growth
in the second and third quarter of 2002 was stronger than expected
geopolitical factors and continued aftershocks of equity bubble burst
slowed the recovery in the advanced country.
Poor Monsoon for the second year in a row curtailed the growth of
Indian economy. The economy. The agriculture output was hit by the
severe monsoon failure.
As per revised estimates Released by CSO, the growth in GDP
during 2002-03 was 4.3% as compared to the growth rate of 5.6% during
2001-02. This Comprises 6% growth in industry and 7.1 % in services
against 3.3% and 6.8% growth registered respectively in 2001-02 GDP for
the agriculture sector declined by 3.2%.
Inflation as measured by 'VPI, was 3.4% in 2002-03 as against
3.7% in 2001 - 02. The price of fuel group rose by 5.6% during 2002-03
as compared with 9.1 % rise Recorded in 2001-02. W PI of manufacturer
goods and primary articles increased by 2.7% and 3.3% respectively in
the same period.

Exports registered an impressive growth of 19% during April March 2002 - 03, as compared with decline of 0.4% recorded in 2001 02. Imports were up by 19% during 2002 - 03, as against 3% increase in
the corresponding period of 2001 - 02. Nos - POL imports grew by
16.57% in 2002 - 03 against 9.19% growth recorded by US$ 20 billion in
2002 - 03 alone to record A new high of $74.805 billions. -lie interest
rates hit record lows in line with prevailing trends in the global market.

Thus, the economic scenario was marked by recovery in the

industrial sector on the back of Infrastructure Spending. Low Inflation
and Strong Growth in Foreign Exchange Reserves. On The Negative Side,
However, Agriculture Sector Growth Suffered Due To Paucity of Rainfall,
Bringing the GDP below 5%.

Indian Economy Is projected to Register The Highest Growth Rate

of the Last Decade in 2002 - 04 and at 8.1 %, The Growth Rate is Double
than that of 2002 - 03. The three Major Indices of Growth, Inflation and
Balance of payments resulted In A resilient India economy to which
Agriculture sector was the major Contributor.

Oil Consumption Increased By About 3.7% In 2003 - 04. Diesel

Consumption increased by 1.8% in 2003 - 04. Reversing the Declining
and / or Stagnant Trend of last three years. Bitumen Consumption went
up by about 13.4% In the Context of large Scale Road Construction
Projects.

It is expected that the current Momentum could In the Next

Financial Year Economy could clock a healthy growth rate in 2004 - 05
Also. This in turn Indicates a positive Environment for the Oil Sector.

Downstream oil sector in the country faces several constraints

including supply overhand, competition from Gas on the competition
from new Entrants on the marketing segment, Volatility in crude price
Etc., As a result competitive Intensity of the oil selector continues to rise
and the challenge before the company is to ensure continued Growth and
profitability Refining capacity still surpasses consumption. Overall
refining capacity in the country, As on 31 March 04, was 125.6MMTPA:
Crude Thrust during the year was around 119 MMT.
Consumption of the Petroleum Products 2003 - 04 on the other
hand was Much Lower At 108 MMT. Inevitably, Surplus Production was
exported. Product Exports and Imports during 03 - 04 were around 14.6
MMT and 7.87MMT Respectively.
New Auto fuel policy announced by the Government of India
Mandated EURO-III EMMITION norms for eleven major cities with Effect
from April 2005. These Emissions norms changes in Petrol and Diesel
Quality

Including

Reduction

Sulphur

Limits.

To

meet

new

fuel

requirements' Refineries can either process light sweet crude or make

hefty, investments to refine Heavy sour crude into Light. Sweet petroleum
products.
Indian Refineries would need to increase the complexity and
Capability of Operation.

Refineries are expect to spend RS. 30,000 Crores to meet new fuel
specification - RS 18,000 Crores by 2005 and additional RS 12,000
Crores by 2010. Refiners are planning Brownfield Expansion In
Conjunction with investments to produce Clean Fuel.
Hence, further capacity expansions are on the Anvil. Refinery
Capacity is expected to increase to 143.3 MMT by April 2007. As per
Estimates, Demand is expected to be around 123.6 MMT in 2006 - 07.
Thus surplus in Refining capacity is Likely to continue in the near
future.
ABOUT HPCL :
HPCL Refineries achieved the ever combined crude Thrust of 13.7
MMT as against previous of 12.9 MMT achieved during 2002 - 03
MUMBAI REFINERY :
Mumbai Refinery achieved crude of 6.11 MMT against installed
capacity of 5.5 MMT which represents utilization of 111 %. It achieved
highest ever production of ATF, MTO and 500 NLOBS during the year. It
also

achieved

the

116.1.BTU/BBL/NRGF

best
as

ever

specific

compared

to

energy
previous

consumption
best

of

of

116.1

MBTU/BBL/NRGF achieved during 2002 - 03. Gross refining margins of

Mumbai refinery for 2003 - 04 averaged at 4.26 per barrel as against
$2.84 Per Barrel for the Year.
VISAKHA REFINERY:

Visakha Refinery achieved the ever thrust of 7.59 MMT against

previous best of 9.85 MMT. Achieved during 2002 - 2003, which
corresponds to 101.2% capacity utilization of installed capacity of 7.5
MMT pa. It achieved the highest ever production of propylene, LPG,
Naphtha of 738 TMT as compared to previous best of 580 TMT during
2002 - 03. The specific energy consumption has improved consistently
during the last 5 Years and has attained the lowest figure of 127.3
MBTU/BBL/NRGF during 2003 - 04.
Gross refining margins of Visakha Refinery for 2003 - 04 averaged
at $4.61 for Barrel as against $4.40 per Barrel for the year 2003 - 04.

HPCL recorded a growth rate of 4.9% vs. 1.4% Industry and

improved its market share from 19.7% to 20.4% with total volume of
18.35 MMT. The performance of various business line was excellent.
JOINT VENTURES :
Man-alone Refinery & Petrochemical Ltd. (MRPL)
As a part of MRPL's financial restructuring, ONGC acquired the
Entire equity stake of AN. Birla Group in MRPL on 3.3.2003. The
Fls/Leanders of MRPL converted Rs. 365 Crores of debt into equity and
Rs. 160 Crores of debt into lCBs. Consequent to the above, ONGC holds
51% of the equity of MR-PL and HPCL's equity stands at 16.97%. In
accordance with financial restructure package of MRPL, HPCL is not
required to contribute any fresh equity in MRPL. The working capital
assistance, which was hitherto being provided by HPCL, is now extended

by ONGC. A fresh Shareholder Agreement dated 3.3.2003 has been

signed between HPCL and ONGC to take care of the interests of HPCL
during the year, MRPL has achieved a thru of 7.25 MMT.
Hindustan Colas Ltd. (HINCOL) :
The performance of HINCOL, a joint venture with Colas, SA,
France for producing and marketing Bitumen Emulsions continues to be
Encouraging. HINCOL, sales during 2002 - 03 was 455300 MT, an
increase to 25% against the previous year. In addition Bitumen
Emulsions, Hincol has been successfully marketing wide - range of value
added Bitumen products like Modified Bitumen, Cut Back Bitumen etc.
During the year it commissioned fourth manufacturing plant Vadodara.
HINCOL has it consistently declaring dividends for the last four years.
HINCOL is considering setting up of new manufacturing facilities at
Visakha and Calcutta in near Future.

South Asia LPG Co. Pvt. Ltd. (SALPG) :

This joint Venture Company with fine Elf of France envisages the
construction of all LPG underground Cavern storage of 60,000 MT
capacity

and

associated

receiving

and

dispatch

facilities

at

Visakhapatnam. This project is the first of its kind (south Asia and would
facilitate imports of LPG in large vessels, resulting in saving ill freight
costs. The costs of the project is estimated to be Rs. 3333 million and the
project completed period is 32.5 months. All the statutory approvals have
been received for the project. The financial closure of the project has
been completed. The construction of the cavern is expected to commence
on signing of land lease agreement with Visakha port trust.
Petronet India Ltd. (PIL) :
This company was formed in joint venture with other PSU oil
companies act as a nodal agency for the development of identified and
prioritized petroleum products pipelines in the country. Petronet India
LTD is though separate joint venture companies, co- promoted with other
oil companies. So far, PIL has co-promoted five JV companies.

The Vandinarkandla pipeline and I Cochin - karur pipeline are in

operation, while Mangalore - Bangalore pipeline is under commissioning
and trial runs are in progress.

Petronet MHB Ltd. (PMHBL) :

This company was formed along with Petro net India Ltd. for the
construction and operation of Mangalore Hassan - Bangalore pipeline.

The 364 Km long product pipeline with a tap off point at Hassan is being
executed at an estimated cost of Rs. 6670 million. Govt. of India have
approved induction of INGC as equity partner with 23% stake in PMHBL,
whike Petronet India Ltd. and HPCI would hold 26% each. The project is
under commissioning and trial runs are in progress.
Prize Petroleum Co. Ltd. (PPCL) :

This company has been formed in partnership with financial

institution

viz.

ICICIIHDFC

for

participation

in

exploration

and

production of hydrocarbons. Prize petroleum is evaluating various

opportunities for participating in producing oil and gas fields.
GAIL :
During the year, the company signed a JV agreement with GAIL
Ltd. For setting tip a joint venture company for distribution and
marketing of green fuels in the state of Andhra Pradesh State
Government is also expected to participate in the joint venture.
The activities relating to incorporation of JV company and
preparation of feasibility report are in progress.
Manpower :
Out of total manpower strength of 11213 employees in the
organization 27.3% belong to the SC/ST category.
Awards received during 2003-04 :

1.

Golden peacock award for good corporate governance from the

institute of directors.

2.

Golden peacock national quality award form the institute of

directors.

3.

Good corporate citizen award form the Bombay chamber of

commerce and industry.

4.

National Safety award for 2002 from national safety council,

Maharashtra Chapter.

5.

Greentech environmental excellence award.

6.

Jahawarlal Nehru centenary award for energy conservation for

Vishakha refinery.

7.

NPMP award for Vijaywada Secunderanad Pipeline Project.

The Efficiency Criterion:

Since huge investment have gown into the public sector and from
which the country needs returns for further growth and development,
there is an urgent need to Need to focus attention more emphatically on
resource mobilization aspect rather than on their resource mobilization
aspect rather than on their social obligation aspect.
Mumbai Refinery Salient Features :
HPCL Mumbai refinery with an installed capacity of 5.5 million
tons per annum (MMTPA) is one of the most complex in the country is
constructed on an area of 321 acres. This versatile refinery which is first
of modern refineries symbolizes the country's industrial strength and
progress in the oil industry. This fully integrated refinery comprises fuels
and lube blocks.

Initially, Mumbai refinery was started in 1945 as a refinery block

with crude processing units.
1. Crude Distillation Unit
2. Catalytic cracking Unit
3. Thermal Reformation
4. Treating Units
At that time, the refinery used to produce just 5 grades of products
namely petrol, Kerosene, Diesel, LIDO and Furnace oil. The expansion of
Mumbai refinery over tile years has brought its capacity in 15 MMTPA
and various processing units like, bitumen clawing Food Grade Hexane,
Solvent 14/25 etc. have been added to the refinery.

A low cost expansion of the fuels refinery was undertaken in 1985

where by a separate crude distillation unit and vacuum Distillation unit
were installed with crude processing capacity of 2.0 million Tonnes. It
was the first swing refinery of its kind in the country, which had the
flexibility to process heavy tube bearing high sulfur as well as MM we
beating crude's of various types, this particular unit called FRE (FUEL
REFINARY EXPANSION) gave the flexibility to process various types of
crude's. The lube Refinery which produces lube oil stocks was
commissioned in 1969 as a joint venture between 1-sso Government of
India with a capacity of 1,65,000 T of LOBS. This lobe Refinery process
reduces crude. Oil from Persian Gulf crude, ill tile vacuum towel to get
various grades of tube oil based started in the year 1983 tube refinery
processing units were further.

CHAPTER-III
THE THEORETICAL FRAMEWORK OF RATIO ANALYSIS
FINANCIAL ANALYSIS
--using

Financial analysis is the starting point for making plans, before

any

sophisticated

forecasting

and

planning

procedures.

Understanding the past is a perquisite for anticipating the future.

USERS OF FINANCIAL ANALYSIS :
Financial analysis is a process of identifying the financial strength
and weakness of the firm by properly establishing relation between the
items of the balance sheet and the profit and loss account. Financial
analysis can be undertaken by management of the firm, or by parties
outside the firm viz, owners, creditors, investors and others. The nature
of analysis will differs depending upon the purpose of the analyst.
TRADE CREDITORS are interested in firm's ability to meet their claims
over a short period of time. Their analysis will, therefore, confine to be
evaluations of the firm's liquidity position.
SUPPLIERS OF LONG-TERM DEBT on the other hand, is so concerned
with the firm's long term solvency and survival. They analyse the firm's
profitability over time, it's ability to generate cash to be able to pay
interest and repay principal and the relationship between various
sources of funds (capital structure relationship). Long term creditors do
analyse the historical financial strength, but they place more emphasis
on the firm's projected or proforma, financial statement to make analysis
about its future solvency and profitability.

INVESTORS who are invested their money in the firm's shares, are most
concerned about firm's earning. They restore more confidence in those
firm's that show steady growth in earnings. As such, they concentrate on
the analysis of the firm's present and future profitability. They are also
interested in the firm's financial structure to the extent it influence the
earnings ability risk.
MANAGEMENT of the firm would be interested in every aspect of the
financial analysis. It is their overall responsibility to see that the resource
of the firm is used most effectively and efficiently, and that the firm's
financial condition is sound.
NATURE OF RATIO ANALYSIS
Ratio analysis is a powerful tool of financial analysis. A ratio is
defined as "the identical quotient of two mathematically expressions" and
the relationship between two or more things in financial analysis, a ratio
used as a benchmark for evaluating the financial position and
performance of a firm. The absolute accounting figures reported in the
financial statement do not provide of the firm. An accounting figure
conveys meaning when it is related so some other relevant information.
The

relationship

between

two

accounting

figures.

Expressed

mathematically, is know as financial ratio. Ratio helps to summarize

large quantities of financial data and to make qualitative judgment about
the firm's financial performance.

STANDARDS OF COMPARISON

The ratio analysis involves comparison for a useful interpretation of

the financial statement. A single ratio it self does not indicate favorable or
unfavorable condition. It should be compared with some standard of
comparison may consist by:
Past Ratio

Ratio are calculated from past financial statement of

the similar firm.

Projected Ratio

Ratios are developed using the projected or proforma

of financial statement of the same firm.

Competitors Ratio

Ratios of same selected firms, especially the most

progressive and successful competitors at the same
point of time.

Industry Ratio

Ratios of the industry to which the firm belongs.

TYPES OF RATIOS :
Several Ratios calculated from the accounting data can be roped
into ratios classes accounting to financial activity or function to be
evaluated. The parties interested in financial analysis are short and long
term creditors, owners and management. Short term creditors main
interest is in the liquidity position or the short term solvency of the firm.
Long term creditors on the other hand are more interested in the long
term solvency and profitability of the firm. Similarly, owners concentrate
'on the firm's profitability and financial condition. Management is
interested in evaluating every aspect of the firm's performance.

Ratios
are broadly divided into four groups
1.
Liquidity Ratios.
2.

Leverages Ratios

3.

Activity Ratios

4.

Profitability Ratios

1)

Liquidity Ratios:
Liquidity Ratios measure the firm's ability to meet current

obligations.
2)

Leverages Ratios :
Leverage Ratios show the proportions of debt and equity in

financing firm assets.

3)

Activity Ratios :
Activity Ratios reflect the firm efficiency in utilizing its assets.

4)

rofitability Ratios
Profitability

Ratios

measures

over

all

performance

and

effectiveness of the firm.

debottle necked and capacity increase to 2,25,000 T to meet growing of
tube products.
Lube oil base stokes production got a fillip with the commissioning
of Refinery expansion stage two in 1994-95 when new propane
desphalting unit, extraction Unit and a hydrogen plant. The old
extraction units were modified so that an Eco Friendly solvent NMP after
this expansion the capacity of lube refinery has gone up to 3,35,000 TPA

of lube which is the largest of its kind in India and represents about 4'1%
of installed capacity in the country. As the important milestone in the
Mumbai refinery was the commissioning of gas turbine based captive
power plant 1989.
PRACTICLE ASPECT OF RATIO ANALSIS
I.

LIQUIDITY RATIOS :

Liquidity Ratios measure the ability of the firm to meet its current
obligations.

1.

CURRENT RATIO :
Current ratio can be derived by dividing current assets with

current liabilities and express relationship between them it measures

short term solvency of the firm. Ideal current ratio is 2: 1.
Current assets included here are inventories sundry debtors, cash
and bank balances other current assets and advances. Current liabilities
included are sundry creditors provisions.
Current ratio =

Current assets
----------------------Current Liabilities

In Table No 1, the current ratio of HPCL is below the normal

standard of 2:1 from the year 2000 - 2001 to 2004 - 2005. Only in 2001 2002 the ratio decreased up to 2002 - 2003. Respectively and again
improved in the year 2003 - 2005 to some of its current obligations but
the firm liabilities are year by year increased but in the last year (200405) the liabilities was decreased. So we have investigate further about the
quality of the asset before relying upon the ratio.
Table No. 1 Current Ratio
Year

Current
Assets

Current
Liabilities

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

7956.41
6084.18
8548.59
9430.17
9507.30
11,009.98

4919.18
4764.66
7901.87
7566.15
6988.67
7954.89

Current
Ratio (In
Time)
1.62
1.28
1.08
1.23
1.36
1.38

(Rs. In Crores)
Ratio (in
percentage)
162
128
108
123
136
138

2.

QUICK RATIO :
Acid test or Quick Ratio is more refined measure of the liquidity it

established relationship between Quick or Liquid Assets and Current

Liabilities. Liquid Assets include cash and those Assets which can be
converted into cash immediately without loss of value such as securities
(temporary investment, immediately without loss of value such as
securities (temporary investments, Debtor and bills receivables (Book
Debts) stock (Inventories) and prepaid expenses are not included in quick
assets and these assets take some time in realization and also subject to
fluctuation in value.
Quick Ratio is calculated by dividing liquid or quick assets by total
current liabilities. Ideal quick ratio is 1: 1
Quick ratio =

Current asset - Inventory

----------------------------------Current Liabilities

The Table No 2, show the company with a high value of quick ratio
can suffer from the shortage of funds. When we examine the quick ratio

of HPCL. It is against the conventional rule. In the above table from

2001-2005 quick ratio is below normal standard thus from short term
solvency is not good the quick assets are less than the current liabilities
from 2001 2005.
Table No. 2 Current Ratio
Year

Quick Assets

Current
Liabilities

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

476.85
2458.48
3426.05
4027.64
3820.09
3199.69

4919.18
4764.66
7901.87
7655.15
6988.67
7957.89

Current
Ratio (In
Time)
0.83
0.52
0.43
0.53
0.55
0.40

(Rs. In Crores)
Ratio (in
percentage)
83
52
43
53
55
40

II.

LEVERAGE RATIO

1.

DEBT TO NET WORTH RATIO :

Do to net ratio measures the relative claims of creditors and

owners against the firms assets. Ratio indicates relationship between

outside funds and share holder quality the share holder equity is also
called net worth.

There from this ratio is also known as debt equity

ration. Ideal ratio is 1:1.

Debt to Net worth ratio =

Total Debt
----------------------Net worth or equity

Here debt included secured and unsecured loans of the firm equity
(Net Worth) includes capital reserves and surplus.

The table No.3 shows HPCL debt equity ratio decreasing trend.
Debt to Net worth Ratio declaiming stage is beneficial to the firm the
ratio decreased from 2001 2004 in the above table and again the rates
increased in the year 2004-05.
Table No. 3 Debt to Networth Ratio
Year

Total Debt

Net Worth or
Equity

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

3569.53
3171.57
1365.93
1700.80
2185.35
6663.83

6486.27
5897.68
6678.85
7742.81
8440.85
8735.74

Total Debt to
net worth
ratio (in
times)
0.55
0.54
0.20
0.22
0.26
0.76

(Rs. In Crores)
Ratio )In
Percentages)
55
54
20
22
26
76

2.

PROPRIETORY RATIO :
This ratio is called equity assets or ratio of Net worth to total assets

or stock holders equity ratio. This ratio shows the extent to which the
share holders own the business.

It is calculated by dividing owner(s)

equity by total assets as shown below.

Proprietory ratio =

Total share holders equity or Net Worth

-----------------------------------------------Total Assets

Total share holders equity is comprised of the total post up amount

of equity and presence shares capital plus the total or accumulated
amount of reserved and surplus.

Total Assets include fixed assets, current assets and investment.

The ratios of particulars importance to the investors because the
presence of a high percentage of share holders funds indicates that there

is a relatively little danger of winding up forced reorganization in the

event of default in the payment to outside liabilities
From the table No. 4 it can be observed that the proprietory ratio
decreased from 2000-01 till 2002-2003 however the proprietory ratio
sncreased in the year 2003-2005 as the Net worth was increased.
Table No. 4 Proprietary Ratio
Year

Net Worth

Total Assets

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

6486.27
5897.68
6678.85
7742.81
8440.85
8735.74

14974.12
150006.97
17346.69
18552.84
18989.62
24738.90

Proprietary
Ratio (in
times)
0.43
0.39
0.38
0.42
0.44
0.35

(Rs. In Crores)
Ratio )In
Percentages)
43
39
38
42
44
35

3.

ASSETS PROPRIETORSHIP RATIO :

This ratio express the relationship of the fixed assets (less

depreciation) with the funds contributed by the owners of share holder it

is expressed as

Assets Proprietorsip ratio =

Fixed Assets
----------------------Net worth

If assets proprietary ship ratio is unduly high it means that the

capital is not circulatory but is locked up in fixed assets and the
business firm is dependent for working capital on outside finance.

It can be observed from the table no.5 that the asset proprietorship
ratio as increased in the year 2001-2002 and rates. It is decreased the
higher the ratio, the lesser would be the protection to the creditors. If
the ratio is less than 1, it indicates that the working capital is partly
financed by share holders fund.
Table No. 5 Asset Proprietary Ratio
Year

Fixed Assets

Net Worth

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

5926.96
6484.98
6435.2
6578.11
6943.64
7337.40

6486.27
5897.68
6678.85
7742.81
8440.85
8735.74

Proprietary
Ratio in
Times
0.91
1.09
0.96
0.85
0.82
0.84

(Rs. In Crores)
Ratio )In
Percentages)
91
109
96
85
82
84

III.

ACTIVITY RATIO :

1.

CURRENT ASSET TURNOVER RATIO :

This ratio indicates the efficiency with which current assets can be

generated into sales is for every rupee of investment in current assets the
ratio indicates the amount of sales generated therefore a high ratio
implies by an large amore efficient use of funds this a current assets
turnover ratio indicates the working capital management of a firm

Current Assets turnover ratio =

Net Annual Assets

-------------------------Current Assets

The table no. 6 show the current asset turnover ratio interpreting
the reciprocals of these ratio one may say that for generating a scale of
one rupee the company needs Rs. 0.18 the variations just 13% in the five
years.

Table No. 6 Current Assets Turnover Ratio

(Rs. In Crores)
Year

Net Annual
Sales

Current
Assets

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

47179.93
45286.54
52605.14
56332.57
64689.51
74044.11

7956.41
6084.18
8548.59
9430.17
9502.30
11009.98

2.

Currents
Assets
Turnover Ratio
in times
5.9
7.4
6.2
6.0
6.8
6.7

Ratio )In
Percentages)
590
740
670
600
680
670

TOTAL ASSETS TO TURNOVER RATIO :

The total asset turnover ratio reveals the sales generated bys

application of assets in a firm the ratio is calculated by dividing the sales

with the total assets of the company the total asset turnover ratio
deposits the sales generated for every rupee total assets invested. The

total assets are computed as the total fixed assets plus investments plus
current assets. A high ratio deposits that the rate of utilization of assets
are good.

Total Assets to Turnover Ratio =

Sales
-------------------------Total Assets

The table no. 7 shows the total assets to turnover ratio, the firms
ability in generating sales from all financial resources committed to total
assets the total assets turnover 3.15 times implies that HPCL generates a
sale of Rs. 3.15 for one rupee investment in fixed and current assets
together in the total five years.
Table No. 7 Total Assets to Turnover Ratio
(Rs. In Crores)
Year

Sales

Total Assets

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

47179.83
45286.54
52605.14
56332.57
64689.51
74044.11

14974.12
15006.97
17346.69
18552.84
18989.62
24738.90

Total Assets to
Turnover Ratio
(in times)
3.15
3.02
3.03
3.04
3.41
2.99

Ratio )In
Percentages)
315
302
303
304
341
299

3.

NET WORKING CAPITAL TURNOVER RATIO :

This ratio helps to measure the efficiency of the utilization of net

working capital. It signifies that for an amount of sales a relative amount

of working capital is needed.

If any increase in sales is contemplated

working capital should be adequate this ratio helps to maintain adequate

level of working capital.

This ratio is computed by dividing sales by

working capital.
Sales
Net Working Capital Turnover Ratio =
-------------------------Net Working Capital
As firms may also like to relate net current assets to sales. It may
thus computes net working capital turnover by dividing sales by net
working capital the reciprocal of the rates is 0.064 this the company
needs Rs. 0.006 of net current assets this gap will be met from bank
harrowing and long term sources of funds.

Table No. 8 Net Working Capital Turnover Ratio

(Rs. In Crores)
Year

Sales

Net Working
Capital

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

47179.93
45286.54
52605.14
56332.57
64689.51
74044.11

3037.24
1319.52
646.72
1775.02
2513.63
3055.09

4.

Net Working
Capital
Turnover Ratio
(in times)
15.53
34.32
81.34
31.73
25.74
24.24

Ratio )In
Percentages)
1,553
3,432
8134
3173
2574
2424

DEBTORS TURNOVER RATIO :

Debtors turnover indicates the number of times debtors turnover

each year.

Generally higher the value of debtors turnover the more

efficient is the management of credit the liquidity positions of any firm is

dependent u on the debtors debtor turn over can be calculated by
dividing total sales by the year end balance of debtors.
Sales

Debt Turnover Ratio =

-------------------------Debtors

If the firm extends credit to its customers book debts are created in
the firms accounts and they are expected to be converted into cash over
a short period of time so as to measure this period the debtors turnover
ratio is calculated it shows how quickly the debtors are converted into
cash. By observing the HPCL debt turnover ratio in the year 2000-2001
is very high and remaining years are almost all same thus high ratio is
because of oil industry.
Table No. 9 Debt Turnover Ratio
Year

Sales

Debtors

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

47179.93
45286.54
52605.14
56332.57
64689.51
74044.11

563.01
784.39
862.37
1000.29
1048.61
1392.26

Debt Turnover
Ratio (in
times)
83.79
57.73
61
56.32
61.69
53.18

(Rs. In Crores)
Ratio )In
Percentages)
8379
5773
6100
5632
6169
5318

5.

AVERAGE COLLECTION PERIOD :

It shows with what into cash this ratio is in fact interrelated with

and dependent up on the receivable. Turnover ratio it is calculated by

dividing the days in a year by the debtors turnover ratio.

Average Collection Period =

Days in year
-------------------------Debtors Turnover Ratio

On the other hand too low a collection period is not necessary

favorable rather it may indicate a very restrictive credit and collection
policy because of the fear of bad debt losses, the firm sells only to those
customers whose financial conditions are undoubtedly sound and who
are very prompt in making the payment such a policy success in avoiding
the bad debt losses, but it so severely curtails sales that overall profits
an reduced right now it is not applicable to HPCL here after to be
consider.

Table No. 10 Average Collection Period

Year

Days in year

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

360
360
360
360
360
360

Debtors
Turnover Ratio
83.79
57.73
61
56.32
61.69
53.18

IV.

PROFITABILITY RATIO

1.

GROSS PROFIT RATIO :

(Rs. In Crores)

Average Collection in
No. of days
8379
5723
6100
5632
6169
5318

The ratio establishes relationship of gross profit with sales to

measure the operating efficiency of the firm and to reflect into processing
policy the ratio is calculated by dividing the gross profit by sales thus

Gross Profit Ratio =

Gross Profit
-------------------------- x 100
Sales

Gross profit is the result of relation ship between prices sales

volume and costs. Any change in any of these factors would effect the
gross profit to sales ratio.

A high ratio is an indication of good

management or a high selling price of the product or low cost of

production. A high G.P. ratio is a great satisfaction to the management
the gross profit increased gradually but 2001-02 year gross profit ratio
decrease after that reaches high ratio. It indicates of good management.
Table No. 11 Gross Profit Ratio
Year

Gross Profit

Sales

2000-01
2001-02
2002-03
2003-04

2139.88
2037.39
3137.75
3641.43

47179.93
45286.54
52605.14
56332.57

Gross Profit
Ratio (in
times)
4.54
4.49
5.96
6.46

(Rs. In Crores)
Ratio (In
Percentages)
454
449
596
646

2.

NET PROFIT RATIO :

This ratio measures the relationship between profits and sales of

the firm and is obtained by dividing the net profits by net sales
depending upon the concept of net profit employees the rates can be
computed in three ways.

Net Profit Ratio Margin =

Net Profits after tax & interest

-------------------------------------- x 100
Sales
Net Profits before taxes & interest
------------------------------------------ x 100
Sales

From the table no. 12 we cannot find much variation in the net
profits of the company, in the year 2001-2002 the ratio is 1.74.

It is

lower in all the five years after that improved following two years only. So
management has to be concrete to improve the profits.
Table No. 12 Net Profit Ratio Margin
Year

Net Worth

Profit After
Tax Sales

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

1088.01
787.98
1537.36
1903.94
1277.33
405.63

47179.83
45286.54
52605.14
56332.57
64689.51
74044.11

Net Profit
Ratio Margin
(in times)
2.31
1.74
2.92
3.38
1.97
0.05

(Rs. In Crores)
Ratio (In
Percentages)
281
174
292
338
297
0.5

Ratio

Graph No.12 : Net Profit Ratio

(in times)
3.5
3
2.5
2
1.5
1
0.5
0

2000- 2001- 2002- 2003- 2004- 200501

02
03
04
05
06

Years

3.

RETURN ON EQUITY RATIO :

This ratio carries the relationship of return to the sources of funds

provides by the owners of the firm to measure the rate of return on share
holders funds. The profitability according to this ratio is calculated by
dividing the net profits after taxes by the total share holders equity
(preference share capital + ordinary share capital + share premium +
reserves and surplus accumulated losses). The share holders equity
may also be known as not worth thus.

Return on Equity Ratio =

Net Profit After Taxes

-------------------------------------Total Share holders equity

A return on the share holders equity calculation is to see the

profitability of the owners investments. Return on Equity (ROE) indicate
how well the firm has used the resources of owners. In fact this ratio is
one of the most important relationship in financial analysis the earning

of a satisfactory return is the most objective of a business. From the

above table HPCL returns on equity is in increasing trend expect in the
year 2001-02 the change in the ROE is 38.88% in the year 2000-01 to
2003-04 the return equity for the 2000-01 is 0.18% for every one rupee
of net worth the profit after tax in only seventeen paise.
Table No. 13 Return on Equity Ratio
Year

Net Profit
After Taxes

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

1088.01
787.98
1537.36
1903.94
1277.33
405.63

Share
holders
Equity
6486.27
5897.68
6678.85
7742.81
8440.85
8735.74

Return on
Equity Ratio
(in times)
0.17
0.13
0.23
0.25
0.15
0.05

(Rs. In Crores)
Ratio (In
Percentages)
17
13
23
25
15
5

Graph No.13 : Return on Equity

Ratio (in times)
0.25

Ratio

0.2
0.15
0.1
0.05
0

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Years

4.

RETURN ON TOTAL RATIO :

The return on total assets reveal the amount of profit generated by

the application of the total assets in the company.

This ratio depicts the

efficiency of the company in using its assets the return on total assets of
the firm.
Return on total assets Ratio =

Profit before Tax

-------------------------------------Total Assets

As seen from the table it can be interpreted that the ratio was the
highest in the year 2003-04 when compared all the years but in the year
2001-02 the ratio is 0.081 times. It is slow comparative provision two
years also. Since to 2000-01 to 2001-02 there was a decreasing trend
after that HPCL shows tremendous improvement
Table No. 14 Return on Total Assets Ratio
(Rs. In Crores)
Year

Profit Before
Tax

Total Assets

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

1320.2
1222.48
2411.79
2980.43
1640.6
285.10

14974.12
15006.97
17346.69
18552.69
18989.62
24738.90

Return on
total assets
ratio (in times)
0.088
0.081
0.139
0.161
0.086
0.086

Ratio (In
Percentages)
8.8
8.1
13.9
16.1
8.6
8.6

Ratio

Graph No.14 : Return on Total Assets Ratio

(in times)
0.18
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Years

5.

EARNING FOR SHARE :

The ratio indicates the availability of total profits per share the
following formula may for employed to determine Eps.

Net profits available to equity share

Share Holders Earning for Share = -----------------------------------------Number of equity shares outstanding
Earning share widely used technique of analysis the effect of
change in the leverage on the net operating earnings available to equity
share holders.

It does not recognize the return on earnings.

In the

financial year 2000-01 to 2003-04 the earning per share increased 80%
but in the years 2001-02 it is declaimed to 23.26 rupees but after that it
shows significant improvement and in the years 2004-05 also it was
declared.
Table No. 15 : Earning for Share Ratio
Year
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

Profit
available to
equity share
1088.01
787.98
1537.36
1903.94
1277.33
405.63

No. of
Equity
Shares
33.88
33.88
33.88
33.88
33.88
33.89

Share holders
Earning for
share
31.11
23.26
45.38
56.18
37.69
11.96

(Rs. In Crores)
Ratio (In
Percentages)
3111
2826
4538
5618
3769
1196

Graph No.15 : Earnings for Share Ratio

(in times)
60

Ratio

50
40
30
20
10
0

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Years

FINANCIAL RATIOS OF HINDUSTAN PETROLEUM CORPORATION

I. Liquidity Ratios
* Current Ratio
* Quick Ratio
II. Leverage Ratios
* Debt Ratio
* Proprietary Ratio
* Asset Proprietary
Ratio
III. Activity Ratios
* Current Turnover
Ratio
* Total Asset
Turnover Ratio
* Net Working Capital
Turn over Ratio
* Debtor Turnover
Ratio
* Average Collection
Period
IV. Profitability Ratios
* Gross Profit Ratio
* Net Profit Ratio
* Return on Equity
Ratio
* Return on Total
Assets

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

1.62
0.83

1.28
0.52

1.08
0.43

1.23
0.53

1.36
0.55

1.38
0.40

0.55
0.43
0.91

0.54
0.39
1.09

0.20
0.38
0.96

0.22
0.42
0.85

0.26
0.44
0.82

0.76
0.35
0.84

5.9

7.4

7.2

6.0

6.8

6.7

3.15

3.02

3.03

3.04

3.41

2.99

15.53

34.32

81.34

31.73

25.74

24.24

83.79

57.73

61.00

56.32

61.69

53.18

4.54
2.31
0.17

4.49
1.74
0.13

5.96
2.92
0.23

6.46
3.38
0.25

1.97
0.15

0.0005
0.05

0.139

0.161

0.086

0.011

0.088

* Earning Per Share

23.26

45.38

56.18

37.69

11.96

Complete Financial Ratio Analvsis :

Financial Analysis is the process of identifying the Financial
strengths and weakness of the firm by properly establishing relationships
between the items of the Balance Sheet and Profit and Loss Account.
The

relationship

between

two

accountancy

figures

expressed

mathematically is known as a financial ratio (or simply as a ratio) Ratios

helps to summarize large quantities of financial data and to evaluate the
performance the easiest way to evaluate the performance of a firm is to
compare its present ratios with the past ratios.
When financial Ratios over a period of time are compared it is
known as the time series (or trend) Analysis. It gives an individual of the
direction of change and reflects whether the firms financial performances
has improved deteriorated or remained constant over time.
Several Ratios calculated from the accounting data can be grouped
into various classes according to financial activity or function to be
'evaluated. Management is interested in evaluating every aspect of the
firms performance. They have to protect the investors of all parties and
see that the firm grows profitably.

1.

Liquidity Ratios measures firms ability to meet current obligations.

2.

Leverage Ratios shows the proportions of debt and equity in

financing the firms assets.

3.

Activity Ratios reflects the firm efficiency in utilizing its

assets.

4.

Profitability Ratios measures overall performance and effectiveness

of the firm.

Liquidity Ratios :
Ratios in the table shows that HPCL's liquidity is deteriorating a
note of caution may be Sounded Liquidity Ratios can mailed since
current assets and current liabilities can change quickly there utility
becomes more doubtful for firms with oil sector. Leveraae Ratios
Ratios in the table indicates that HPCL leverage ratio are less. A
low debt equity ratio implies a greater cliam of owner's than creditors
from the point of view of creditors it represent a satisfactory situation
since a high proportion of equity proves a larger margin of safety for them
during the periods of low profits, the debt servicing will prove to be less
burdensome for a company with low debt equity ratio however from the
share holder point of view there is disadvantage during the periods of
good economic activities of the firm employees a low amount of debt the
higher the debt equity ratio the larger the share holders earnings when
the cost of debt is less than the firm's overall rate of return on
investment thus there is need to strike a proper balance between the use
of debt and equity the most appropriate debt equity combination would
involved trade off between return and risk.
Activity Ratios :
Activity Ratios are employed to evaluate the efficiency with which
the firm manages and utilities its assets there ratios are called Turnover
Ratios because they indicate the speed with which assets are being
converted as turned over into sales activity ratios thus involve a
relationship between sales and assets generally reflects that assets are
managed* well several activity ratios can be calculate to judge the

effectiveness of assets utilization the table shows five years activity ratios
the current assets turnover ratios in higher side only and the variation in
the five years is only 13%. In the total assets turnover ratios also is no
major change. Net working capital and debt turnover ratios also shows
firms strengths.
Profitabilitv Ratios :
The Profitability Ratios are calculated to measure the operating
efficiency of the company generally two major types of profitability
ratios are calculated profitability in relation to sales and profitability in
relation to investment.
The gross profit margin reflects the efficiency with which
management reduced each unit of product a high gross profit margin
ratios is a sign of good management the table shows the trend of the
gross profit ratios net profit ratios returns on equity returns on total
assets and earning per share EPS simply shows the profitability of the
firms on a per share basis.

CHAPTER IV
SUMMARY & SUGGESTIONS
The origin of the oil industry in India can be traced back to the
Last part of the 19th century when petroleum was discovered in Digboi
in Northeast. After independence, industry - which Burmah Shell, Esso
and Caltex as major player - was nationalized. Every activity exploration,
development, production, and refining, marketing, distribution-was
controlled by the various oil companies. Since India's economic
liberalization programme started, however, the Indian oil and gas sector
has gone through some has been totally freed from the shackles of the
government with the dismantling of the administered pricing mechanism
and oil companies being given the right to price their products at the
retail outlets. The domestic oil industry is largely controlled by the
government with the Ministry of Petroleum and Natural Gas at the helm
and was being assisted by directorate general of hydrocarbon (DGH), Gas
Linkage Committee, Oil Industry Development Board (OIDB) and Oil
Coordination Committee (OCC) till OCC was replaced by another
regulatory board. The now board has been named as Petroleum
Planning and Analysis Cell.
The Union Minister for Petroleum and Natural Gas, Mani Shankar
Aiyer has expressed his intention to strengthen the public sector oil
companies and enable them to compete better with their private
counterparts, both domestic and foreign. A slew of measures are under
consideration including a mega merger of the PSUs creating two
vertically integrated oil behemoths. Other measure under review are

restricting the existing player to their core competence and setting up a

high-level regulator to coordination their activities, Among these, the
move of merge oil PSUs stands out, since it would mean considerable
realignment and restructuring of companies that could possible change
the shape of the industry. But is the merger desirable?
The Indian oil industry is unique in many ways. No other county in
the world has as many state-owned oil companies completing with each
other. One has to accept that the consequent competition, has proved
beneficial for the growth and national level. The government's return oil
investment from the oil majors been splendid with most of them
handsome dividends. Forever, the government, particularly tire Ministry
of Petroleum and Natural Gas under Mani Shanker Aiyer, (who is also the
Minister for Panchayati Raj) sees for further gain; from the oil PSUs.
The merger purportedly aims at preparing oil companies for private
competition from domestic and foreign player. However, there are no
player to compete with as a of now. In the exploration business, reliance
is the only domestic private player and its operations are smaller
compared to the state

owned companies. Foreign companies are not

exactly jumping over each other to enter the Indian market, if the
experience with the New Exploration Licensing Policy (NEPL) announced
in 1997 is any indication. The initial response for the first round of the
bidding in 1999 was So poor that the date had to be extended. Reliance,
in partnership with Niko Resource received 12 blocks. While foreign
companies cairn Energy Gazprom and Mosbacher Energy, and Geopetrol
were awarded single blocks, three of Which were to be held in

partnership with other public sector Indian firm. In NELP 2, which is

concluded in March 2001,25 blocks were awarded in February 2003.
Reliance received nine blocks while ONGC was awarded 13. Gujrat State
Petroleum Corporation received one. The fourth round of awards
completed in February 2004 with 14 blocks going to ONGC and one to
Reliance Industries. The pattern we can see here is of diminishing foreign
participation and continued dominance of state owned firms, ONGC in
this case. This shows how he interest of foreign firms in Indian market is
on the vain, HPCL accounts for about 20% of the national's refining
capacity. On The west coast is the Mumbai Refinery with a capacity of
5.5 Million Metric Tonnes Per Annum while the other at Visakhapatnam,
on the East Coast, has a capacity of 7.5 Million Metric: Tonnes per
Annum.
HPCL is a mega public sector undertaking (PSU) and is the second
Largest integrated oil company in India, with Nav Ratna Status. It has
two refineries producing a wide variety of petroleum products fuels,
Lubricants and specially products; one in Mumbai (West Coast) started
in 1954 with refining capacity of 1.25 MMTPA:. Now Mumbai refinery
having a capacity of 5.5 MMTPA and the in Visakhapatnam east coast
with a capacity of 7.5 MMTPA.
The corporation also operates the only joint venture refinery in
Flee country. The Manglore Refinery and Petrochemicals Limited with a
Capacity of 9 MMTPA, in associated with Aditya Birla Group of
companies And is progressing towards setting of its second joint venture
in the state of Punjab.

HPCL is the result of successful convergence of four established

cmpanies HPCL was born of die successful merger ESSO. Lube Indian
Ltd., Caltex Oil Refinery India Ltd., and Kosan Gas Company. The
Company was first incorporated as standard vacuum refining company of
India Ltd. The company was renamed HPCL with effect from July 15th
1974 Indian oil & gas sector accounts for more than 30% of India's oil
import bill and the sector contributes over 20% to the national exchequer
through customs and excise.
India's share to world oil & gas production is less than 1 % with
petro product consumption of less than 3%.The objective of self-reliance
in the sector has become a distant dream with the demand, far exceeding
production and with crude prices Souring high in international markets.
TO BE A LEADING WORLD-CLASS COMPANY IN HYDROCARBONS
AND ENERGY RELATED SECTORS WITH A GLOBAL PRESENCE
DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO
OPERATIONAL PERFORMANCE:
2000 -2001:
During the year Mumbai Refinery achieved a crude thruput of 5.57
MMT against The installed capacity of 5.50 MMTPA which represents a
capacity utilization of 101.4% Visakha Refinery during the same period.
Achieved crude thrupt of 6.41 MMT as against an installed capacity of
6.3 MMTPA (adjusted) which is 101.7% capacity utilization the crude
thruput achieved Visakh Refinery during the year, is the best ever.

The company has achieved a record sales turnover of Rs. 47180

crores as compared to Rs. 34368 crores in 1999-2000. reflecting an
increase of over 37% the company has earned the highest ever gross
profit of Rs. 2140.91 crores and highest ever profit after tax of Rs.
1088.01 crores the internal resources generation have also been an all
time high of Rs. 1148.13 crores.
2001-2002 :
During the year Mumbai Refinery achieved a crude thruput of 5.63
MMT against the installed capacity of 5.50 MMTPA which represents a
capacity utilization of 102.4 Visakh Refinary, during the same period,
achieved a crude thruput of 6.70 MMT as against an installed capacity of
7.5 MMTPA which is 89.3% capacity utilization subdued demand for
MS/HSD resulted in lower capacity utilization of the Refinery.
The company has recorded low sales turnover of Rs 45286.5 crores
as compared to 47180 crores in 2000-01 reflecting in decrease of 3.88%.
The company as declined the gross profit RS.2046.7 crores and lowest
profit after tax of RS.788.0 crores the internal generation have also been
an all time low of Rs.1112.6 crores.
2002-2003 :
During the year Mumbai Refinery achieved a crude turuput of 6.08
against the installed capacity 5.50 MMTPA which represents a capacity
utilization of 110.55%. Visakh Refinery, during the same period achieved
a crude thruput of 6.85 MMT as against an installed capacity 7.5 MMTPA
which is 91.33% capacity utilization.

The company has achieved a record sales turnover of Rs.5260~.14

crores as compared to Rs.45286.50 crores in 2001-2002, reflecting an
increase of over 16%, the company has earned the highest ever gross
profit 3139.06 crores and highest ever profit after tax of RS.1537.36
crores the internal resources generation have also 1337.76 crores.
2003-2004:
During the year Mumbai Refinery achieved a crude thruput of 6.11
MMT against the installed capacity of 5.50 MMTPA which represents a
capacity utilization of 111.09%. Visakh Refinery, during the same period
achieved a crude thruput of 7.59 MMT as against an installed capacity
of 7.5 MMTPA which is 101.2% capacity utilization the crude thruput
achieve by Visakh Refinery during the year is the best ever. The company
has achieved record sales turnover of Rs.56332.57 crores as compared to
RS.52605.14 crores in 2002-2003 reflecting an increasing over 7.08% the
company has earned the highest ever gross profit of RS.3642.66 crores
and highest ever profit after tax of RS.1103.94 crores the internal
resources generation have also been an all time high of RS.1722.10
crores.

FINDINGS
1.

Implementation of the Guru Govind Singh Refineries Ltd.

HPCL has initiated activities towards setting up of a new gross root

refinery of 9 MMTPA capacity at phulokhari in the Bhatinda district of

Punjab State, costing RS.9806 crores (June 98 price) including a foreign
exchange component of RS.3219 crores. A subsidiary company "Guru
Govind Singh Refineries Ltd" has been incorporated on December 13,
2000. The company received the certificate for commencement of
Business on May 31 5t 2001.
As per the current estimate, the built cost to estimated at Rs.
12,629 crores and is anticipated to be completed by December 2005.
The as built project cost of Rs. 1269 crores is proposed to be
financed at a debt equity of aggregating Rs.5,052 crores HPCL is
contribution to the equity world be to the extent of 51%.
2.

New Auto Fuel policy announced by the Government of India.

The Govt. of India constituted on expert committee handed by

Dr. R.A. Mashalakar Director General, Council of Scientific and

industrial Research (CSIR), to recommend an auto fuel policy for the
country and devise a road map for its implementation. Based on the
intension of the committee the Government has issued directives for
introduction of ultra low sulphur and premium grades of petrol and
diesel, equivalent to Bharat-II. Norms, which are in place for metro cites
and shall be extended to the major cities of the country like Ahmedabad,

Bangalore and Hyderabad from April 2003 and by April 2005 for the
entire country. Also, by 2005 Euro-III equivalent fuel will have to be
supplied to the major cities of the country. The oil companies are gearing
up to meet these challenges through changes in refinery configuration
adopting

modern

technologies,

capacity

optimization

and

yield

improvement.
3.

Crude Sourcing :
After decanalization of crude imports effective April 2001, IIPCL

hade carried at procurement of crude on both spot and term basis-RBI

has permitted oil companies to start hedging of crude oil and petroleum
products. HPCL intends to undertake hedging activities in the near
future for protecting refinery margins. This will now enable the company
to optimize the activity based on its own requirements and aim for
further crude addition.
4.

Retail Business Line :

The Oil & Gas sector of India moved towards a free market scenario

during the year with Government of India adhering to the time table for
dismantling of controls announced earlier and with that the biggest step
in integrating the sector with the competitive global market was taken
effective from 1-4-2002 with the pricing and marketing of key retail fuels
effectively decontrol more players are expected to enter the retail fuel
market. The Government has already given permission to Reliance
Petroleum, ONGC, Essar Oil, and Numaligarh Refineries to commence
auto fuel retailing in India. Acquisition of a majority state in IBP by IOC
also led to realignment of the market share of various oil companies. IOC

has lead in position in the auto fuel retailing sector with a control of
nearly 47% market share followed by HPCL & BPCL.
SUGGESTIONS
1.

The average price per bbl of Indian crude varied from 28.8$ for
BBL in March 2003 to 32.2$ BBL in March 2004. But world oil
prices soured to record high levels on 17-3-2005 with a New yarks
main crude contract above $57 a barred for the first time. The
company has to be speed up and concentrate on up stream
segments like exploration & products, gas production'. Alternate
fuels like LNG/CNG etc.

2.

Down stream oil sector in the country faces several constraints

including supply over hang competition from gas and competition
from new entrants on the marketing segment, volatility in crude
prices etc. Refinery capacity still surpasses consumption. Overall
refining capacity in the country as on 31 st March 2004, was 125.96
MMTPA crude thruput during the years was around 119 MMTPA.
Consumption of the petroleum products in 2003-04, on the other
hand, was much lower at 108 MMT. Inevitable, surplus products
on was exported product exports and imports during 2003-04 were
around 14.6 MMT and 7.87 MMT respectively.
Implementation of 9 MMTPA Gross Root refinery at phulokhari,

Bhathinda as per the current estimated project cost is Rs 12.629 crores

and is anticipated to be completed by December 2005 but this estimated
cost is already revised accordingly to June 98 prices the project cost is

9806 crores this project is proposed to be financed at a debt equity ratio

of 1.5:1 entailing on overall debt of Rs. 7.577 crores HPCLS contribution
to the equity would be to the extent of 51 %.
Mangalore Refinery & petrochemicals Ltd (MRPL) with a capacity of
3 MMTPA was commissioned is March 1996 the capacity was announced
to 9 MMTPA during 1999-2000. ONGC acquired the entire equity stake of
IRIL in MRPL on 03-03-2003 and also infused Rs 600 crores into MRPL
as additional equity on 30-3-2003 the Fis lenders of MRPL converted
Rs.365 crores of debt into equity and Rs 160 crores, if debit into ZCBs
consequent to the above HPCLs equity stands at 16.95% a fresh share
holders agreement dated 03-03-2003 has been signed by HPCL with
ONGC to take care of the interest of HPCL. In the year 2001-2003 MRPL
has appointed a consultant for carrying out a comprehensive capital
restructuring. Which is M/s. A.V.Birla group. Co-promoters of MRPL
have desired to exist from MRPL this opportunity not availed by HPCL.
"A bird in hand is worth too in a bush
This proverb is not applicable to HPCL. The implementation of
Guru Govind Sing Refineries Limited (Panjab Refinery) seen to be
Geopolitical because IOC already Implementing at Panipat one Refinery
and petrol chemical complex in the same region.
This will effect further profits of HPCL Instead. It is better to
investing upstream segments (Exploration & Production). In huge
amount his will definitely fetch.

4.

New auto fuel policy announced by the Govt. of India

mandated EURO-III emission norms for eleven major cities with effect
from April 2005. To meet new fuel requirements refiners can either
process Light sweet crude of make haftyu investments to refine heavy
sour crude into light, sweet petroleum products But HPCL both MR. And
VR started recently mega projects at an approved cost of 1152 and 1635
crores

respectively

to

meet

the

MS/HSD

of

EURO-III

grade

in

Metro/Mega cities and Bharat stage-II grade is rest of the country by

April 2005Which arc states in implementation of the following projects
(1) Naphtha Hydro treating unit (NHT) (2) continuous catalaytic Refinery
(CCR) (3) Naphtha Isomerisation unit (NIU) (4) FCCU Gasoline Hydro
Treating unit (FCCGHT).
5.

Because of late implementation, movement of MS is difficult as it is

to meet the requirements of new Auto fuel policy low sulphur crudes to
be processed this will effect the profit margins. So speed up the above
projects to meet the future constraints. So far HPCL not correlating with
technology and future. This might be because of Government policies but
there will be a threat from private companies like RPL and ESSAR and
other modernized refineries in the public sector also.

BIBLIOGRAPHY

Financial Management

I.M. Pandey

Financial Management

Prasana Chandra

Financial Management

Khan and Jain

Financial Management

S.N. Maheswari