equity research on oil & gas sector

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Introduction

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

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

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

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

Oil Exploration

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

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

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

The principal activities involved in an E&P activity are

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

production of oil & gas • Decommissioning of the well

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

Refining and marketing of oil

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

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

A Comparative View...

'000 tonnes HPCL BPCL Reliance

Refinery Location Mumbai Visakh Mumbai Jamnagar

FY99 FY03 FY99 FY03 FY99 FY03 FY03

Light distillates 728 1,115 863 1,588 2,648 2,485 1,100

Middle distillates 2,460 2,682 2,115 3,554 4,736 4,233 1,730

Heavy distillates 1,507 1,562 658 1,243 1,190 1,503 550

Total distillates 4,696 5,359 3,636 6,386 8,574 8,221 3,380

*Distillate Yield 67.9% 70.9% 81.9% 80.5% 86.1% 81.7% 83.7% *Distillate yield = (Light+Middle)/ Total distillates

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

Refineries in India

As of October, 99 there are a total of 17 refineries in the country comprising 15 in the Public Sector, one in the Joint Sector and one in private sector. The company-wise locations and capacity of the refineries as on 1.10.99 are given below:

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Name of the Company Location of the

Refinery

Capacity

(MMTPA)* 1.Indian Oil Corporation Ltd. (IOC) Guwahati 1.00 Barauni 4.20 Koyali 12.50 Haldia 3.75 Mathura 7.50 Digboi 0.65 Panipat 6.00 2.Hindustan Petroleum Corpn.Ltd. (HPCL) Mumbai 5.50 Visakh 4.50 3. Bharat Petroleum Corpn. Ltd. (BPCL) Mumbai 6.90 4.Madras Refineries Ltd. (MRL) Chennai 6.50 5.kochi Refineries Ltd. (KRL) Cochin 7.50 6.Bongaigaon Refinery and Petrochemicals Ltd. (BRPL)

Bongaigaon 2.35

7.Crude Distillation Unit of MRL Narimanam 0.50 8.Numaligarh Refineries Ltd. (NRL) Numaligarh 3.00 9.Mangalore Refinery and Petrochemicals Ltd. (MRPL)

Mangalore 9.69

10.Reliance Petroleum Ltd. (RPL) Jamnagar 27.00 Total 109.04

* Million Metric Tonnes per Annum

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

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

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Pricing for Oil and Natural Gas

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

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

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

The journey so far...

Event Year

Administered Price Mechanism introduced 1977

Oil sector opened up for private players 1991

Prices of Naphtha, FO, LSHS, bitumen and paraffin wax decontrolled 1998

Exports of petrol and diesel decanalized 1999

100% FDI in refining sector allowed 2000

Aviation turbine fuel price is dismantled in April 2001

APM is dismantled finally 2002

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

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Production and consumption scenario

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

Oil Use in MMBD

1.2 1.7 1.8 2.2 2.7 3.2 3.8 3.6

Natural Gas Use in TCF

0.4 0.7

1.5

2.3 3.3 4.5 5.9 9.4

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Major players

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

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

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

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

Break-up of players on the basis of their activities

Activity Companies

Involved

Exploration and Production

ONGC, OIL

Refining and Marketing

IOCL, BPCL, HPCL

Marketing Alone IBP

Refining Alone MRL, KRL

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

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Affect of higher oil prices on the global economy

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

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the 1986 price collapse to the economies of oil importing countries vary substantially. This is partly due to differences in the models used to examine the issue. Nonetheless, the effects were certainly significant: economic growth fell sharply in most oil-importing countries in the two years following the price hikes of 1973/1974 and 1979/1980. Indeed, most of the major economic downturns in the United States, Europe and the Pacific since the 1970s have been preceded by sudden increases in the price of crude oil, although other factors were more important in some cases. Similarly, the boost to economic growth in oil-exporting countries provided by higher oil prices in the past has always been less than the loss of economic growth in importing countries, such that the net effect has always been negative. The growth of the world economy has always fallen sharply in the wake of each major run-up in oil prices, including that of 1999-2000. This is mainly because the propensity to consume of net importing countries that lose from higher prices is generally higher than that of the exporting countries. Demand in the latter countries tends to rise only gradually in response to higher prices and export earnings, so that net global demand tends to fall in the short term. Oil prices remain an important macroeconomic variable: higher prices can still inflict substantial damage on the economies of oil-importing countries and on the global economy as a whole. The surge in prices in 1999-2000 contributed to the slowdown in global economic activity, international trade and investment in 2000-2001. The disappointing pace of recovery since then is at least partly due to rising oil prices: according to the modeling results, global GDP growth may have been at least half a percentage point higher in the last two or three years had prices remained at mid-2001 levels. The results of the simulations presented in this paper suggest that further increases in oil prices sustained over the medium term would undermine significantly the prospects for continued global economic recovery. Oil importing developing countries would generally suffer the most as their economies are more oil-intensive and less able to weather the financial turmoil wrought by higher oil-import costs. The general economic background to the current run-up in prices is significantly different to previous oil-price shocks, all of which coincided with an economic boom when economies were already overheating. Prices are now rising in a situation of tentative economic revival, excess capacity and low inflation. Firms are less able to pass through higher energy-input costs in higher prices of goods and services because of strong competition in wholesale and retail markets. As a result, higher oil prices have so far eroded profits more than they have pushed up inflation. The consumer price index growth has fallen in almost every OECD country in the past year, from 2.3% to 2.0% in the Euro zone and 2.4% to 1.9% in the United States in the 12 months to December 2003. The squeeze on profits delayed the recovery in business investment and employment, which began in earnest in 2003 in many parts of the world. In contrast to previous oil shocks, the financial authorities in many countries have so far been able to hold down interest rates without risking an inflationary spiral. Yet the economic threat posed by higher oil prices remains real. Fears of OPEC supply cuts, political tensions in Venezuela and tight stocks have recently driven up international crude oil and product prices even further. Current market conditions are more unstable than normal, in part because of geopolitical uncertainties and because tight product markets – notably for gasoline in the

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

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Indian scenario

India's oil imports are set to rise to 85 million tonnes during 2003-04, with high global

prices expected to impact on the country's import bill.

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

announcing a further production cut -- after the sudden decision last month of reducing

output by 900,000 barrels per day from November -- there are expectations of a further

rise in crude oil prices towards year-end.

Importing around two million barrels of crude per day, India is, however, optimistic that

the OPEC cut would have limited impact with several factors working against a steep

jump in global prices.

India's oil import bill has risen, but that is partly due to an increase in the quantity of

imports as also the higher prices. So far, there has not been much impact of the OPEC

decision to cut production by 900,000 barrels per day. Initially there was an impact of a

$1.0 to $1.5 but subsequently the prices have softened slightly

Depending on imports for 70 percent of its requirements, India's oil import bill witnessed

a 7.92 percent rise during April-August to $7.66 billion as against $7.1 billion in the

corresponding five months in the previous year.

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

India's imports have also increased in the initial five months. As against around 82.5

million tonnes imports last year, the imports are expected to be around 85 million tonnes

during 2003-04. This is because of growing consumption and demand for petroleum

products in the market.

The market demand has led to higher requirement by both public and private sector

refiners. India currently has an installed refining capacity of 112 million tonnes -- that not

only meets domestic requirement but also allows for export of petroleum products.

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

gas.

In the case of LPG, however, there is expected to be some impact as India imports around

one million tonnes of the eight million tonnes domestic requirement.

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Most of the imported LPG is used to meet the requirements of the industry and

automobile sector. Around seven million tonnes of LPG is used in the country as

domestic cooking fuel.

Domestic gas being a subsidized fuel, the state-owned oil and gas companies would have

to share the subsidy burden in view of the government decision not to raise the price of

cooking gas and kerosene sold through the public distribution network to people below

the poverty line.

The petroleum ministry is trying to work out how all the state-owned companies in both

upstream and downstream are going to share the burden. The list includes all the

exploration, refining and marketing companies including Oil and Natural Gas

Corporation (ONGC), gas infrastructure company GAIL (India) Ltd and all other oil

companies like Indian Oil Corporation.

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Impact of Crude prices on Indian oil companies

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

The impact on refinery companies

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

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

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

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

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

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

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

The impact on upstream companies

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

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

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

Government: Hands-off…

Year Subsidies

(Rs) LPG/cylinder Kerosene/litre

2002-03 67.75 2.45

2003-04 45.17 1.63

2004-05 22.85 0.81 Source: Oil companies

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

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

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

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

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

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Analysis of companies

ONGC

Company profile

Oil and Natural Gas Corporation Ltd (ONGC) was incorporated in June 1993 to take over the businesses of the erstwhile Oil and Natural Gas Commission that was set up in 1959. The company produces a range of marketable products like petroleum, crude natural gas liquid, aromatics rich naphtha, liquefied petroleum gas (LPG), superior kerosene and ethane- propane as petrochemical feedstock. ONGC is a near monopoly in India’s oil exploration and production industry and produces 90 per cent of the country’s crude oil and natural gas and holds petroleum exploration licenses for 80 per cent of the sedimentary basins in India. Since its inception, ONGC has produced more than 600 million metric tonnes of crude oil and supplied more than 200 billion cubic meters of gas. The grant of marketing rights and the acquisition of Mangalore Refineries and Petrochemicals (MRPL) are major steps in transforming ONGC into an integrated oil and gas corporate. ONGC`s fully owned subsidiary, ONGC Videsh Ltd (OVL), has been making significant strides in acquisition of equity oil and gas abroad. The gas property in Vietnam, with 45 per cent participation by OVL, is due to go on stream this year. Development of facilities in the Sakhalin-I Oil & Gas Field (OVL`s participating interest is 20 per cent) is progressing well; the first delivery of crude is scheduled in 2005, followed by gas in 2007. OVL is currently engaged in several other transnational negotiations for exploration assets as well as discovered fields

Profit and loss account

Value(Rs.crores)

April-march’04 April-march’03 %change

Gross sales 32511.92 34738.50 -6.41

Excise duty -447.99 -461.21 -2.87

Net sales 32063.93 34277.29 -6.46

Other income 1547.08 1959.25 -21.04

Total income 33611.01 36236.54 -7.25

Expenditure -14383.36 -15871.79 -9.38

Operating profit 19227.65 20364.75 -5.58

Interest -467.50 -113.19 313.02

Gross profit 19180.90 20251.56 -5.29

Depreciation -5571.86 -4127.72 34.99

Profit before tax 13609.04 16123.84 -15.60

Tax -4944.61 -5594.52 -11.62

Profit after tax 8664.43 10529.32 -17.71

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Net profit 8664.43 10529.32 -17.71

Equity capital 1425.93 1425.93 0.00

Reserves 38326.49 33932.27 12.95

EPS 60.76 73.84 -17.71

Nos. of shares-non promoters

368,560,245.00 226,594,405.00 62.65

% of shares – non promoters

25.85 15.89 62.68

Ratios

As on April-march’04 April-march’03

Operating profit margin% 59.14 58.62

Net profit margin% 26.65 30.31

EPS 60.76 73.84

Annual result highlights

• Net sales have decreased by 6.46% from Rs.34277.29cr. in Mar 2003 to Rs.32063.93cr in Mar 2004.

• Net profit has decreased by 17.71% from Rs.10529.32cr in Mar 2003 to Rs.8664.43cr in Mar 2004.

• Net profit margin has decreased by 12.07% from 30.31% in Mar 2003 to 26.65% in Mar 2004.

• Operating profit margin has increased marginally by 0.88% from 58.62% in Mar 2003 to 59.14% in Mar 2004.

Future Plans ONGC intends to invest $ two billion every year for the next seven to 10 years to double in place reserves of oil and oil equivalent gas. It plans to double in place reserves of 5.77 billion tonnes of oil and oil equivalent gas through extensive exploration efforts. The investment is possible only when they get the market price for their production, as genuine deregulation of gas not taken place yet. Around 15 projects have been identified by ONGC that would add 500 million tonne of reserves. It has committed Rs35,000crore investment during the tenth five year plan period. ONGC is expected to double reserve accretion and improve recovery factor by 40 per cent in next two years. It is under taking a massive program of investing Rs12,000crore plus in improving oil recovery in 15 oil fields.

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IOC

Company profile

Indian Oil Corporation (IOC) Ltd, set up in 1959 as a wholly owned government enterprise, is India’s largest company in terms of revenues. IOC owns and operates 7 of the country’s 15 refineries, with a combined capacity of 31.5 mmtpa (0.62mn barrels per day). The company has a 47% share in refining after the commissioning of its 6 mmtpa refinery at Panipat. With the commissioning of the 27-mmtpa Reliance Petroleum Ltd (RPL) refinery at Jamnagar, Gujarat, this is expected to come down to around to around 33%. It has a commanding 55% share in the marketing of petroleum products. Out of IOC`s seven refineries, only the one located at Haldia (capacity 4 mtpa) processes imported crude entirely. Among others, Guwahati and Digboi refineries use only domestic crude. The other refineries located at Barauni (4.2 mtpa), Gujarat 12 mtpa), Mathura (7.5 mtpa) and Panipat (3.5 mpta) use partly imported crude and partly domestic crude (depending on the availability of domestic crude). Thus, the volume of imported crude processed by IOC`s different refineries is not small. 70 per cent of IOC`s sales are under controlled prices and include items such as petrol, diesel, kerosene, LPG and ATF IOC is the world’s 17th largest petroleum company. It is India’s largest commercial enterprise and the only company from the country in Fortune magazines Global 500 listing. IOC has formed a number of joint ventures with various multinationals to undertake business activities that would have otherwise been uneconomical or risky to undertake alone. These include joint ventures (JVs) with the US-based Lubrizol Corporation (in Lubrizol India), with the France-based Nyco and the domestic Balmer Lawrie (in Avi-Oil India), with Germany-based Oiltanking (in Indian Oiltanking), and with Petronas of Malaysia (in IndianOil Petronas). While marketing companies sell various petroleum products, it becomes imperative to look at their business mix of different products. The reason being margins, are different for different products. For example, the more the products are sold through direct sales, the lower the margins, while the more the products are sold through the retail network the higher the margin.

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Value (Rs.crores)


Net sales 116775.57 123628.15 -5.54

Other income 1747.17 17,82.50 -1.98

Total income 118522.74 125410.65 -5.49

Expenditure -106510.19 -114572.42 -7.03

Operating profit 12012.55 10838.23 10.83

Interest -452.74 -762.47 -40.62

Gross profit 11559.81 10075.76 14.72

Depreciation -1868.97 -1661.76 12.47

Profit before tax 9690.84 8414.00 15.17

Tax -2686.02 -2299.11 16.82

Profit after tax 7004.82 6114.89 14.55

Net profit 7004.82 6114.89 14.55

Equity capital 1168.01 778.67 50.00

Reserves 21879.40 18149.32 20.55

EPS 59.97 52.35 14.55


209,934,345.00 139,956,230.00 50.00


17.97 17.97 0

Ratios



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EPS 59.97 52.35


• Net sales have decreased by 5.54% from Rs.123628.15cr in Mar’03 to Rs.116775.57cr in Mar’04.

• Net profits have increased by 14.55% from Rs.6114.89cr in Mar’03 to Rs.7004.82cr in Mar’04.

• Net profit margin have increased by 21.45% from 4.94% in Mar’03 to 6.00% in Mar’04

• Operating profit margin have increased by 17.35% from 8.76% in Mar’03 to 10.28% in Mar’04.

Future Plans IOC is set to enter into a marketing pact with French oil major TotalFina Elf. The proposed agreement will allow IOC to market TotalFina Elf`s range of fuel additives through the former’s vast retail network. The two companies will also collaborate in research & development activities in fuel additives, IOC`s proposed tie-up with TotalFina appears to be yet another attempt by state-owned oil companies to counter the imminent entry of private players into the marketing sector. The two companies will also collaborate in research & development activities in fuel additives IOC is planning to double its research and development (R&D) spends from Rs60crore to Rs120crore. The oil major has also outlined a large number of projects to be taken up by its R&D centre located in Faridabad. The oil major is also exploring the possibility of extending R&D services to other refineries. The centre has been working on a large number of projects including bio-diesel and multi-grade bitumen. Another breakthrough includes the development of LPG-MAX, a new process for LPG maximization and continuous film contractor-based process for removal of Mercaptan from LPG. IOC will soon begin commercial trial production of its multi-grade bitumen. This is for the first time that the high-technology bitumen has been developed in the country. The research and development (R&D) centre of IOC has tied up with the Chennai Petroleum Corporation Ltd (CRPC), a subsidiary of IOC, for undertaking the trial production. To begin with, the oil major intends to produce 200 tonne of bitumen for the trial. Worldwide only two companies, Mobil and Shell, have the technology for multi-grade bitumen

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HPCL Company profile

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

Value (Rs.crores)


Gross sales 57511.13 - -

Excise duty -5993.47 - -

Net sales 51517.66 54165.63 -4.89

Other income 379.39 285.91 32.70

Total income 51897.05 54451.54 -4.69

Expenditure -48254.39 -51312.48 -5.96


Interest -55.65 -153.02 -63.63

Gross profit 3587.01 2986.04 20.13

Depreciation -606.58 -574.25 5.63


Tax -1076.40 -874.43 23.10

Profit after tax 1903.94 1537.36 23.84

Net profit 1903.94 1537.36 23.84

Equity capital 338.90 338.83 0.02

Reserves 7403.91 6340.02 16.78

EPS 56.18 45.37 23.83


166,253,250.00 166,253,250.00 0.00


48.99 48.99 0.00

Ratios




EPS 56.18 45.37

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• Net sales have decreased by 4.89% from Rs.54165.63cr in Mar’03 to Rs.51517.66cr in Mar’04.

• Net profits have increased by 23.84% from Rs.1537.36cr in Mar’03 to Rs.1903.94cr in Mar’04.

• Net profit margin have increased by 30.38% from 2.83% in Mar’03 to 3.69% in Mar’04

• Operating profit margin have increased by 22.10% from 5.79% in Mar’03 to 7.07% in Mar’04.

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

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BPCL Company profile

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

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

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

Refinery products

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

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


Value (Rs.crores)




Net sales 48254.30 48502.40 -0.51

Other income 466.90 346.50 34.57

Total income 48721.20 48848.90 -0.26

Expenditure -45419.50 -46128.60 -1.54


Interest -105.00 -245.90 -57.30

Gross profit 3196.70 2474.40 29.19

Depreciation -561.20 -480.90 16.70


Tax -940.90 -743.50 26.55

Profit after tax 1694.60 1250.00 35.57

Net profit 1694.60 1250.00 35.57

Equity capital 300.00 300.00 0.00

Reserves 5549.70 4447.40 24.79

EPS 56.49 41.67 35.57


101,399,940.00 101,399,940.00 0.00


33.80 33.80 0.00

Ratios



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EPS 56.49 41.67


• Net sales decreased by 0.51% from Rs.48502.40cr in Mar’03 to Rs. 48254.30cr in Mar’04.

• Net profit increased by 35.57% from Rs.1250.00cr in Mar’03 to Rs1694.60cr in Mar’04.

• Net profit margin increased by 36.57% from 2.57% in Mar’03 to 3.51% in Mar’04.

• Operating profit margin increased by 22.14% from 5.60% in Mar’03 to 6.84% in in Mar’04.

Future plans

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

MRPL Company profile

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Mangalore Refineries and Petrochemicals Ltd (MRPL) is a joint venture between Hindustan Petroleum, Indian Rayon and Grasim Industries. It is the first in India to have a hydro-cracker combined with fluidized catalytic converter, which lends flexibility to production. Better adapted to make middle distillates, it can produce lead-free petrol. After the modified administered pricing mechanism, MRPL can price its naphtha, and freely import crude from international markets. It is working with Chevron and Texaco for procurement. MRPL increased its crude oil refining capacity from three mmtpa to nine mmtpa. It is taking a stake in the product pipeline from Mangalore to Bangalore via Hassan. It got a shot in the arm when the Karnataka government granted it sales tax concession of up to Rs2,500crores annually for 14 years. Its bottom-line took a hit, though, from the higher prices of crude, and from prices of end products not increasing correspondingly.


Value (Rs.crores)




Net sales 11390.64 8058.77 41.34

Other income 608.03 54.78 1009.95

Total income 11998.67 8113.55 47.88

Expenditure -10672.56 -7825.51 36.38


Interest -373.42 -567.07 -34.15

Gross profit 952.69 -279.03 -441.43

Depreciation -378.19 -373.74 1.19

Profit before tax 574.50 -652.77 -188.01

Tax -115.09 -240.97 -52.23

Profit after tax 459.41 -411.80 -211.56

Net profit 459.41 -411.80 -211.56

Equity capital 1752.61 1759.60 -0.40

Reserves 349.05 447.01 -21.91

EPS 2.62 -5.19 -150.48


200,393,512.00 556,397,664.00 -63.98


11.43 31.78 -64.03

Ratios

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Net profit margin% 4.03 (5.11)

EPS 2.62 -5.19


• Net sales have increased by 41.34% from Rs.8058.77cr in Mar 2003 to Rs.11390.64cr in Mar 2004.

• Net profit has increased by 211.56% from Rs-411.80cr in Mar 2003 to Rs.459.41cr in Mar 2004.

• Net profit margin has increased by 1.78% from (5.11) % in Mar 2003 to 4.03% in Mar 2004.

• Operating profit margin has increased substantially by 226.05% from 3.57% in Mar 2003 to 11.64% in Mar 2004.

• Other income has increased drastically by 1009.95% from 54.78% in Mar 2003 to 608.03% in Mar 2004.

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

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IBP

Company profile

IBP Company Ltd., a Kolkata-based subsidiary of Indian Oil Corporation (IOC) group, had started its operations way back in 1909, in Rangoon.A public sector undertaking, following its divestment in the beginning of 2002, IOC now holds 53.6% stake in IBP. The Union government at present has a 26 per cent stake. IBP also has a 61.8% stake in Balmer Lawrie & Co. Ltd. Arun Jyoti has been appointed as the new IBP MD after SN Mathur, chairman and MD, resigns as IBP head and director. IBP is a competent player in the area of marketing & distribution of petroleum products besides storage of the same, and is also engaged in the manufacture & sale of industrial explosives, Cryocontainers, Liquified Petroleum Gas (LPG) regulators, freeze drying plants, LPG valves and other Engineering Products. Basically, a marketing company, IBP at present has a good retail network, spread across the country although with larger presence in Northern & Eastern India. The company in the current year started 76 new retail outlets including 25 jubilee outlets (outlets with multiple associated facilities) and 28 company owned and operated outlets plus 8 new LPG Distributorship. It commissioned two new terminals at Sangrur, in Punjab and Kondapally, in Andhra Pradesh.Besides, the ÌBP Red` brand the company has launched a brake fluid ÌBP Dot 3` and a coolant ÌBP Cool`. The company has added about 50 new grades of lubes taking the total to 133. In case of its subsidiary, Numaligarh Refineries Ltd. and Indian oil tanking Ltd, IBP has divested its stake in favor of BPCL and Indian Oil Corporation Limited.


Value(Rs.crores)


Net sales 10650.19 8926.07 19.32

Other income 60.93 64.83 -6.02

Total income 10711.12 8990.90 19.13

Expenditure -10337.18 -8805.28 17.40


Interest -0.07 -0.49 -85.71

Gross profit 373.87 185.13 101.95

Depreciation -41.27 -44.39 -7.03


Tax -117.94 -52.99 122.57

Profit after tax 214.66 87.75 144.63

Net profit 214.66 87.75 144.63

Equity capital 22.15 22.15 0.00

Reserves 603.86 511.69 18.01

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EPS 96.92 39.62 144.62


10,280,107.00 4,521,717.00 127.35


46.42 20.42 127.33

Ratios




EPS 96.92 39.62



• Net profit has increased by 144.63% from Rs.87.75cr in Mar 2003 toRs.214.66cr in Mar 2004.

• Net profit margin has increased by 105.10% from 0.98% in Mar 2003 to 2.01% in Mar 2004.

• Operating profit margin has increased by 69.56% from 2.07% in Mar 2003 to 3.51% in Mar 2004

Future Plans IBP Co Ltd would like to achieve synergy with the operations of IOC and is planning to invest heavily in infrastructure. The company is to add 250/300 retail outlets every year at an estimated cost of Rs350-400crore annually. Further, IBP has plans of building 13 new depots at a cost of Rs2.1bn. The company is making a conscious effort to identify avenues for achieving significant differentiation of its products. As a result of all these the company is also contemplating an increase in the market share in the next three years and as well is eyeing the sale of its petroleum products in overseas market.It’s plan for bulk marketing, is already in the offing, where an agreement has already been made with the Army while negotiations are on with the Railways. The joint venture Petronet envisages development of pipeline infrastructure for transportation of petroleum products in the different regions of the country, with the Kochi - Karur Pipeline in an advanced stage of implementation. The company to take

33

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

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Kochi refineries

Company profile

Kochi Refineries (KRL), formerly known as Cochin Refineries Ltd., started as a refinery with a capacity of 2.5 million metric tons per annum. Now refine more than 7.5 million metric tonnes every year. The company does not have a distribution network and with the exception of aromatics is dependent on IOC for marketing. It has tied up with IOC till March 2003 for marketing controlled and decontrolled products from its refinery. In FY99, KRL merged its JV, Cochin Refineries Balmer Lawrie, with itself. The government sold its 55 per cent stake in Kochi Refineries to Bharat Petroleum Corporation Limited (BPCL) for around Rs800crore as part of a restructuring exercise in the downstream sector. Profit and loss account

Value(Rs.crores)


Gross sales - 10489.50 -

Excise duty - -1256.10 -

Net sales 9863.90 9233.40 6.83

Other income 59.40 34.20 73.68

Total income 9923.30 9267.60 7.08

Expenditure -8857.20 -8360.80 5.94


Interest -39.80 -94.90 -58.06

Gross profit 1026.30 811.90 26.41

Depreciation -116.50 -115.40 0.95


Tax -354.70 -240.50 47.48

Profit after tax 555.10 456.00 21.73

Net profit 555.10 456.00 21.73

Equity capital 138.50 138.50 0.00

EPS 40.09 32.93 21.74


62,580,120.00 62,580,120.00 0.00


45.19 45.19 0.00

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Ratios




EPS 40.09 32.93




• Net profit margin has increased by 14.00% from 4.93% in Mar 2003 to 5.62 % in Mar 2004.


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

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Reliance

Company profile

Started in 1966 as a textile manufacturing firm, Reliance Industries Ltd (RIL) is today one of the world’s largest integrated petrochemicals companies. The company’s strategic focus is to build world scale capacities with vertical integration. It started with textiles, which constitutes 1% of RIL`s business today. It then integrated backwards into fibers, fibre intermediates and then into raw chemicals and petrochemicals. It also integrated into polymers. The company also has a presence in Oil & Gas which contributes a little over 3 per cent to RIL`s turnover. RIL enjoys a leadership position in domestic market in all its products, with a market share of 45% in polyesters and 85% and 80% in polyester intermediates PTA and MEG respectively. In polymers business it enjoys market shares of 63%, 71% and 90% in polyethylene (PE), polypropylene (PP) and polyvinyl chloride (PVC) respectively. Reliance holds a 30% interest in an unincorporated Joint Venture with Enron and ONGC, to develop the proven Panna, Mukta and Tapi oil and gas fields. Enron has a 30% share, and ONGC the balance 40% share. Reliance is India’s largest private sector exploration and production company. RIL had 2 properties Panna, Mukta and Tapi two years ago and currently it has 25 different properties. The company has recently won 4 new exploration blocks in the second round of bidding. There are about a 100 people who look after the Oil & Gas business. The fiscal incentives available apart from the integration benefits are substantial. RIL plans to spend roughly 300mn US dollars in the Oil & Gas business over the next three years. The crude discovered from these blocks would be a vital input to Reliance Petroleum’s (RPL) 27 million tonne refinery recently commissioned in Jamnagar, Gujarat. RIL, in turn, will be sourcing the feedstock (naphtha) for its in-house businesses from the Jamnagar refinery. The diverse business mix of RIL has helped it spread its business risk. During FY99, RIL acquired two polyester manufacturing facilities - JK Corp (43000 tpa) and India Polyfibres Ltd (22000 tpa), which will enhance the integration of its polyester intermediates and improve its market penetration in this sector. In January 2000 RIL commissioned the third line (200,000 mtpa of its 600,000 mtpa world’s largest PP plant at its Jamnagar Petrochemicals Complex. With this, RIL’s PP capacity has reached 1 mn mtpa, which makes it the fifth largest PP producer in the world. It has also completed the world’s largest 1.4 mn mtpa Paraxylene (PX) plant in the same complex and has become the third largest PX producer in the world. The board of Reliance Industries at its meeting held on March 3, 2002, has considered and approved the proposal for amalgamation of Reliance Petroleum Ltd with the company.

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


Value(Rs.crores)


Gross sales 56247.00 50096.00 12.28

Excise duty -4445.00 -4198.00 5.88

Net sales 51802.00 45898.00 12.86

Other income 1138.00 1001.00 13.69

Total income 52940.00 46899.00 12.88

Expenditure -41818.00 -37533.00 11.42


Interest -1435.00 -1555.00 -7.72

Gross profit 9687.00 7811.00 24.02

Depreciation -3247.00 -2837.00 14.45


Tax -1141.00 -870.00 31.15

Profit after tax 5299.00 4104.00 29.12

Extraordinary items -139.00 - -

Net profit 5160.00 4104.00 25.73

Equity capital 1396.00 1396.00 0.00

Reserves - 26243.00 -

EPS 36.80 29.30 25.60


744,720,000.00 746,809,000.00 -0.28


53.33 53.48 -0.28

Ratios




EPS 36.80 29.30

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• Net profit has increased by 25.73% from Rs.4104.00cr in Mar 2003 to Rs.5160.00cr in Mar 2004.

• Net profit margin has increased by 11.96% from 8.19% in Mar 2003 to 9.17% in Mar 2004.


Future Plans The Andhra Pradesh government is in talks with Reliance to set up a 2,500-seat capacity call centre near Hi-Tech City in Hyderabad. The two parties are expected to sign a memorandum of understanding shortly. Reliance may also provide more bandwidth to the Andhra Pradesh government’s proposed `Web Stores` across the state to facilitate e-governance activities faster at a competitive price. Reliance is said to have assured the state government that it would provide a 2 MB line bandwidth capacity to each computer site to ensure faster access. Reliance Industries Ltd (RIL) is planning big after taking over Indian Petrochemicals Corporation Ltd (IPCL) and is drawing up a blueprint for expanding the cracker capacity at IPCL’s Gandhar complex to global levels, from the current 4,00,000 tonnes to 1 million tonnes. The company also plans to change IPCL`s gas-crackers to multi-feed ones. However, the eventual decision of the expansion and conversion of the crackers would be decided by IPCL board. IPCL owns and operates three petrochemical complexes, a naphtha-fired cracker at Vadodara and gas-based complexes at Gandhar in Gujarat and Nagothane in Maharashtra Reliance Industries’ business model is significantly diversified with a substantial presence in almost every segment of the hydrocarbons value chain ranging from petrochemicals to exploration and refining. The charts below mention the revenue break-up.

Currently, Reliance Industries’ business model is significantly diversified with a substantial presence in almost every segment of the hydrocarbons value chain ranging from petrochemicals to exploration and refining.

40

Bongaigaon

Company profile

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


Value (Rs.Crore) April-march’04 April-march’03 %change

Gross sales 3196.18 1861.53 71.70

Excise duty -268.27 -140.51 90.93

Net sales 2927.91 1721.02 70.13

Other income 22.37 218.86 -89.78

Total income 2950.28 1939.88 52.09

Expenditure -2464.16 -1574.66 56.49


Interest -15.16 -25.89 -41.44

Gross profit 470.96 339.33 38.79

Depreciation -31.09 -31.62 -1.68


Tax -136.13 -129.26 5.31

Profit after tax 303.74 178.45 70.21

Net profit 303.74 178.45 70.21

Equity capital 199.82 199.82 0.00

Reserves - 238.72 -

EPS 15.20 8.93 70.21


51,024,074.00 51,024,074.00 0.00


25.5 25.54 -0.16

Ratios



41


EPS 15.20 8.93




• Net profit margin has decreased by 0.83% from 9.58% in Mar 2003 to 9.50% in Mar 2004.

• Operating profit margin has decreased by 22.43% from 19.61% in Mar 2003 to 15.21% in Mar 2004

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Company wise performance

ONGC IOC HPCL BPCL MRPL IBP Kochi Reliance BRL*

Share capital(cr.)

1425.93 1168.01 338.9 300 1752.61 22.15 138.5 1396 199.82

Reserves(cr) 38326.5 21879.4 7403.91 5549.7 349.05 603.86 - - -

OPM% 59.14 10.28 7.07 6.84 11.64 3.51 10.81 19.77 15.21

NPM% 26.65 6 3.69 3.51 4.03 2.01 5.62 9.17 9.50

EPS 60.76 59.97 56.18 56.49 2.62 96.92 40.09 36.8 15.20

BV(Rs) 278.78 197.32 228.47 194.99 11.99 282.62 130.38 227.22 21.16

PE Ratio 10.36 6.14 5.98 6.28 14.42 4.99 3.69 11.67 4.12

Price/Book Value

2.39 1.9 1.48 1.85 3.15 1.73 1.15 1.93 2.97

Dividend% 240 210 220 175 - 250 120 52.5 50.00

Free Float Capital

25.85 17.97 48.99 33.8 11.43 46.42 45.19 53.33 25.50

*Bongaigaon refineries ltd Looking at the ratios we can say that ONGC has the highest EPS which indicates the earnings attributable to a share. This shows that the company has good prospects. The higher the EPS the better it is for the company and the investors. Looking at the PE ratio we can say that MRPL has the highest value which indicates it is a growth company but it also indicates the risk characteristics of a company. ONGC, Reliance, IOC, BPCL have moderate PE ratio which is good and there are less riskier as far as investment in these companies is considered. As far as net operating margin is considered ONGC has reported highest growth 59.14% followed by Reliance 19.77%.MPRL has also reported high operating margin of 11.64% since it has become a subsidiary of ONGC.

43

Future outlook

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

44

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

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

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

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

46

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

47

Bibliography

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

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

Financial statements, www.hdfcsec.com, March 2004(updated), 1-10 July. Companies’ Profiles, www.economictimes.com, March 2004(updated), 1-30 June.

Information about Kochi refinery, www.kochirefineries.com, March-April 2003(updated), 15&16 June.

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

Dividend, Financial Ratios of the Refineries, www.bseindia.com, March-April 2004(updated), 25 May- 25 June.

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

13-15 June.

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

Introduction to refining and marketing of oil www.uktradeinvest.gov.uk, March 2004(updated), 23-25 June.

equity research on oil & gas sector

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