CHAPTER-1

INTRODUCTION

1.1 INDUSTRY OVERVIEW:

The oil and gas industry in India dates back to 1889 when the first oil deposits
in the country were discovered near the town of Digboi in the state of Assam.
The natural gas industry in India began in the 1960s with the discovery of gas
fields in Assam and Gujarat. As on 31 March 2015, India had estimated crude
oil reserves of 763.48 million tonnes and natural gas reserves of 1488.49 billion
cubic meters (BCM).

India imports 82% of its oil needs and aims to bring that down to 67% by 2022
by replacing it with local exploration, renewable energy and indigenous ethanol
fuel (c. Jan 2018). India was the fourth top net crude oil (including crude oil
products) importer of 163 Mt in 2015.

Distribution of reserves by state/region

The following table shows the estimated crude petroleum and natural gas
reserves in India by state/region as on 31 March 2017.

Crude oil reserves Share of oil Natural gas Share of

Region (in million metric reserves
tonnes)
(%) gas (%)
(in BCM)
ArunachalPradesh 1.52 0.25 0.93 0.07
Andhra Pradesh 8.15 1.35 48.31 3.75
Assam 159.96 26.48 158.57 12.29
Coal Bed Methane 0 0 106.58 8.26
Eastern Offshore[a] 40.67 6.73 507.76 39.37
Gujarat 118.61 19.63 62.28 4.83
Nagaland 2.38 0.39 0.09 0.01
Rajasthan 24.55 4.06 34.86 2.70
Tamil Nadu 9.00 1.49 31.98 2.48
Tripura 0.07 0.01 36.10 2.80
Western Offshore[b] 239.20 39.60 302.35 23.44
Total 604.10 100 1,289.81 100

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1.2 COMPANY OVERVIEW
Indian Oil Corporation Limited (IOCL) , commonly known as IndianOil is
an Indian state owned oil and gas company with registered office at Mumbai
and primarily headquartered in New Delhi. It is the largest commercial
enterprise in the country, with a net profit of INR 19,106 crore (USD 2,848
million) for the financial year 2016–17. It is ranked 1st in Fortune India 500 list
for year 2016 and 168th in Fortune's ‘Global 500’ list of world's largest
companies in the year 2017. As of 31ST March 2017 IndianOil's employee
strength is 33,135, out of which 16,545 are in the officer cadre.

Indian Oil's business interests overlap the entire hydrocarbon value-chain,

including refining, pipeline transportation, marketing of petroleum products,
exploration and production of crude oil, natural gas and petrochemicals.

IndianOil has also ventured into alternative energy and globalization of

downstream operations. It has subsidiaries in Sri Lanka (Lanka IOC),
Mauritius (IndianOil (Mauritius) Ltd) and the Middle East (IOC Middle
East FZE). IndianOil is scouting for new business opportunities in the energy
markets across Asia and Africa. It has also formed about 20 joint ventures with
reputed business partners from India and abroad to pursue diverse business
interests. Indian Oil has its R&D Centre located in Faridabad, Delhi NCR.

FOR YEAR 2018:

In May, 2018, IOC become India's most profitable state-owned company for the
second consecutive year, with a record profit of ₹21,346 crore in 2017-18,
followed by Oil and Natural Gas Corporation, whose profit stood at ₹19,945
crore.

PRECISELY:
 TYPE: Public
 INDUSTRY : Oil and gas
 PREDECESSOR : Indian Refineries ltd. (1958)
Indian Oil Company (1959)
 FOUNDED : 54 Years ago , 1964
 HEADQUATERS : New Delhi , India
 AREAS SERVED : India , Sri Lanka , Middle East , Mauritius

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  PRODUCTS : Petroleum, Natural Gas and other Petrochemicals.
 SUBSIDIARIES : Sri Lanka (Lanka IOC), Mauritius (IndianOil (Mauritius) Ltd) and
the Middle East (IOC Middle East FZE

1.3 CORPORATE HISTORY:

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1.4 SIGNIFICANCE OF LOGO:

The Indian Oil logo essentially has the following elements:

 A saffron coloured circle/globe.

 Enclosed by a dark blue coloured outer ring and a dark blue coloured band
across on which is written the name Indian Oil.
 The saffron circle represents energy as a derivative of the Sun, connoting
life and the future. The dark blue outer ring and the horizontal band
symbolize technology for harnessing this energy.

1.5 MISSION OF IOCL:

IOCL has the following mission:

 To achieve international standards of excellence in all aspects of energy

and diversified business with focus on customer delight through value of
products and services and cost reduction.
 To maximize creation of wealth, value and satisfaction for the
stakeholders.
 To attain leadership in developing, adopting and assimilating state-of-the-
art technology for competitive advantage.
 To provide technology and services through sustained Research and
Development.
 To foster a culture of participation and innovation for employee growth
and contribution.
 To cultivate high standards of business ethics and Total Quality
Management for a strong corporate identity and brand equity.
 To help enrich the quality of life of the community and preserve
ecological balance and heritage through a strong environment conscience.

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1.6 VISION OF IOCL:
A major diversified, transnational, integrated energy company, with national
leadership and a strong environment conscience, playing a national role in oil
security & public distribution.

VALUES:

The four principles of IOCL are:

Indian Oil nurtures the core values of Care, Innovation, Passion & Trust across
the organisation in order to deliver value to its stakeholders.

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CARE Stands For

Concern
Empathy
Understanding
Co-operation
Empowerment

INNOVATION Stands For

Creativity
Ability to learn
Flexibility
Change

PASSION Stands For

Commitment
Dedication
Pride
Inspiration
Ownership
Zeal & Zest

TRUST Stands For

Delivered Promises
Reliability
Dependability
Integrity
Truthfulness

1.7 OBJECTIVES OF INDIAN OIL

Indian oil has defined its objectives for succeeding in its mission. These
objectives are:

 To serve the national interest in the oil and related sector in accordance
and consistent with government policies.
 To ensure and maintain continuous and smooth supplies of petroleum
products by way of crude refining, transportation and marketing activities

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 and to provide appropriate assistance to the consumer to conserve and use
petroleum products efficiently.
 To earn a reasonable rate of interest on investment.
 To work towards the achievement of self sufficiency in the field of oil
refining by setting up adequate capacity and to build up expertise in
laying of crude oil and petroleum product pipelines.
 To create a strong research and development base in the field of oil
refining and stimulate the development of new product formulations with
a view to minimize/eliminate their imports and to have next generation
products.
 To maximize utilization of existing facilities in order to improve
efficiency and increase productivity.
 To optimize utilization of its refining capacity and to maximize distillate
yield from refining of crude oil to minimize foreign exchange outgo.
 To minimize fuel consumption in refineries and stock losses in
operations to affect energy conservation.
 To further enhance distribution network for providing assured service to
customers throughout the country through expansion of reseller network
as per marketing plan/government approval.
 To avail of all viable opportunities, both national and global, arising out
of liberalization policies being pursued by the Government of India.

FINANCIAL OBJECTIVES OF IOCL

 To ensure adequate return on capital employed and maintain a reasonable
annual dividend on its equity capital.
 To ensure maximum economy in expenditure.
 To manage and operate the facilities in an efficient manner so as to
generate adequate internal resources to meet revenue cost and
requirements for project investment, without budgetary support.
 To generate sufficient internal resources for partly/wholly expenditure on
new projects.
 To develop long term corporate plans to provide adequate growth of the
activities of the corporations.
 To continue to make an effort in bringing a reduction in cost of
production of petroleum product manufactured by means of systematic
cost control measures.

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  To endeavour to complete all planned projects within the stipulated time
and within the stipulated cost estimates.

OBLIGATION

 Towards customers and dealers

To provide prompt, courteous and efficient service and quality products
at competitive prices.
 Towards suppliers
To ensure prompt dealings with integrity, impartiality and courtesy and
help promote ancillary industries.
 Towards employees
To develop their capabilities and facilitate their advancement through
appropriate training and career planning. To have fair dealings with
recognized representatives of employees in pursuance of healthy
industrial relations practices and sound personnel policies.
 Towards community
To develop techno-economically viable and environment-friendly
products. To maintain the highest standards in respect of safety,
environment protection and occupational health at all production units.
 Towards defence services
To maintain adequate supplies to defence and other para-military services
during normal as well as emergency situations.

1.8 PRODUCT LINE OF IOCL:

PETROL/GASOLINE

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

The ‘‘Clean and keep Clean’’ function of the super cleanser additive in
XTRAPREMIUM reduces deposits at the port fuel injector, intake valve and
controls combustion chamber deposits to maintain ‘‘like new’’ performance of
the vehicle. Regular use of XTRAPREMIUM gives the vehicle a superior pick-
up, smoother drive, better mileage and lower emission. XTRAPREMIUM is
designed not only to optimize performance of new generation vehicles but also
rejuvenate old vehicles to perform better.
DIESEL/GASOIL

Indian Oil’s XTRAMILE Super Diesel, the leader in the branded diesel
segment, is blended with world-class multi-functional fuel additives.
Commercial vehicle owners choose XTRAMILE because they see a clear value
benefit in terms of superior mileage, lower maintenance costs and improved
engine protection. A growing section of customers who own diesel automobiles,
both in the ‘lifestyles’ and ‘passenger’ category, prefer XTRAMILE as a fuel
for its added and enhanced performance.
SERVO Lubes & Greases

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SERVO brand, from Indian Oil, is the brand leader among lubricants and
greases in India and has been conferred the ‘‘Consumer Super brand’’ status by
the Super brand Council of India. Recognized for its brand leadership by the
World Brand Congress and as a Master Brand by CMO, Asia, SERVO has now
carved a significant niche in over 20 countries across the globe.

Indane Cooking Gas

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

Having launched LPG marketing in the mid-60s, Indian Oil has been credited
with bringing about a kitchen revolution, spreading warmth and cheer in
millions of households with the introduction of the clean and efficient cooking
fuel. It has led to a substantial improvement in the health of women, especially
in rural areas by replacing smoky and unhealthy chulha. Indane is today an ideal
fuel for modern kitchens, synonymous with safety, reliability and convenience.

With the status of an exclusive business vertical within the corporation, Indane
is delivered to the doorsteps of over 92 million households. Suraksha LPG hose,
flame retardant aprons and energy efficient Green Label stoves are
recommended to enhance safety measures while using LPG as cooking fuel.

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 AUTOGAS

Auto Gas (LPG) is a clean, high octane, abundant and eco-friendly fuel. It is
obtained from natural gas through fractionation and from crude oil through
refining. It is a mixture of petroleum gases like propane and butane. The higher
energy content in this fuel results in a 10% reduction of CO2 emission as
compared to MS.

AutoGas is a gas at atmospheric pressure and normal temperatures, but it can be

liquefied when moderate pressure is applies or when the temperature is
sufficiently reduced. This property makes the fuel an ideal energy source for a
wide range of applications, as it can be easily condensed, packaged, stored and
utilized. When the pressure is released, the liquid makes up about 250 times its
volume as gas, so large amounts of energy can be stored and transported
compactly.

The use of LPG as an automotive fuel has become legal in India with effect
from April 24, 2000, albeit within the prescribed safety terms and conditions.
Hitherto, the thousands of LPG vehicles running in various cities have been
doing so illegally by using domestic LPG cylinders, a very unsafe practice.
Using domestic LPG cylinders in automobiles is still illegal.

The fuel is marketed by Indian Oil under the brand named ‘‘AutoGas’’.

‘‘Indian Oil has setup 350 Auto LPG Dispensing Stations (ALDS) covering 192
cities across India’’.

AutoGas impacts greenhouse emissions less than any other fossil fuel when
measured through the total fuel cycle. Conversion of petrol to Auto Gas helps
substantially reduce air pollution caused by vehicular emissions. The saving on
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account of conversion to AutoGas in comparison to petrol is about 35-40%.
Low filling times and the 35-40% saving is a reason enough for a consumer to
convert his vehicle to AutoGas.

MARINE OILS

Indian Oil caters to all types of bunker fuels and lubricants required by various
types of vessels operating throughout the world in the shipping industry. Bunker
supplies are made at all major ports of India; Mumbai, Kandla, Vasco, Chennai,
Tuticorn, Kakinada, Vishakhapatnam, Kochi, New Mangalore, Kolkata,
Paradip, JNPT, Port Blair and Haldia. Apart from meeting 100% bunker
requirement of the Indian Navy, it also supplies bunker fuels to all major
shipping and dredging companies of India. Spot requirement of different vessels
calling at Indian ports are met through nominations received from local
shipping agents and international bunker traders/brokers.
BITUMEN

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Indian Oil markets Bitumen from its Refineries located at Koyali (Gujarat),
Mathura (UP), Panipat (Haryana), Barauni (Bihar), Haldia (WB), and CPCL
(Tamil Nadu). Bitumen is available from these locations both in bulk as well as
in packed drums. In addition to the refinery locations, packed bitumen is also
marketed from upcountry locations Bokaro (Jharkhand), Guwahati (Assam),
Haldwani (UP), Balasore (Orissa), Coimbatore and Madurai (Tamil Nadu).

CRMB is available from the refinery locations at Koyali, Mathura, Panipat,

Haldia and Chennai. Packed CRMB is available at Haldia.

Emulsion is available from Haldia and Chennai refineries.

NATURAL GAS

Indian oil took up natural gas marketing in 2004. Since then, the Corporation
has expanded its customer base significantly by leveraging its inherent strengths
and countrywide reach. Its innovative ‘‘LNG at the doorsteps’’ initiative has
benefited bulk users located away from gas pipelines.

The ‘‘LNG at Doorstep’’ initiative involves making LNG available to the

customers not connected by gas pipeline. Gas is transported through a cryogenic
system, stored in a cryogenic holding tank at the target location and re-gasified
on-site through vaporizes for use as fuel. The entire operation being concealed
eliminates the possibility of adulteration and pilferage. Introduced in 2007, this
initiative has been well received and is attracting more customers located away
from the pipelines.

Indian Oil is co-promoter of PLL (Petronet LNG Ltd.), which has set up LNG
(Liquefied Natural Gas) import terminals at Dahej and Kochi, and has
marketing rights for 30% of the LNG procured by PLL.

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 PETROCHEMICALS

Beginning with a low-investment, high-value projects such as Methyl Tertiary

Butyl Ether (MTBE) and Butene-I at Gujarat Refinery, Vadodara. Indian Oil
has set up a world-scale Linear Alkyl Benzene (LAB) plant at Gujarat Refinery
and an integrated Paraxylene/Purified Terephthalic Acid (PX/PTA) plant at
Panipat. A Naphtha Cracker complex with downstream polymer unit is also in
operation at Panipat.

These initiatives are designed to catapult Indian Oil among the top three
petrochemicals players in Southeast Asia in the long term.

1.9 MAJOR BUSINESS DIVISIONS:

There are 7 major Business Divisions in the organization:

Refineries Division

Pipelines Division

Marketing Division

Petrochemicals Division

R&D Division

Exploration & Production (E&P) Division

Explosives and Cryogenics Division

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1. Refineries

Born from the vision of achieving self-reliance in oil refining and marketing for
the nation, IndianOil has gathered a luminous legacy of more than 100 years of
accumulated experiences in all areas of petroleum refining by taking into its
fold, the Digboi Refinery commissioned in 1901.

The strength of IndianOil springs from its experience of operating the largest
number of refineries in India and adapting to a variety of refining processes
along the way. The basket of technologies, which are in operation in IndianOil
refineries include: Atmospheric/Vacuum Distillation; Distillate FCC/Resid
FCC; Hydrocracking; Catalytic Reforming, Hydrogen Generation;

Delayed Coking; Lube Processing Units; Visbreaking; Merox Treatment;

Hydro-Desulphirisation of Kerosene&Gasoil streams; Sulphur recovery;
Dewaxing, Wax Hydro finishing; Coke Calcining, etc.

The Corporation has commissioned several grassroots refineries and modern

process units. Procedures for commissioning and start-up of individual units and
the refinery have been well laid out and enshrined in various customised
operating manuals, which are continually updated.

IndianOil refineries have an ambitious growth plan for capacity augmentation,

de-bottlenecking, bottom upgradation and quality upgradation.

On the environment front, all IndianOil refineries fully comply with the
statutory requirements. Several Clean Development Mechanism projects have
also been initiated. To address concerns on safety at the work place, a number
of steps were taken during the year, resulting in reduction of the frequency of
accidents.

Innovative strategies and knowledge-sharing are the tools available for

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converting challenges into opportunities for sustained organisational growth.
With strategies and plans for several value-added projects in place, IndianOil
refineries will continue to play a leading role in the downstream hydrocarbon
sector for meeting the rising energy needs of our country.

IndianOil controls 11 of India’s 23 refineries. The group refining capacity is

80.7 million metric tonnes per annum (MMTPA) - the largest share among
refining companies in India. It accounts for 35% share of national refining
capacity.

Name of RefineryEstablishment StateCapacity(MMTPA)

1. Digboi Refinery 1901 Assam

0.65
2. Guwahati Refinery 1962 Assam
1.00
3. Barauni Refinery 1964 Bihar
6.00
4. Gujarat Refinery 1965 Gujarat
13.70
5. Bongaigaon Refinery 1972 Assam
2.35
6. Haldia Refinery 1975 West Bengal
7.50
7. Mathura Refinery 1982 Uttar Pradesh
8.00
8. Panipat Refinery 1998 Haryana
15.00
9. Paradip Refinery 2016 Odhisa
15.00
10.CPCL Chennai 1965 Chennai
10.50
11.CPCL Narimanam 1993 Chennai
1.00

2. Pipelines

Indian Oil Corporation Ltd. operates a network of about 12,848 km long crude
oil, petroleum product and gas pipelines with a throughput capacity of 93.7
million metric tonnes per annum of oil and 9.5 million metric standard cubic
meter per day of gas. Cross-country pipelines are globally recognised as the

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safest, cost-effective, energy-efficient and environment-friendly mode for
transportation of crude oil and petroleum products.

As a pioneer in oil pipelines in the country, managing one of the world's largest
oil pipeline networks, IndianOil achieved the highest-ever throughput of 79.8
million tonnes during the year 2015-16, which was about 5.5% more than that
of the previous year.

3. Marketing

IndianOil has one of the largest petroleum marketing and distribution networks
in Asia, with over 46,000 marketing touch points. Its ubiquitous fuel stations are
located across different terrains and regions of the Indian sub-continent. From
the icy heights of the Himalayas to the sun-soaked shores of Kerala, from Kutch
on India's western tip to Kohima in the verdant North East, IndianOil is truly 'in
every heart, in every part'. IndianOil's vast marketing infrastructure of
petrol/diesel stations, Indane (LPG) distributorships, SERVO lubricants &
greases outlets and large volume consumer pumps are backed by bulk storage
terminals and installations, inland depots, aviation fuel stations, LPG bottling
plants and lube blending plants amongst others. The countrywide marketing
operations are coordinated by 16 State Offices and over 100 decentralised
administrative offices.

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Several landmark surveys continue to rate IndianOil as the dominant energy
brand in the country and an enduring symbol for high quality petroleum
products and services. The heritage and iconic association that the brand
invokes has been built over four decades of commitment to uninterrupted
supply line of petroleum products to every part of the country, and unique
products that cater not only to the functional requirements but also the
aspirational needs of millions of customers.

IndianOil has been adjudged as one of India's top brands by UK-based Brand
Finance, an independent consultancy that deals with valuation of brands. It was
also listed as India's 'Most Trusted Brand' in the 'Gasoline' category in a
Readers' Digest - AC Nielsen survey. However, the value of the IndianOil brand
is not just limited to its commercial role as an energy provider but straddles the
entire value chain of gamut of exploration & production, refining, transportation
& marketing, petrochemicals & natural gas and downstream marketing
operations abroad. IndianOil is a national brand owned by over a billion Indians
and that is a priceless value.

Enriched customer experience over time converts into customer’s loyalty.

Automation, modernisation of the dispensing units, improving visual identity of
fuel stations, imparting training to dealers and customer attendants are key steps
being taken byIndianOil to enhance customer experience. IndianOil has
modernised more than 85 percent of eligible A &B site retail outlets and in the
coming year, IndianOil is emphasising on achieving cent per cent
modernization of the rest of fuel stations.

4. R&D

IndianOil has a sprawling world-class R&D Centre that is perhaps Asia's finest.
This Centre is India's foremost commercial centre of research excellence in the
areas of lubricants, refinery processes, pipeline transportation, alternative fuels
fuel additives, engine testing, materials sciences and environmental sciences.
The Centre holds 549 active patents, including 361 international patents.

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Located on a sprawling 65 acre campus in Faridabad on the outskirts of the
National Capital, IndianOil's R&D Centre plays a key role in supporting the
business interests of the Corporation by developing economical,
environmentally and socially responsible technology solutions. With over 4000
lubricant formulations, the SERVO® product line is the hallmark of the vibrant
and ongoing research at the Centre. The alternative energy programs of
IndianOil include Bioenergy, Solar Hydrogen / HCNG, Synthetic fuels and
Shale oil. The Centre is also focused on cutting edge research in the areas of
Nanotechnology, Petrochemicals and Polymers, Coal Gasification / Liquidation,
and Gas to Liquid.

5. Petrochemicals

India is amongst the fastest growing petrochemicals markets in the world.

Taking this into consideration and to enhance its downstream integration,
IndianOil is focusing on increasing its presence in the domestic petrochemicals
sector besides the overseas markets through systematic expansion of customer
base and innovative supply logistics.

Having identified petrochemicals as a prime driver of future growth in business,

IndianOil began with low-investment, high-value projects such as Methyl
Tertiary Butyl Ether (MTBE) and Butene-1 at its Koyali Refinery, Vadodara,
Thereafter, IndianOil set up a world-scale Linear Alkyl Benzene (LAB) plant at
Gujarat Refinery in 2004 and an integrated Paraxylene/Purified Terephthalic
Acid (PX/PTA) plant at Panipat in 2006. A Naphtha Cracker complex with
downstream polymer units also came up at Panipat in 2010.

6. Exploration & Production (E&P) Division

In line with the dynamic business environment, IndianOil's business

development initiatives continue to be driven by the emerging opportunities and
guided by its corporate vision of becoming a diversified, transnational,
integrated energy company. Its business strategy focuses primarily on expansion
across the hydrocarbon value chain, both within and outside the country, while
simultaneously revisiting its strategic plans and undertaking mid-course
corrections, wherever necessary.

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IndianOil has won three areas for exploration of oil & gas under the Discovered
Small Field Bid Round 2016 of the Govt. of India. It will have 100%
participating interest and sole operatorship in Nohta (onshore field - Madhya
Pradesh), Jeraipathar (onshore field - Assam) and a third field in Kutch
Offshore. These areas already have hydrocarbon discoveries and would add to
IndianOil’s share of production in the near future.

To enhance upstream integration, IndianOil has been pursuing exploration &

production activities both within and outside the country in collaboration with
consortium partners.

The Corporation's E&P portfolio consists of 15 active blocks which consists of

8 domestic (including 2 coal bed methane blocks) and 7 overseas blocks, with
participating interest ranging from 3.50 percent to 50.00 percent. The overseas
portfolio includes seven blocks spanning USA, Canada, Venezuela Libya,
Gabon, Nigeria, and Yemen. The Corporation has three producing assets, viz.,
Niobrara Shale Project (USA), Pacific Northwest LNG Project (Canada) and
Carabobo Project (Venezuela). During the year, the production from these
assets increased to 3501.76 Mboe (Million barrels of oil equivalent) from 3299
Mboe in 2014-15, registering an 6 per cent rise. The proved and proved-
developed reserves have increased from 2.18 Mtoe (Million tonnes of oil
equivalent) as on 31st March, 2015 to 3.19 Mtoe as on 31st March, 2016,
registering an increase of 46.3 per cent.

As on 31st March 2016, The cumulative total investment in the domestic assets
stands at US$ 383.05 Million (equivalent to 1993.60 Crores), and cumulative
total investment in the overseas assets stands at US$ 1,727.92 Million
(equivalent to 10,029.80 Crores).
During the year the Corporation had made significant strides in its overseas
acquisition drive. A consortium of the Corporation and Delonex Energy UK
Limited secured the Palmeira Block, Mozambique by successfully bidding in

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the 5th Mozambique Licensing Round. Another major highlight is the efforts
for acquisition of Rosneft's assets in Russia. The Corporation along with Oil
India Limited (OIL), and Bharat PetroResources Limited (BPRL), signed
definitive agreements to acquire participatory shares in LLC of Taas-Yuryah
Neftegazobodobycha “TYNGD”, and CJSC Vankorneft from Rosneft Oil
Company, the National Oil Company (NOC) of Russia. Vankorneft is Russia’s
second largest field by production and accounts for 4% of Russian production.
These acquisitions will enhance Corporation's share of production and its share
of 2P reserves significantly in coming years.

At domestic front, first Gas production from block AAP-ON-94/1, Assam is

expected by December 2016. In this block, IOC has participating interest of
29%, along with HOEC - 26.9% (Operator) & OIL - 44.1%.

The years ahead, therefore, hold great opportunities and challenges. Guided by
its experience and inherent spirit, IndianOil shall overcome all the challenges as
it has been consistently doing in the past, and scale up its operations to
capitalise on all opportunities and realise its corporate vision.

7. Explosives & Cryogenics

In During the year, the Explosives and Cryogenics businesses of IBP Division
continued with its robust performance and recorded the highest ever production
and sales of explosives and cryocans. The Explosives group manufactured and
sold 85,264 MT of explosives during the year, recording growth of 6.16% over
previous year’s volume of 80,313 MT. The Cryogenics group sold 23,747 units
of cryocans during 2013-14, recording 28.83% growth over the previous year’s
sale of 18,433 units. The Cryogenics group designed and manufactured a liquid
oxygen storage tank and delivery system alongwith PLC controls for the Naval
Materials Research Laboratory (NMRL), DRDO, Ministry of Defence,
Government of India. This was the country’sfirst indigenous land based
prototype for fuel cell powered submarines.

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IndianOil and its consortium partners were awarded two exploration blocks in
Mumbai In the eighties, a new business portfolio was added by introducing non-
pressurized cryogenic container under brand name of CRYOCAN – a double
walled Aluminum vessel for holding Liquid Nitrogen. IndianOil is exporting
Cryocans to Europe and countries like Singapore, Sri Lanka, Bangladesh etc.

The expertise in the field of cryogenics was extended to manufacture

Pressurised stainless steel Cryovessels for storage and transportation of
Liquefied gases like Nitrogen, Oxygen and Argon. IndianOil also entered into
business of designing and producing Cryogenic containers for storage solutions
of storage of LNG, its regassification at site and controlled feed at a given point
suitable to customer. Product from IndianOil ranges from 100 to 127000 litres
in capacity with pressure ranging from 0.5 to 25kg/cm2 for storage type
Cryovessels while Transport type Cryovessels are from 500 to 25000 litres
capacity at different operating pressures.

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1.10 MAJOR COMPETITORS

1. BHARAT PETROLEUM

Bharat Petroleum Corporation Limited (BPCL) is an Indian state

controlled oil and gas company headquartered in Mumbai, Maharashtra. The
Corporation operates two large refineries of the country located
at Mumbai and Kochi. The company is ranked 358th on the Fortune Global
500 list of the world's biggest corporations as of 2016. In 1889 during vast
industrial development, an important player in the South Asian market was
the Burmah Oil Company. Though incorporated in Scotland in 1886, the
company grew out of the enterprises of the Chef Rohit Oil Company, which had
been formed in 1871 to refine crude oil produced from primitive hand dug wells
in Upper Burma.
In 1928, Asiatic Petroleum Company (India) started cooperation with Burma oil
company. This alliance led to the formation of Burmah-Shell Oil Storage and
Distributing Company of India Limited. Burmah Shell began its operations with
import and marketing of Kerosene.
On 24 January 1976, the Burmah Shell was taken over by the Government of
India to form Bharat Refineries Limited. On 1 August 1977, it was renamed
Bharat Petroleum Corporation Limited. It was also the first refinery to process
newly found indigenous crude Bombay High.
Bharat Petroleum Corporation Ltd (BPCL), the second largest oil marketing
public sector company, has signed a fuel supply agreement with Atria Power
Corporation Ltd to generate 103 MW of power at Harihar, in its commitment to
bring more power to Karnataka.
- It is also proposed to set up a hospital and build a residential colony in the
3500 acre land of the two projects.

23 | P a g e
Bharat Petroleum Corporation Limited (BPCL) has received approval from
Environment Ministry for Rs 4,588 crore expansion at its refinery facility -
BPCL acquires additional shares of Petronet CCK Limited -BPCL, along with
GAIL Gas, a 100% subsidiary of GAIL India will jointly develop the City Gas
Distribution Network (CGD Network) in Haridwar district. -BPCL has
commissioned a new art Crude Distillation Unit (CDU) in Mumbai.

2. HINDUSTAN PETROLEUM CORPORATION LIMITED

Hindustan Petroleum Corporation Limited (HPCL) is an Indian state-

owned oil and natural gas company with its headquarters at Mumbai,
Maharashtra. It has about 25% market-share in India among public-sector
companies (PSUs) and a strong marketing infrastructure. The Government of
India owns 51.11% shares in HPCL and others are distributed amongst financial
institutes, public and other investors. The company is ranked 367th on
the Fortune Global 500 list of the world's biggest corporations as of 2016. On
19th of July 2017, the Government of India announced the acquisition
of Hindustan Petroleum Corporation by Oil and Natural Gas Corporation.

HPCL was incorporated in 1974 after the takeover and merger of erstwhile Esso
Standard and Lube India Limited by the Esso (Acquisition of Undertakings in
India) Act 1974. Caltex Oil Refining (India) Ltd. (CORIL) was taken over by
the Government of India in 1976 and merged with HPCL in 1978 by
the CORIL-HPCL Amalgamation Order, 1978. Kosan Gas Company was
merged with HPCL in 1979 by the Kosangas Company Acquisition Act, 1979.

HPCL has been steadily growing over the years. The refining capacity increased
from 5.5 million metric tonnes (MMT) in 1984/85 to 14.80 million metric
tonnes as of March 2013. On the financial front, the net income from
sales/operations grew from IN ₹2687 crores in 1984–1985 to IN ₹ 2,06,529

24 | P a g e
crores in financial year 2012–2013. During FY 2013-14, its net profit was
IN ₹1740 crores.

HPCL operates two major refineries producing a wide variety of petroleum fuels
and specialties, one in Mumbai (West Coast) of 6.5 million metric tonnes per
annum (MMTPA) capacity and the other in Visakhapatnam, (East Coast) with a
capacity of 8.3 MMTPA. HPCL holds an equity stake of 16.95% in Mangalore
Refinery and Petrochemicals Limited (MRPL), a state-of-the-art refinery at
Mangalore with a capacity of 9 MMTPA. Another refinery of 9 MMTPA (set
up in Bathinda, Punjab by HMEL, a joint venture with Mittal Energy
Investments Pte. Ltd. HPCL) has signed a memorandum of understanding with
the Government of Rajasthan for setting up a refinery near Barmer. It would be
operated under a joint venture company (JVC) called HPCL-Rajasthan Refinery
Limited.

3. ESSAR

Essar Global Fund Limited is an Indian conglomerate group based in Mumbai,

India. The Fund is a global investor, controlling a number of world-class assets
diversified across the core sectors of Energy, Metals & Mining, Infrastructure
(comprising ports and EPC businesses) and Services (primarily comprising
shipping and BPO businesses).Essar began as a construction company in 1969
and diversified into manufacturing, services and retail. Essar is managed
by Shashi Ruia – Chairman, and Ravi Ruia – Vice Chairman.
Today, the company has expanded its global footprint, focusing on markets in
Asia, Africa, Europe and the Americas.
Essar began its first operation with the construction of an outer breakwater in
Chennai port. The name Essar is derived by combining the first letter of the
Chairman's and Vice-Chairman's names – Shashi and Ravi, i.e. S plus R sounds
like Essar. The company was incorporated in June 1976 under the name of

25 | P a g e
Essar Construction Limited and was engaged primarily in core sector activities,
including marine construction, pipeline laying, dredging and other port related
activities. In 1984, the company ventured further into other core sectors mainly
the field of exploration and development, drilling onshore and offshore oil and
gas wells for Indian Public Sector oil exploration companies. The company's
name was then changed to Essar Offshore and Exploration Limited in May 19
Limited, to reflect its highly diversified business interest. In 1988, the company
made an initial public offer for its shares, which are now listed in Bombay
Stock Exchange, National Stock Exchange of India and two other Indian stock
exchanges.

It is India's largest exporter of flat steel with 10 million tons per annum (MTPA)
of capacity in India and 4 million tons per annum (MTPA) in worldwide
facility. Essar Steel is fully integrated from mining to retail and has specialised
plants for value-added steel products like pipes and plates. On 11 June 2012,
Essar Steel India commissioned a 19 MW heat recovery power plant at Hazira.
In 2016, Essar Steel became the first Indian company to manufacture bullet-
proof steel.
Essar Minerals owns iron ore and coal mines in India, Indonesia, Mozambique
and the USA, as well as undeveloped iron ore properties in Canada. The
company has access to over 2.0 billion tonnes of iron ore reserves in India and
USA and 450 million tonnes of coal reserves.

4. RELIANCE INDUSTRIES LIMITED

Reliance Industries Limited (RIL) is an Indian conglomerate holding

company headquartered in Mumbai, Maharashtra, India. Reliance owns
businesses across India engaged in energy, petrochemicals, textiles, natural

26 | P a g e
resources, retail, and telecommunications. Reliance is the most profitable
company in India. the largest publicly traded company in India by market
capitalization, and the second largest company in India as measured by revenue
after the government-controlled Indian Oil Corporation. The company is ranked
215th on the Fortune Global 500 list of the world's biggest corporations as of
2016. It is ranked 8th among the Top 250 Global Energy Companies by Platts as
of 2016.Reliance continuous to be India’s largest exporter accounting for 8% of
India’s total merchandise exports with a value of Rs 147,755 crore and access to
markets in 108 countries. Reliance is responsible for almost 5% of India’s total
revenues from customs and excise duty and is also the highest Income tax payer
in the private sector in India.
The number of shareholders in RIL are approx. 3.1 billion. The promoter group,
Ambani family, holds approx. 46.32% of the total shares whereas the remaining
53.68% shares are held by public shareholders, including FII and corporate
bodies. Life Insurance Corporation of India is the largest non-promoter investor
in the company with 7.98% shareholding.
Buyback: In January 2012, the company announced a buyback programme to
buy a maximum of 120 million shares for ₹104 billion(US$1.6 billion). By the
end of January 2013, the company bought back 46.2 million shares for ₹33.66
billion (US$520 million).

The company's petrochemical, refining, oil and gas-related operations form the
core of its business; other divisions of the company include cloth, retail
business, telecommunications and special economic zone (SEZ) development.
In 2012–13, it earned 76% of its revenue from refining, 19% from
petrochemicals, 2% from oil & gas and 3% from other segments.

27 | P a g e
1.11 SWOT ANALYSIS OF IOCL:

28 | P a g e
1.12 4 P’s OF IOCL:

PRODUCTS

Indian Oil accounts for approximately 48% petroleum products market share.
Its products include liquefied petroleum gas(LPG), aviation turbine fuel,
bitumen, high speed diesel, lubricating oils and greases, petrochemicals, and
superior kerosene and crude oil. The company also offers special products,
which comprise carbon black feed stock, food grade hexane, jute batching oil,
micro crystalline wax, mineral turpentine oil, paraffin wax, propylene, raw
petroleum coke, sulphur, and toluene. Indian Oil’s Retail Brand template of
Xtra Care (Urban), Swagat (Highway) and Kisan Seva Kendras(Rural) are
widely recognized as pioneering brands in the petroleum retail segment. Indian
Oil’s leadership extends to its energy brands - Indane LPG, SERVO Lubricants,
Auto gas LPG. Xtra Premium Branded Petrol, Xtra mile Branded Diesel, Xtra
Power Fleet Card, Indian Oil Aviation and Xtra Rewards cash customer loyalty
programme.

 Petrol
 Diesel
 LPG
 Crude Oil
 Auto LPG
 Aviation turbine fuel
 Lubricants
 Naphtha
 Bitumen
 Paraffin
 Kerosene

PRICE:

 Price for all the products of all company is decided by petroleum

ministry.
 Very less difference in price of all PSU’s.

29 | P a g e
PLACE:

 Located all over India.

 Maximum number of refineries.
 Only company having retail outlet outside India (Srilanka)

PROMOTION:

 Subhiksha: Two ZOOP noodles packet free on purchase of Rs. 250/-

 Dominos: Rs. 50/- off on each midsize domino’s pizza.

 PVR cinema: Rs 10/- off on eatables purchased in PVR cinema.

 Rajdhani Thali: 10% off on each Rajdhani Thali.

 Yoko Sizzlers: 10% off in Yoko Sizzlers AC Restaurants.

30 | P a g e
 CHAPTER-2

WORKING CAPITAL MANAGEMENT

2.1 INTRODUCTION:

M anagement is an art of anticipating and preparing for risks,

uncertainties and overcoming obstacles. An essential precondition for
sound and consistent assets management is establishing the sound and
consistent assets management, efficient allocation of funds has a greater scope,
in finance and profit planning, for the most effective utilization resources, the
fixed and current assets must be combined in optimum proportions.

Working capital in simple terms means the amount of funds that a company
requires for financing its day-to-day operations. Finance manager should
develop sound techniques of managing current assets.

Working capital refers to the investment by the company in short terms assets
such as cash, marketable securities. Net current assets or net working capital
refers to the current assets less current liabilities.

Symbolically, it means,

Net working capital = Current Assets – Current Liabilities.

Working Capital is the key difference between the long term financial
management and short term financial management in terms of the timing of
cash. Long term finance involves the cash flow over the extended period of
time i.e 5 to 15 years, while short term financial decisions involve cash flow
within a year or within operating cycle. Working capital management is a short
31 | P a g e
term financial management. Working capital management is concerned with
the problems that arise in attempting to manage the current assets, the current
liabilities & the inter relationship that exists between them. The current assets
refer to those assets which can be easily converted into cash in ordinary course
of business, without disrupting the operations of the firm.

DEFINITIONS OF WORKING CAPITAL:

The following are the most important definition of Working capital:

1) “Working capital is the difference between the inflow and outflow of

funds. In other word, it is the net cash flow”.

2) Working capital represents the total of all current assets. In other word, it

is the “Gross working capital”, it is also known as “Circulating capital”

or “Current capital” for current assets are rotating in their nature.

3) Working capital is defined as “The excess of current assets over current

liabilities and provisions”. In other word, it is the “Net Current Assets or

Net Working Capital”.

32 | P a g e
2.2 IMPORTANCE OF WORKING CAPITAL:

Working capital may be regarded as the lifeblood of the business/organization.

Without insufficient working capital, any business cannot run smoothly or
successfully.

In the business/organization, the working capital is comparable to the blood of

the human body. Therefore, the study of working capital is of major importance
to the internal and external analysis because of its close relationship with the
current day to day operations of a business. The inadequacy or mismanagement
of working capital is the leading cause of business/organisation failures.

To meet the current requirements of a business enterprise such as the purchases

of raw materials, services etc, working capital is essential. It is also pointed out
that working capital is nothing but one segment of the capital structure of a
business.

In short, the cash and credit in the business, is comparable to the blood in the
human body like finance s life and strength i.e. profit of solvency to the
business 22 enterprise. Financial management is called upon to maintain always
the right cash balance so that flow of fund is maintained at a desirable speed not
allowing slow down.

Thus, enterprise can have a balance between liquidity and profitability.

Therefore, the management of working capital is essential in every activity. The
working capital is the amount resolving capital to meet the day today
requirements of the firm. The other facets of the working capital are circulating
capital, floating capital and moving capital which are required to meet the
immediate requirements of the firm.

33 | P a g e
2.3 CONCEPT OF WORKING CAPITAL :

There are 2 concepts:

1) Gross working capital (GWC): - It is referred as total current assets.

Focuses on,

 Optimum investment in current assets:An excessive investment

impairs firm s profitability, as idle investment earns nothing.

Inadequate working capital can threaten solvency of the firm
because of its inability to meet its current obligations. Therefore,
there should be adequate investment in current assets.

 Financing of current assets: Whenever the need for working

capital funds arises, agreement should be made quickly. If surplus

funds are available, they should be invested in short term
securities.

2) Net working capital (NWC): - It is defined by 2 ways.

a. Difference between current assets and current liabilities.

b. Net working capital is that portion of current assets which is

financed with long term funds.

34 | P a g e
2.4 PLANNING OF WORKING CAPITAL:

Working capital is required to run day to day business operations. Firms differ
in their requirement of working capital (WC). Firm s aim is to maximize the
wealth of shareholders and to earn sufficient return from its operations.

WCM is a significant facet of financial management. Its importance stems from

two reasons:

c. Investment in current asset represents a substantial portion of total

investment.

d. Investment in current assets and level of current liability must be

geared quickly to change in sales.

Business undertaking required funds for two purposes:

e. To create productive capacity through purchase of fixed assets.

f. To finance current assets required for running of the business.

The importance of WCM is reflected in the fact that financial managers spend a
great deal of time in managing current assets and current liabilities. The extent
to which profit can be earned is dependent upon the magnitude of sales. Sales
are necessary for earning profits. However, sales do not convert into cash
instantly; there is invariably a time lag between sale of goods and the receipt of
cash. WC management affect the profitability and liquidity of the firm which
are inversely proportional to each other, hence proper balance should be
maintained between two.

35 | P a g e
To convert the sale of goods into cash, there is need for WC in the form of
current asset to deal with the problem arising out of immediate realization of
cash against good sold. Sufficient WC is necessary to sustain sales activity.
This is referred to as the operating or cash cycle.

2.5 FACTORS AFFECTING WORKING CAPITAL :

The working capital needs of a firm are affected by numerous factors. The
important factors are as follows:

1) Nature of business: In some business organizations, the sales are mostly

on cash basis and the operating cycle (explained later) is also very short.
In these concerns, the working capital requirement is comparatively less.
Mostly service giving companies come in this category. In manufacturing
concerns, usually the operating cycle is very long, and a firm has to give
credit to customers for improving sales. In such cases, the working
capital requirement is more.

2) Production Policy:Working capital requirements also fluctuate

according to the production policy. Some products have a seasonal
demand but to eliminate the fluctuations in working capital, the
manufacturer plans the production in a steady flow throughout the year.
This policy will even out the fluctuations in working capital.

3) Market Conditions: Due to competition in the market, the demands for

working capital fluctuate. In a competitive environment, a business firm

must give liberal credit to customers. Similarly, it will have to maintain a
large inventory of finished goods to service the customers promptly. In
36 | P a g e
 this situation, larger amount of working capital will be required. On the
other hand, when a firm is in seller’s market, it can manage with a
smaller amount of working capital because sales can be made on cash
basis and 26 there will be no need to maintain large inventory of finished
goods because customers can be serviced with delay.

4) Seasonal Fluctuation: A firm, which is producing products with

seasonal demands, requires more working capital during peak seasons

while the demand for working capital will go down during slack seasons.

5) Growth and expansion activities: The working capital needs of the firm

increase as it grows in terms of sales or fixed assets. A growing firm may

need to invest funds in fixed assets to sustain its growth of production
and sales. This will in turn increase investments in current assets, which
will result in increase in working capital needs.

6) Operating efficiency: The operating efficiency of the firm relates to the

optimum utilization of resources at minimum cost. The firm will be

effectively contributing to

its working capital if it is efficient in controlling operating cost. The

working capital is better utilized, and cash cycle is reduced which
decreases working capital needs.

7) Credit Policy: Credit term granted by the concern to its customers as

well as to its suppliers will also affect the working capital requirements.
If the concern has allowed very liberal credit terms to its customer and
has adopted a slack collection procedure, more funds will be tied in book
debts and working capital needs will also be high. Where suppliers have
granted liberal credit terms to the concern, there will be less need for

37 | P a g e
 working capital. Not only will the Ratio of cash and credit sales or
purchase also effect the level of working capital.

8) Sales Growth:As the sales grow, the working capital needs also go up. It

is very difficult to establish an exact proportion of increase in current

assets, because of increase in sales. Planning of working capital becomes
essential because current assets will have to be employed even before
growth in sales takes place. Once sales start increasing, they must be
sustained. For this a firm will have to expand its production facilities,
which will require more investments in fixed assets. This will in turn
result in more requirements of current assets, which will increase
working capital needs.

9) Dividend Policy: A company must pay dividends in cash as per

company Act. 1956. If a liberal policy is followed for payment of

dividends, more 27 working capital will be required. The needs for
working capital will be substantially reduced if dividend policy is
conservative.

2.6 MERITS AND DEMERITS:

A) MERITS OF ADEQUATE WORKING CAPITAL

 Regular payment of salaries wages and other day-to-day commitments.

 Sense of security and confidence.

38 | P a g e
  Solvency of continuous production.

 Sound goodwill (Prompt Payment)

 Easy loams form banks

 Distribution of dividends.

 Exploitation of good opportunity.

 Meeting unseen contingences.

 Increase in efficiency of fixed assets.

 High moral.

 Increase production efficiency.

 Cash discounts.

 Quick and regular return on investment

B) DEMERITS OF INADEQUATE WORKING CPITAL

 Loss of credit worthiness and goodwill.

 Operating inefficiency.

 Low rate of return on fixed assets.

 Increase in business risk.

39 | P a g e
  Cannot achieve profit target.

 Low moral of business executives.

 Weakening of financial capacity.

 Cannot pay day-to-day expenses of its operations.

 Delaying payments of wages, salaries, etc.

All this indicates that proper estimation of working capital requirements is a

must of running the business efficiently and profitably. Therefore, the basic
objective of working capital management is managed the firm’s current assets
and current liabilities in such a way that the satisfactory level of working
capital is maintained, i.e. it is neither inadequate not excessive. In the
management of working capital, it is mandatory to know that what should be
the level of current assets. There are two policies, which determines the level of
current assets,

 Flexible Policy: Under his policy the investment in current assets is high

maintains a huge balance of cash and marketable securities, carries many

inventories and grants feverous terms of credit to customers, which leads
to a high level of debtors.

 Restrictive Policy: Under this policy the investment in the current assets
is low. This means that the firm keeps a small balance of cash and
marketable securities, managers with small number of inventories and
offers terms of credit, which leads to a low level of debtors.

40 | P a g e
 2.7 TYPES OF WORKING CAPITAL:

There are two types of working capital: -

Rigid , Fixed , Permanent Variable , Seasonal,

or Regular Working Temporary or Flexible
Capital Working Capital

 Permanent or Regular Working Capital:It represents the minimum

amount of investment in current assets that is seemed necessary to carry
the operation at time. It is a continuous process of working capital
management in any organization. In this process there is a certain level of
current assets, which is maintained every time or every operating cycle.

 Variable Working Capital: It represents additional assets required at

different time during the operating year to cover any change or variations
form the normal operations.

As for example - During the winter season the sales of the winter
garments company increase. To fulfil the demand of woollen clothes the
company requires additional account of current assets or working capital
such as-cash, raw material, etc.

However, it can be concluded that in most cases the period which elapses
between purchase of material and the receipt of sale proceeds of the finished
goods will determine the working capital requirements of any business.

41 | P a g e
2.8 WORKING CAPITAL CYCLE :

DEBTORS &
BILLS RECEI
VABLES

CASH SALES

RAW FINISHED
MATERIALS PRODUCTS

WORK IN
PROGRESS

In case of trading concerns the cycle is:

CASH STOCK DEBTORS CASH

42 | P a g e
CHAPTER – 3

OBSERVATION AND ANALYSIS

3.1 ANALYSIS OF WORKING CAPITAL

MANAGEMENT OF INDIAN OIL:

The first part of the project deals with the analysis of working capital
requirement of IOCL. I have tried to analyse the working capital statements as
well as schedules provided, subject to various constraints. The first part of my
analysis deals with the working capital statements of IOCL; a comparative
analysis of working capital of IOCL, over the six financial years: 2012-13,
2013-14, 2014-15, 2015-16, 2016-17,2017-18, . I have studied the differences
in working capital requirements over the five years and analysed the reasons for
such variances. My study includes all components, the reasons for these
variances and provides suggestions to improve over every aspect so that the
variances can be minimized.

(Rs. in crore)

PARTICULARS 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

TOTAL 36482.56 39057.17 52931.3 44812.17 92494.57 103054.97

CURRENT
ASSETS
TOTAL 25676.36 29705.87 34580.98 35551.72 128312.34 135882.28
CURRENT
LIABILITIES
NET 10806.2 9351.3 18350.32 9260.45 -35817.77 -
WORKING 32,827.31
CAPITAL

43 | P a g e
 160,000.00

140,000.00

120,000.00

100,000.00
Total CA
80,000.00
Total CL
60,000.00
Net Working
40,000.00 Capital

20,000.00

0.00

-20,000.00

-40,000.00

-60,000.00

12-13 13-14 14-15 15-16 16-17 17-18

CURRENT ASSETS:

Items 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

INVENTORIES 24,277.79 24,702.69 30,941.48 25,149.60 36,404.08 65,313.21

DEBTORS 6,698.03 6,736.06 6,820.54 5,937.86 5,799.28 10,116.52

CASH & BANK 744.17 925.97 824.43 798.02 1,315.11 80.79

LOANS & 4,731.02 5,917.10 13,554.71 11,875.11 14,728.83 467.51

ADV.
OTHER CA 31.55 775.35 790.14 1,051.58 1,141.50 3,225.17

44 | P a g e
 70,000.00

60,000.00

50,000.00

Inventories
40,000.00
Debtors
Cash & Bank
30,000.00
Loans & Adv.
Other CA
20,000.00

10,000.00

0.00
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Analysis:

 Here inventory increased in last five years due to oil price rise in

international market, so current assets also increased in last five years.

 Sundry debtors are in decreasing trend in the last two years due to

decrease in credit periods given to the debtors.

 Cash & Bank balance is also in increasing trend due to more cash receipt

during the year, which is a good sign for the company.

 Loans & advances in 2016-17 was the most due to more advance given

by the company to the employees for housing purpose, car loan,

education, etc.

45 | P a g e
CURRENT LIABILITIES (CL) & PROVISIONS:

Items 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

CL 23,697.85 26,576.76 32,896.39 32,754.58 34,480.17 1,35,882.28

Provisions 1,978.51 3,129.11 1,684.59 2,603.46 10,271.56 13,014.70

160,000.00

140,000.00

120,000.00

100,000.00

80,000.00 CL
Provisions
60,000.00

40,000.00

20,000.00

0.00
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Analysis:

 Among the two components of the block of current liabilities &

provisions, current liabilities account for approximately 90% over the

five years, where the balance is contributed by provisions whereas in
2016-17, it is approx. 80% and the rest is provisions. Current liabilities

46 | P a g e
 increased nearly 45% from the year 2012-13 to 201617, where as
provisions has increased by 420% from the year 2012-13 to 2016-17.

 The sundry creditors are the highest contributors in the block of current

liabilities over the last five years.

 Sundry creditors have increased from the year 2012-13 to 2016-17.

Creditors figure shows that the company is getting fair amount of credit
from its suppliers and creditors.

 In case of provisions the block of proposed dividend accounts for most

towards the block of provisions.

FINDINGS:

The increasing cost of crude oil in the international market is the main reason
behind the increasing trend of amount of inventory in the current asser block.
On the other hand, the steady increase in the block of sundry debtors indicates
that the sales(credit) 0f IOCL are increasing over the years.

CONCLUSION:

At the conclusion of the study we can say that, the working capital management
in IOCL is quite impressive & management has a strong control over the
various aspect of working capital management such as working capital cycle
period, ratios regarding working capital, etc. But some scopes are still present
for further improvement, such as:

 Control over the increasing cash & bank balance.

 Increasing the credit sales of the firm because the growth of credit sales

in IOCL is very low over the years.

47 | P a g e
  The amount of credit sales & credit purchase in IOCL needs to e

disclosed separately in the annual reports of the firm.

3.2 COMPARATIVE FINANCIAL ANALYSIS OF IOCL

A firm would like to know its financial standing of its major competitors and
the industry group. The analysis of financial performance of all firms in an
industry and their comparison at a given point of times is referred to the cross-
section analysis or the inter-firm analysis.

To ascertain the relative financial standing of a firm, its financial ratios are
compared either with its immediate competitors or with the industry average.

The financial statements of Indian Oil Corporation Ltd. over last five years can
be analysed by applying the Ratio analysis method. The financial statements of
IOCL over last five years is also compared with its close competitors like
Bharat Petroleum Corporation Ltd. And Hindustan Petroleum Corporation Ltd.

RATIO ANALYSIS :

1. Liquidity Ratios :
A ) Current Ratio:
2013 2014 2015 2016 2017 2018

IOCL 0.84 0.83 0.79 0.84 0.61 0.75

BPCL 0.77 0.67 0.61 0.74 0.5 0.65

HPCL 0.89 0.91 0.82 1.03 0.93 0.53

48 | P a g e
 1.2

0.8
IOCL
0.6
BPCL
HPCL
0.4

0.2

0
2013 2014 2015 2016 2017 2018

Analysis:

This ratio shows the relationship between the current assets and the current
liabilities, this ratio is important in analysing the firm’s ability to payoff its
current obligation out of its short-term resources.

Current Ratio = Current Assets : Current Liabilities

Current Ratio of IOCL is in between the three oil companies. This ratio
analyses the currentliquidity position of the firm. It is an important measure of
the firm’s ability in meeting its current obligations out of its short-term
resources.

Significance:

 It measures short-term solvency of a firm. It means that the ability of a

firm to meet its short-term obligations.

49 | P a g e
  The higher the current ratio, the larger is the number of rupees available

per rupee of current liability, the more is the ability to meet the current
obligations.

Comments:

 Here current ratios show a decreasing trend and it is not at all nearer to

2:1 (general norms). So, the company does not have a sound liquidity
position.

 The company should maintain at least constant rate of current ratio over

the years to gain trust from investors and creditors.

 IOCL need to improve its liquidity position. It can be achieved by either

increasing the current assets or by decreasing current liabilities. It can

convert a part of its investments into high liquidity marketable securities
offering the same or better returns compared to long term investments,
after analysing risk factor.

B ) Quick Ratio

2013 2014 2015 2016 2017 2018

IOCL 0.56 0.5 0.47 0.54 0.47 0.277

BPCL 0.4 0.39 0.45 0.61 0.67 0.29

HPCL 0.45 0.34 0.29 0.51 0.53 0.36

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 0.8

0.7

0.6

0.5
IOCL
0.4
BPCL
0.3
HPCL
0.2

0.1

0
2013 2014 2015 2016 2017 2018

Analysis:

Quick ratio, also called acid-test ratio, establishes a relationship between quick,
or liquid, assets and currents liabilities. An asset is liquid if it can be converted
into cash immediately or reasonably soon without a loss of value. Inventories
are less liquid. Inventories normally require some time for realizing into cash;
their value also tends to fluctuate.

Quick Ratio = (Current Assets - Inventories) : Current Liabilities

Generally, a quick ratio of 1 to 1 is considered to represent a satisfactory current

financial condition. Although quick ratio is a more penetrating test of liquidity
than the current ratio, yet it should be used cautiously. A quick ratio of 1 to 1 or
more does not necessarily imply sound liquidity position. In IOCL, the quick
ratios are comparatively lower than other companies in oil sector and there is
also a decreasing trend which is a not a good sign for the company. IOCL
should look after its quick asset position in near future.

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2. MANAGEMENT EFFICIENCY RATIOS :

A ) Inventory Turnover Ratio:

2014 2015 2016 2017 2018

IOCL 7.19 7.26 8.84 9.09 13.98
BPCL 9.32 8.4 11.24 11.64 21.91
HPCL 10.63 9.18 11.14 9.47 15.31

(2014) (2015) (2016) (2017) (2018)

Inventory turnover ratio indicates the efficiency of the firm in producing and
selling its products. It is calculated by dividing the cost of goods sold by the
average inventory.

Inventory Turnover Ratio = Cost of Goods Sold : Average Inventory

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Significance:

 It shows the rapidity with which the inventory transforms into

receivables through sales.

 A highly inventory turnover ratio implies low inventory level and quick

conversion of inventory into sales. It is the sign of efficient inventory

management.

 A low inventory turnover ratio indicates maintenance of a high level of

inventory, slow rotation of inventory in the operating cycle process. It is

indicative for poor management.

 A too low inventory turnover ratio indicates holding of excessive

inventory i.e., blocking of funds which increase cost and reduce profit.

 It is always desirable for a firm to maintain a balanced level of inventory.

So, a firm must fix up an optimum inventory turnover level and try to
maintain it.

Comments:

 From the graph, we see that the firm’s utilization of inventory in

generating sales has improved marginally.

Synchronization between production department and marketing division should

be there to avoid over or under stock situation. For e.g., like ABC analysis can
be taken as tools to reduce the excess working capital blockage

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 B ) . Debtor Turnover Ratio:

2013 2014 2015 2016 2017

IOCL 28.81 28.23 32.23 36.5 48.15
BPCL 69.08 69.6 68.13 70.48 88.37
HPCL 58.73 58.53 60.42 63.44 63.23

Debtors’ turnover ratio shows how many times receivables turnover account
during the year and is calculated by:

Debtors Turnover Period = Net Credit Sales / Average Debtors

Higher the ratio, the greater is the efficiency of credit management.

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On the other hand, the average collection period is defined as the number of
days’ worth of credit that is locked in debtors and is calculated as:

Average Collection Period = 365 / Debtors Turnover

Analysis:

Debtors’ turnover ratio indicated on how often on average receivables revolve,

that is, are received and collected during the year. While receivables turnover
measures the speed of collection and is used for the comparison purposes, it is
not directly comparable to the terms of trade the company extends to its
customers. This later comparison is made by converting the turnover ratio into
“days of sales tied up in receivables”. The receivables collection period
measures the number of days it takes on average to collect accounts and note
receivables. Accounts receivables turnover rates and collection periods are
usually compared to the credit terms given by the company. When collection
period is compared with the terms of sales allowed by the company we could
assess the extent of customers paying on time.

For example, if usual credit terms of 15-20 days then the average collection
period of 40-45 days reflect one or more of the following conditions:

 Poor collection efforts.

 A receivables turnover may imply a strict credit policy or a reluctance or

inability to extent credit.

 Delay in customer payments.

 Customers in financial distress.

55 | P a g e
Five Years Financial Statement of
Indian Oil:

PROFIT & LOSS – IOCL:

Rs (in Crores)
Mar'18 Mar’17 Mar’16 Mar’15 Mar’14 Mar’13
12 Months 12 12 Months 12 12
Months Months Months
INCOME:
Sales Turnover 455732.19 445372.91 407296.02 467933.9 497114.13 470650.59
Excise Duty 82388.38 85499.75 56692.93 30407.77 23904.04 23554.18
NET SALES 373343.81 359873.16 350603.09 437526.13 473210.09 447096.41

Other Income 3414.62 0 0 0 0 0

TOTAL 509824.41 364081.74 352849.41 441670.18 476627.38 450611.2
INCOME

EXPENDITURE:
Manufacturing 3910.61 4607.87 6123.69 6213.95 5326.93
Expenses
Material 188780.21 285382.24 291296.5 392772.14 423486.46 404198.23
Consumed

Personal Expenses 9657.89 7637.09 7104.78 6618.97 7271.27

Selling Expenses 377.46 336.14 0 0 0
Administrative 28763.9 26666.65 21370.88 21188.48 16563.13
Expenses
Expenses 0 0 0 0 0 0
Capitalised

Provisions Made 0 0 0 0 0 0
TOTAL 477277.93 328092.1 330544.25 427371.49 457507.86 433359.56
EXPENDITURE
Operating Profit 506427 31781.06 20058.84 10154.64 15702.23 13736.85
EBITDA 32546.48 35989.64 22305.16 14298.69 19119.52 17251.64
Depreciation 7067.01 6222.97 4852.79 4528.66 5760.09 5200.99
Other Write-offs 0 0 0 0 0 0
EBIT 32564.28 29766.67 17452.37 9770.03 13359.43 12050.65
Interest 0 3445.43 3000.1 3435.27 5084.42 6409.15
EBT 32564.28 26321.24 14452.27 6334.76 8275.01 5641.5

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Taxes 11218.16 7214.84 5440.47 2722.26 2906.42 642.63
P & L for the 21346.12 19106.4 9011.8 3612.5 5368.59 4998.87
Year
Non Recurring 0 0 1364.25 1668.09 1746.8 0
Items

Other Non-Cash 0 0 22.98 -7.56 -96.3 6.3

Other Adjustments 0 0 0 0 0 0
REPORTED 21346.12 19106.4 10399.03 5273.03 7019.09 5005.17
PAT
Key Items
Preference 0 0 0 0 0 0
Dividend

Equity Dividend 8368.33 2719.48 1276.23 1753.33 1249.5

Equity Dividend 176.57 112 52.56 72.21 51.46
(%)

Shares in 23312 47393.4 24279.52 24279.52 24279.52 24279.52

Issue(Lakhs)

EPS - 22.52 40.31 42.83 21.72 28.91 20.61

Annualised(Rs)

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BALANCE SHEET:
Rs (in Crores)
Particulars Mar'18 Mar’17 Mar’16 Mar’15 Mar’14 Mar’13
12 Months 12 Months 12 12 Months 12 12
Months Months Months

LIABILITIES:
Share Capital 9478.69 4739.34 2427.95 2427.95 2427.95 2427.95
Reserves & 100692.33 94989.38 71520.78 65523.35 63540.79 58679.27
Surplus

Net Worth 110171.02 99728.72 73948.73 67951.3 65968.74 61107.22

Secured Loan 13311.13 23631.17 16237.65 17889.33 14473.61
Unsecured Loan 37073.67 18854.77 33491.59 62733.13 63868.68
Total Liabilities 280739.91 150113.52 116434.67 117680.54 146591.2 139449.51
ASSETS:
Gross Block 280739.91 118598.38 149406.67 120624.65 111730.13 104104.83
(-) Acc. 7067.01 10718.89 58511.13 54373.18 48781.34 43472.1
Depreciation

Net Block 273672.9 107879.49 90895.54 66251.47 62948.79 60632.73

Capital Work in 13860.99 0 0 36323.5 33879.24 18273.12
Progress
Investments 8399.32 47304.6 23975.31 23899.49 23594.19 18671.22
Inventories 65313.21 62401.14 38282.4 45543.85 64697.37 59314.39
Sundry Debtors 10116.52 8502.37 8026.44 6758.17 11022.92 11254.78
Cash and Bank 81.36 86.5 512.94 111.9 2608.53 503.29
Loans and 19225.92 22301.35 43892.37 40961.09 52803.61 55345.74
Advances

Total Current 103054.97 93291.36 90714.15 93375.01 131132.43 126418.2

Assets
Current Liabilities 135882.28 87248.04 78408.75 74447.14 79044.21 66529.83
Provisions 14161.6 21851.71 31763.76 27721.79 25919.24 18015.93
Total Current 150043.88 109099.75 110172.51 102168.93 104963.45 84545.76
Liabilities
Net Current -14508.4 -15808.39 -19458.36 -8793.92 26168.98 41872.44
Asset
Misc. Expenses 0 0 0 0 0 0
TOTAL ASSETS 280739.91 139375.7 95412.49 117680.54 146591.2 139449.51

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 CHAPTER - 5

CONCLUSION & RECOMMENDATIONS

FINANCING OF WORKING CAPITAL IN IOCL:

The working capital requirement of IOCL as in most public-sector enterprises

are generally met through cash credits and advances arranged with the State
Bank of India and other nationalized banks. Besides this short-term borrowing
against securities is taken from nationalized and foreign banks and
Collateralized Borrowings and Lending Obligation (CBLO) from Clearing
Corporation of India. On day to day basis. This process of taking term loans is
undertaken at the Corporate Office.

RECOMMENDATION ON THE WORKING CAPITAL POLICY OF

IOCL:

 It is evident from the above analysis that IOCL follows a conservative

policy i.e. a greater amount of investment in current assets.

 As per the latest results of March 2010 the total current assets of IOCL

stood at Rs.59388.80.

 Thus, it is evident that though IOCL maintains a high liquidity but at the

same time it incurs a loss.

 This is also due to discrepancies between the international market price

of crude oil and government controlled domestic prices.

59 | P a g e
  As IOCL being a public enterprise, it has to follow the government’s

orders and cannot increase the prices of its products to international

market rates.

 Hence, it should focus on improving its working capital condition by

reducing investments in current assets thereby reducing its losses.

 Thus, IOCL should follow an average policy that provides the optimum

combination of the three issues of working capital management liquidity,

profitability and return.

CONCLUSION OF THE STUDY:

The requirement of oil is everywhere. All talk everywhere trickles down to

nothing else, but crude. Even as the man on the streets frets over the snowball
effect of rising prices, numbercrunchers work at a hypnotic pace to figure out
its next milestone. And governments across the world, options at their disposal
to deal with a catch-22 situation.

The current spike in the crude oil prices is hurting the industry and the
economy. Crude prices are rising at a soaring pace over the past 24 months.
While the government’s not to pass on rising costs to the retail consumers has
shielded them against the run-away inflation, it has encouraged wasteful
consumption of petroleum products and left oil marketing companies without
money. The India’s biggest marketer and refiner is facing an acute liquidity
crunch which has forced to put all new projects on hold. If not checked in time,
this can seriously jeopardize the government’s capital expenditure and in turn
India’s future economic growth. Thus, although only the public-sector oil
companies and their shareholders are bearing the burnt of the alarming spike in
oil prices, currently investors in general may have to pay for rising crude oil
prices, through slower growth and resultant bearish trend on the bourses. Crude

60 | P a g e
oil represents nearly 35% of India’s energy basket. India imports 75% of crude
requirement, which add to its woes.

The above situation is reflected in the company’s recent working capital. But
still it has a better position than any other public-sector oil company. Indian Oil
supplies its oil to other companies in the eastern region like HPCL which do
not have any refinery in the eastern region. In way it has taken a part of its
inventory in this respect. The inventory management of IOCL can be improved
upon because it is seen by the analysis that its inventory management has scope
for further improvement in comparison to the industry. Moreover, most of the
product of the other companies like BPCL and HPCL goes to the retail outlets
which are generally on cash and carry system and thus has high debtor’s
turnover whereas IOCL’s most of its product goes to other consumers which
are mostly on credit basis.

After having done the analysis of working capital of Indian Oil it is seen that
working capital is decreasing in last three years. The main reason for this
decrease is the increase in liabilities. It is increasing year after year. The private
companies on the other hand are away from this danger because they export
their products. They are not impelled to sell their products at low prices and
thus their progress is not hindered, and they proceed without incurring high
losses.

RECOMMENDATIONS:

From the entire analysis what Indian Oil can do is simply strengthening their
marketing efforts and creates more demand for their product and also tries to
use optimum level of inventory. Besides they can implement certain plans so as
to develop their business in future.

After doing the project the recommendation to IOCL may be to sustain with
dignity as discussed below:

 It should increase sales so that inventory turnover ratio is improved, and

better return achieved.

61 | P a g e
  IOCL should concentrate on Brand Building and make all brands as

successful as Servo.

 IOCL should approach Government to allow it to increase the prices of

regulated products especially LPG (Domestic) must be marginally

increased so that loss because of that is reduced. This is because loss per
unit of LPG (Domestic) is highest among the other products.

Besides that, Government of India should also consider the better pricing
policies to prevent loss of Indian oil companies. The recommended policies
may be: By introducing differential rates to different income groups in the
society for same product. For e.g. high rate of LPG cylinder (domestic) to high
income groups and subsidized rate to low income groups.

BIBLIOGRAPHY / WEBLIOGRAPHY

Bibliography:

 IOCL Manual
 Financial Management by I.M.Pandey
 Financial Management by Brigham and Houston

Webliography:

IOCL Intranet
www.iocl.comwww.hindustanpetroleu
m.comwww.bpcl.comwww.moneycontr
ol.comwww.wikipedia.comwww.invest
ovedia.com

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