ARPIT VERMA/ A1802012113/ AIBS, AMITY UNIVERSITY, NOIDA

PROJECT REPORT

INDIAN OIL CORPORATION LIMITED (IOCL),

PIPELINE HEAD OFFICE (PLHO), NOIDA

A Report on

Financial Analysis of IOCL and DFR on Proposal for Investment Approval

of Branch Pipeline from BKPL to Motihari and Baitalpur

Submitted by: Under the Guidance of:

Arpit Verma Ms. Navleen Kaur

A1802012113 Assist. Professor

MBA-IB(2012-14) Amity University

AIBS, Noida.

Amity University, Noida.

ARPIT VERMA/ A1802012113/ AIBS, AMITY UNIVERSITY, NOIDA

Report on

Financial Analysis of Indian Oil Corporation Limited and

DFR on

Proposal for Investment Approval

Of

Branch Pipeline

From

Barauni-Kanpur Pipeline to Motihari and Baitalpur

for leveraging the transportation tariff

Submitted By: Arpit Verma

Enrollment No. : A1802012113

Faculty Guide: Ms. Navleen Kaur

Company Guide: CA Gaurav Gupta

A report submitted in partial fulfillment of the requirements of MBA-IB Program

of Amity University, Noida

ARPIT VERMA/ A1802012113/ AIBS, AMITY UNIVERSITY, NOIDA

Authorization

The making of this report has been authorized by CA Gaurav Gupta, Senior Accounts Officer

at Pipelines Division Head office, Noida (Indian Oil Corporation Limited).

I hereby declare that all the work shown in my project is true to my knowledge and has been

completed at IOCL‟s office. The research study was conducted over a span of 45 days from June

2013 to July 2013.

This project is meant for a partial fulfillment of the MBA-IB program at Amity International

Business School, Amity University, Noida.

ARPIT VERMA/ A1802012113/ AIBS, AMITY UNIVERSITY, NOIDA

Acknowledgements

I take this opportunity to express my heartfelt thanks to CA Gaurav Gupta, Senior Accounts

Officer at Pipelines Division, Head Office, Noida (IOCL). He has been the guiding light in the

organization right from first day of my joining. He has always had trust in my abilities and has

appreciated the same. The project would not have been complete without his immense guidance

and support.

I would also like to thank Ms Navleen Kaur, Assistant Professor, AIBS, Amity University ,

Noida, who has been available at all time to help and support me whenever I needed during the

course of my internship.

I am extremely indebted to Ms. Deepti Goel , Senior Accounts Officers at Pipelines Division,

Head Office, Noida (IOCL) and the Technical Department for providing me with valuable

inputs that helped me in my study.

ARPIT VERMA/ A1802012113/ AIBS, AMITY UNIVERSITY, NOIDA

TABLE OF CONTENTS

Authorization .............................................................................. Error! Bookmark not defined.

Acknowledgement ...................................................................... Error! Bookmark not defined.

Executive Summary ................................................................... Error! Bookmark not defined.

Introduction to the report............................................................................................................. 8

Capital Investment Analysis in IOCL ....................................................................................... 43

Objective of the study ................................................................ Error! Bookmark not defined.

Methodology .............................................................................. Error! Bookmark not defined.

Limitations ................................................................................................................................ 57

Introduction about Oil & Gas sector .......................................... Error! Bookmark not defined.

History of Oil and Gas sector In India ....................................... Error! Bookmark not defined.

Economic Analysis of the Sector ............................................... Error! Bookmark not defined.

Trend Analysis ........................................................................... Error! Bookmark not defined.

Oil Reserves ................................................................................... Error! Bookmark not defined.

Price build-up for petrol in India – an example using Delhi city ............. Error! Bookmark not

defined.

Downstream Players in India ..................................................... Error! Bookmark not defined.

Company Overview.................................................................... Error! Bookmark not defined.

IOCL‟s dominance in downstream Oil sector ............................ Error! Bookmark not defined.

Corporate History ....................................................................... Error! Bookmark not defined.

Major Proven Track Record of IOCL ........................................ Error! Bookmark not defined.

Subsidiaries and Joint Ventures ................................................. Error! Bookmark not defined.

Highlights of Beyond Boundaries Subsidiaries ......................... Error! Bookmark not defined.

Core operations .......................................................................... Error! Bookmark not defined.

Board Structure &Shareholding Pattern ..................................... Error! Bookmark not defined.

Project Proposal.......................................................................... Error! Bookmark not defined.

Brief Description of the Proposal ............................................... Error! Bookmark not defined.

Completion Schedule ................................................................. Error! Bookmark not defined.

Need and Justification of the Proposal ....................................... Error! Bookmark not defined.

ARPIT VERMA/ A1802012113/ AIBS, AMITY UNIVERSITY, NOIDA

Estimation of Capital Cost ......................................................... Error! Bookmark not defined.

Estimation of Operating Cost ..................................................... Error! Bookmark not defined.

Phasing of Expenditure .............................................................. Error! Bookmark not defined.

Calculation of Interest on Capital Cost ...................................... Error! Bookmark not defined.

Analysis of Financial Viability .................................................. Error! Bookmark not defined.

Conclusion .................................................................................. Error! Bookmark not defined.

Analysis of Risk and Assessment............................................... Error! Bookmark not defined.

Conclusion .................................................................................. Error! Bookmark not defined.

Recommendations ...................................................................... Error! Bookmark not defined.

Benefits to the Organization ....................................................... Error! Bookmark not defined.

Learning from the SIP ................................................................ Error! Bookmark not defined.

Attachments ................................................................................ Error! Bookmark not defined.

References ............................................................................................................................... 121

ARPIT VERMA/ A1802012113/ AIBS, AMITY UNIVERSITY, NOIDA

Executive Summary

The project proposed is to study the financial ratio analysis of IOCL for last six to eight years

and making a comparative study for it and also studying the financial feasibility of a major

capital intensive project in the Pipelines Division of Indian Oil Corporation Limited. With an

aim to optimize the transportation tariff, actions have been initiated to put up a branch pipeline

from Barauni-Kanpur Pipeline to Motihari and Baitalpur, which is developed indigenously by

the Company‟s Research & Development department.

The project involved learning the functioning of the Finance department in the pipelines in

analyzing the financial viability of such proposals by the Technical department. The project is

then aimed towards developing an understanding the various guidelines that the company

follows to determine the feasibility of Capital Budgeting decisions. These understanding formed

the basis for conducting the future study necessary to go ahead with the project. The first step in

exercise was to have a brief idea about the background and process description of the

technology, reviewing the need and justification established by the technical department and the

consequences if the project is not implemented. The analysis of available alternatives to fulfill

the same need is also very important. The current throughput of the 3 products i.e. Motor Spirit

(MS), Superior Kerosene Oil (SKO) and High Spirit Diesel (HSD) were compared with their

future throughputs and demands.

The next part of the project involved identifying and bifurcating the details and basis of the

project cost, compare the cost with similar projects and determine the phasing of expenditures.

Finally, the financial analysis of the proposed project was done to determine its viability and

profitability. This analysis is basically required in the pipelines to analyze the financial aspects of

any capital investment project along with its technical feasibility. It is very important for capital

intensive companies to determine the return for every project because an unprofitable venture

might prove disastrous for the growth and survival of the company.

ARPIT VERMA/ A1802012113/ AIBS, AMITY UNIVERSITY, NOIDA

Along with the above mentioned on site project, the report comprises of industry and company

analysis. It focused on building on an understanding of the oil and gas sector in India, in terms of

size of the market, production consumption and other relevant information. This is followed by

an introduction to IOCL, its history and progress, revenues and profitability analysis and

financial ratio analysis.

CHAPTER – 1

INTRODUCTION

ARPIT VERMA/ A1802012113/ AIBS, AMITY UNIVERSITY, NOIDA

Introduction about Oil & Gas sector

The energy sector in India is one of the key economic drivers in India. Fulfilling the need for

energy for both domestic and commercial consumption, the sector has emerged as the 4th

largest

energy consumer in the world, after the United States, China and Japan. As per the Ministry of

Petroleum and natural Gas, oil in India accounts for close to 30% of the total energy consumed.

To satisfy demand, Indian upstream oil companies have acquired stakes in overseas assets.

Existing domestic oil reserves and production is insufficient to meet the demand in India. More

than 80% of India‟s crude oil demand was met through imports as of FY12.Economic growth

witnessed by India, has led to more economic activity across states thus resulting in high demand

for oil and gases to continuous fuel the growth further. Employing more than 1.3 lakhs

individuals and with a favorable policy environment the sector has emerged as one of the key

ARPIT VERMA/ A1802012113/ AIBS, AMITY UNIVERSITY, NOIDA

core sectors driving the economy. The sector is primarily dominated by state owned firms like

ONGC and IOCL. The sector also acts as a major source of tax revenue generation for India‟s

central and state governments. Prices of many oil, natural gas and petroleum products are

controlled by the central government. This sometimes forces downstream companies to sell

finished products at unprofitable prices. Government subsidies partially cover the shortfall, but

this puts a strain on central government finances and bloats the fiscal deficit. In FY13, the

government instituted a slew of reforms geared toward reducing the subsidies, such as limiting

the number of subsidized cylinders and incremental decontrol of diesel prices. These moves are

expected to improve the earnings of industry operators in coming quarters

As per the BP statistics report published in 2013, India has proved oil reserves of about 9.0

billion barrels, with an average production of about 826,000 barrels/day. Indian Oil & Gas sector

has two levels of activities.