Final Project Report on capital and derivative market

8/12/2019 Final Project Report on capital and derivative market

1/47

1

A REPORT

ON

STUDY OF EQUITY AND

DERIVATIVE MARKET IN

INDIA AND

MARKETING OF FINANCIALPRODUCTS

BY

KARUN GUPTA

06BS1505

INDIABULLS


2/47

2

A REPORT

ON

STUDY OF EQUITY AND

DERIVATIVE MARKET IN

INDIA AND

MARKETING OF FINANCIALPRODUCTS

BY

KARUN GUPTA06BS1505

A report submitted in partial fulfillment of therequirements of MBA programme of

ICFAI Business School

Submitted to:

Dr. P.Sashikala, ICFAI Business School.

Mr.Sujeet Ray Chowdhury, Indiabulls.


3/47

3

Acknowledgements:

There are many persons who have helped me during the course ofmy project. On the completion of this project, I would like to thank

them all for their help.I would like to give special thanks to Mr. Sujeet Ray Chowdhury

and Dr. P. Sashikala,for all the help and support given to me

during the course of this project.


4/47

4

TABLE OF CONTENTS

Acknowledgements 4

Abstract 5

1. Introduction 6

1.1 Indiabulls 61.2 About the Project ....7

1.3 Objective 101.4 Limitations 10

1.5 Methodology 11

2. Main Text ....13

2.1 Marketing of Demat Accounts 132.2. Financial Analysis 15

2.2.1 Overview of Oil and Gas Sector ..15

2.2.2. Indian Oil Corporation Limited ..182.2.3 Hindustan Petroleum Corporation Limited ...25

2.2.4 Bharat Petroleum Corporation Limited ..302.2.5 Oil and Natural Gas Corporation Limited ..35

2.2.6 Reliance Industries ...402.2.7 Peer Analysis .45

3. References .46


5/47

5

Abstract:

This project is basically divided into two parts, the first and the major partof the project deals with Marketing of Demat and Trading accounts, offeredby Indiabulls. This project has been given to six students to increase theclient base of the company.

Under this, we had to get new clients for the company, using our contacts,databases of prospective clients, existing clients, references, Internet andlast but not the least, by going on the field and thus convince people and sellthe demat accounts to them.

We also called up inactive clients of Indiabulls and tried to make them activeby solving their problems and convincing them to trade in the market, whichwill lead to increase in the revenue of the company.

The latter part of the project deals with fundamental equity analysis ofstocks of companies related to a particular industrial sector and I amanalyzing Oil and Gas Sector which includes stocks like Hindustan PetroleumCorporation Limited (HPCL), Bharat Petroleum Corporation Limited (BPCL),

Oil and Natural Gas Corporation Limited (ONGC), Indian Oil CorporationLimited (IOCL) and Reliance Industries Limited (RIL).

Each companys stocks had been studied carefully and then the ratios havebeen obtained and a Ratio Analysis has been done and various interpretationshave been given.Apart from Ratio Analysis, the fundamentals of the company were alsostudied and analyzed.


6/47

6

1) Introduction:

1.1) Indiabulls:

Indiabulls is Indias leading Financial Services and Real Estate companyhaving over 640 branches all over India. Indiabulls serves the financial needsof more than 4,50,000 customers with its wide range of financial servicesand products from securities, derivatives trading, depositary services,research & advisory services, consumer secured & unsecured credit, loanagainst shares and mortgage & housing finance. With around 4000

Relationship Managers, Indiabulls helps its clients to satisfy theircustomized financial goals. Indiabulls through its group companies hasentered Indian Real Estate business in 2005. It is currently evaluatingseveral large-scale projects worth several hundred million dollars.

Indiabulls Financial Services Ltd is listed on the National Stock Exchange,Bombay Stock Exchange and Luxembourg Stock Exchange. The marketcapitalization of Indiabulls is around USD 2500 million (29th December2006). Consolidated net worth of the group is around USD 700 million.

Indiabulls and its group companies have attracted USD 500 million of equitycapital in Foreign Direct Investment (FDI) since March 2000.

Some of the large shareholders of Indiabulls are the largest financialinstitutions of the world such as Fidelity Funds, Goldman Sachs, MerrillLynch, Morgan Stanley and Farallon Capital.


7/47

7

1.2) About the Project:

The project is divided into two segments, the first and the major part of

the project deals with the Marketing of Demat Accounts, offered byIndiabulls, and in the latter part, we need to analyze the stocks of aparticular Industrial sector and the sector which I chose is Oil and Gassector.

Marketing of Demat Accounts:

Demat account is an abbreviation of Dematerialized account, which isactually necessary for trading in stock market, i.e. If one wants to trade in

stock market, having a demat account is a must for him/her.

Like, when one wants to save their money, make cheque payments etc, theyneed to open an account with a bank, similarly, If one wants to buy or sellstocks, they need to open a demat account. So basically, demat account is

just like a bank account, where actual money is replaced by shares.

Let's say your portfolio of shares looks like this: 40 of Infosys, 25 ofWipro, 45 of HLL and 100 of ACC. All these will show in your demat account.

So you don't have to possess any physical certificates showing that you ownthese shares. They are all held electronically in your account. As you buy andsell the shares, they are adjusted in your account.

Nowadays, practically all trades have to be settled in dematerialised form.Although the market regulator, the Securities and Exchange Board ofIndia (SEBI), has allowed trades of upto 500 shares to be settled in physicalform, nobody wants physical shares any more. So a demat account is a mustfor trading and investing.

Our job in Indiabulls was to get such clients for the company, who do notonly wish to open a demat account but were also willing to trade regularly. Asthe company earns through brokerage charged per transactions (i.e. when aclient buys or sells shares) and to earn this brokerage, they needed suchclients, who trade on regular basis.


8/47


9/47

9

Financial Analysis:

The latter part of the project consisted of analyzing the stocks of a

particular industrial sector. The sector I chose here was Oil and Gas sectoras this sector has been rapidly growing in recent years and it shows a verypromising future.The analysis of the following stocks was done :

1) Hindustan Petroleum Corporation Limited (HPCL),2) Bharat Petroleum Corporation Limited (BPCL),3) Oil and Natural Gas Corporation Limited (ONGC),4) Indian Oil Corporation (IOC),

5) Reliance Industries Limited (RIL).

The analysis began with collecting the background information about thecompany, followed by the trends i.e. the changing volumes, price patterns,movement of stock price with Nifty or Sensex, in the recent past and aforecast of the stock price movement in the future.

Various Financial Ratios of the company were calculated and a complete Ratioanalysis was done for all the stocks.

The fundamentals of the company were then studied and analyzed.


10/47

10

1.3) Objective:

1) To increase the client base of the company by generating as manyclients as possible.

2) To increase the earnings for the company by activating inactiveclients.

3) To encourage new clients to do more transactions, so that thecompany gets more business.

4) To help the organization provide better service to customers byanalyzing the problems faced by the customer and their satisfactionlevel with the service of Indiabulls

1.4) Limitations:

1) It was very challenging to convince such people to trade in stockmarket, who never did it earlier.

2) Calling up several people throughout the day, who did not showinterest in the product, was a very tedious task.

3) The analysis of various stocks of Oil and Gas sector was verychallenging


11/47

11

1.5) Methodology Used:

For Marketing of Demat Accounts:

1) Collected databases of prospective clients through different sourcesand then made calls to each and every person, and explained him/herabout the product.

2) Used our personal network and thus tried to create a market for thedemat account of Indiabulls.

3) Fixed an appointment with the prospective client who showed interestin the product in the first phase.

4) Explained them thoroughly about the demat account of Indiabulls andhence tried convincing them to open an account with Indiabulls.

5) Completed the registration formalities for the Clients who wereinterested in opening an account with Indiabulls.

6) Helped the clients in trading through Indiabulls.


12/47

12

For Financial Analysis:

The research consisted of basic fundamental analysis of various stocks in

the Oil and Gas Sector.

Financial performance of the company can be analyzed by way of several

techniques. For example, trend analysis from the financial statements is

widely used to judge changes (upward movements or downward movements)

in one piece of financial information over the years. The same way, ratio

analysis is another instrument to analyze the financial performance of the

company by comparing, dividing, or multiplying various financial yardsticks

with each other in order to infer some meaningful and sometimes hidden

fact concerning the financial performance of the company.

In ratio analysis certain yardstick such as sales to asset ratio, return on

equity, Profit before interest, tax, and depreciation, current ratio, interest

coverage ratio and debt equity ratio are rudimentary measurements todeduce the companys financial position. In addition to these, earning per

share and price to equity ratio are also very good indicators

of the share market price movements of the business entity.

If a company has performed quite well on such ratios, it is valid to assume

that the same is delivering value to the share holder. In this case, market

data is derived from the website of Security Exchange Board of India andannual reports of the company concerned.


13/47

13

2) Main Text:

2.1)Marketing of Demat Accounts:To be able to sell a demat Account to a client; I first collected all theinformation about demat accounts in general and the demat account, offeredby Indiabulls.

I also studied and compared the features of the demat account, offered byvarious other companies in the industry as I had to be fully prepared withthe answers to any sort of questions, a client could ask about the product.

The next stage was to search and to contact a prospective client, who couldpossibly be interested in buying the demat account.

To reach our target customers, we had to use various methods to get thecontact details of such prospective clients. Few of these methods to contactprospective clients are discussed below:

1) Cold Calls:

Here, we were supposed to collect contact details of people from corporate

databases, Yellow Pages, Internet and References given by other people. We

then called up such people, explained them about the product, and if the

person was interested, we fixed an appointment and then tried to get the

sales done.

2) Personal Network:

We also used our personal network of friends and family to get leads to

prospective clients.


14/47

14

3) Going on the field:

We also did go to various places, which included some busy commercial areas

in the city and thus did direct marketing and door to door sales of our

product.

The above stages were just used to contact the prospective client and toreach such people, who could possibly be a good client of Indiabulls in future.

When I called up and spoke to various people, I first told them briefly aboutour product and then, if the person was even remotely interested in theproduct, I had to explain them in detail, all the benefits of buying an account

with Indiabulls.

The next stage was to try and fix an appointment with the clients who showinterest during the phone conversation.

After meeting such clients, If the person was convinced to buy the demataccount, we had to finish all the formalities for opening a demat account , i.e.getting all the required documents signed by the client and see to it that theclient doesnt face any problem in activating his/her account.

Once the Clients account was activated, I also had to take care that theclient is actually trading in the stock market and generating business for thecompany. I had to see to it that a client doesnt face any difficulty in tradingthrough Indiabulls, and keep motivating him time to time to trade in stockmarket.

Apart from sales, I was also give a list of clients, who had been inactive inrecent times; I had to call them up and find the reason for them beinginactive and hence try to solve their problem, if it could be solved by thecompany.This was done to generate more business from their existing clients who hadbeen inactive in recent past.


15/47

15

2.2) Financial Analysis:

2.2.1) Overview of Oil & Gas Sector:

The oil and gas industry in recent years has been characterized by risingconsumption of oil products, declining crude production and low reserveaccretion. India remains one of the least-explored countries in the world,with a well density among the lowest in the world. With demand for 100million tonne, India is the 4thlargest oil consumption zone in Asia, eventhough on a per capita basis the consumption is a mere 0.1 tonne, the lowestin the region This makes the prospects of the Indian Oil industry even moreexciting.

The sector is among the largest contributors to the central and stateexchequers in India. Its share approximates US$13.58 billion. Driven by aboom in the automobiles sector, demand in the Indian oil sector has beengrowing consistently.

India ranks sixth in the world in terms of petroleum demand, of which 70per cent is met through import of crude oil. By 2010, India is projected toreplace South Korea and emerge as the fourth-largest consumer of energy,after the United States, China and Japan.

The significance of the Indian Oil & Gas Sector can be gauged from thefollowing facts:

Largest contributor to the national exchequer in 2004-05 with taxesamounting to US$ 27 billion.

Oil & Gas constituted 40 per cent of primary energy source in 2004.

India is sixth largest crude oil consumer in the world with consumptionat 119.3 MMT in 2004.


16/47

16

Petroleum, Oil Lubricants (PoL) imports is 28 per cent (Source : PwCAnalysis) of the total imports of India and PoL exports is 8 per cent oftotal exports for 2004-05.

All five Indian companies appearing on the Fortune 500 list operate inthe Oil & Gas sector.

India is Ninth largest crude oil importer in the world.

India ranks sixth in refining capacity in the world with capacity at 2.5million barrels of oil per day in 2004 which is 3 per cent of the worldsrefining capacity.

Reliance Industries Ltd (RIL) in India is the third largest refinery in theworld with a capacity of 33 MMTPA.

The Key players in this sector, on which the research would be done are:

1) Indian Oil Corporation (IOC),2) Hindustan Petroleum Corporation Limited (HPCL),3) Bharat Petroleum Corporation Limited (BPCL),4) Oil and Natural Gas Corporation Limited (ONGC),5) Reliance Industries Limited (RIL).

A brief introduction about the said companies is given in the followingtable:


17/47

17


18/47

18

2.2.2)Indian Oil Corporation Limited:

Indian Oil Corporation Ltd. (IOCL) was formed in 1964 through the merger

of Indian Oil Company Ltd. (Estd. 1959) and Indian Refineries Ltd. (Estd.1958).

It is currently Indias largest company by sales with a turnover of Rs.1,83,204 crore (US $ 41 billion) and profits of Rs. 4,915 crore (US $ 1.10billion) for fiscal 2005.

Indian Oil is also the highest ranked Indian company in the prestigiousFortune Global 500 listing, having moved up 17 places to the153rd position

this year based on fiscal 2005 performance. It is also the 21st largestpetroleum company in the world and the # 1 petroleum trading companyamong the National Oil Companies in the Asia-Pacific region.

Indian Oil and its subsidiaries account for 47% petroleum products marketshare among public sector oil companies, 43.5% national refining capacity and74% petroleum products pipeline capacity.

The Indian Oil Group of companies owns and operates 10 of Indias 18

refineries with a combined refining capacity of 60.20 million tonnes perannum (1.2 million barrels per day). These include two refineries ofsubsidiary Chennai Petroleum Corporation Ltd. (CPCL) and one of BongaigaonRefinery and Petrochemicals Limited (BRPL).

The Companys cross-country crude oil and product pipelines networkspanning over 9,000 km meets the vital energy needs of the country.

To maintain its competitive edge and leadership status, Indian Oil is

investing Rs. 24,400 crore (US $ 5.5 billion) during the X Plan period (2002-07) in integration and diversification projects, besides refining and pipelinecapacity augmentation, product quality upgradation and expansion ofmarketing infrastructure.


19/47

19

As the flagship national oil company in the downstream sector, Indian Oil,together with its marketing subsidiary, IBP Co. Ltd., reaches preciouspetroleum products to millions of people everyday through a countrywidenetwork of over 30,000 sales points. They are backed for supplies by 183

bulk storage terminals and depots, 97 aviation fuel stations and 88 IndaneLPG bottling plants.

Indian Oil, together with IBP, operates the largest and the widest networkof petrol & diesel stations in the country, numbering over 15,000. It reachesIndane cooking gas to the doorsteps of 43.4 million customers in 2,546markets through a network of 4,856 Indane distributors.

The above graph indicates the performance of the Indian Oil CorporationStock in Last Five Years.


20/47

20

Key Financial Ratios:

Mar '02 Mar '03 Mar '04 Mar '05 Mar '06

Profitability Ratios

Adjusted Net Profit Margin (%) 2.51 4.93 5.22 3.18 2.54

Cash Profit Margin (%) 3.70 6.26 6.62 4.53 3.68

Gross Profit Margin (%) 5.19 8.11 8.62 5.23 4.61

Operating Profit Margin (%) 6.56 8.77 8.98 5.62 5.15

Profit Before Interest And Tax Margin (%) 5.36 7.43 7.58 4.27 4.02

Return On Capital Employed (%) 17.46 27.32 29.68 16.73 15.69

Return On Net Worth (%) 18.44 35.72 33.38 19.95 17.78

Management Efficiency Ratios

Debtors Turnover Ratio 26.74 31.24 33.60 31.79 31.19

Fixed Assets Turnover Ratio 4.05 3.88 3.80 4.03 4.62

Inventory Turnover Ratio 11.17 10.15 9.26 8.92 8.83

Total Assets Turnover Ratio 3.26 3.68 3.92 3.92 3.91

Liquidity And Solvency Ratios

Current Ratio 0.79 0.79 0.90 0.90 0.88

Debt Equity Ratio 1.27 0.98 0.64 0.60 0.79

Long Term Debt Equity Ratio 0.48 0.47 0.36 0.29 0.38

Debt Coverage Ratios

Interest Cover 3.93 11.31 21.58 10.86 7.37


21/47

21

Ratio Analysis:

Gross Profit Margin (%):

The gross profit margin is a measurement of a companys manufacturing anddistribution efficiency during the production process. The gross profit tellsan investor the percentage of revenue / sales left after subtracting thecost of goods sold. A company that boasts a higher gross profit margin thanits competitors and industry is more efficient. Investors tend to pay morefor businesses that have higher efficiency ratings than their competitors, asthese businesses should be able to make a decent profit as long as overhead

costs are controlled [overhead refers to rent, utilities, etc.]

The gross margin tends to remain stable over time. Significant fluctuationscan be a potential sign of fraud or accounting irregularities.

Here, the gross profit margin did increase from 5.19 % in Financial Year (FY)2002 to 8.62 % in FY 2004 and then decreased to 4.61 % in FY 2006. It didshow inconsistency in its gross profit margin over the period of five years.There is not so much to worry about, but the company needs to get more

consistent and maintain stable margin over a period if time.

Return on Capital Employed (%):

Return on Capital Employed is sometimes referred to as the "primary ratio";it tells us what returns management has made on the resources madeavailable to them before making any distribution of those returns. It canalso be referred to percentage earnings on capital invested in the businessby the shareholders.

Here the returns increased from 17.46% in FY 2002 to 29.68% in FY 2004and then again decreased to 15.69% in FY 2006. So, again this shows that itis not consistent enough.


22/47

22

Asset Turnover Ratio:

This ratio indicates of how efficiently the firm utilizes its assets. Theysometime are referred to as efficiency ratios, asset utilization ratios, orasset management ratios.The asset turnover ratio calculates the total sales for each rupee of asset acompany owns. The higher the number of the ratio, the better it is, for thecompany. The higher a companys asset turnover, the lower its profit margintends to be and Vice versa.

Here, Indian Oil Corporations Asset turnover ratio did increase over a

period of time and is stable since last 3 years, so its actually a good sign forthe company.

Current Ratio:

Current Ratio is calculated by dividing current liabilities from currentassets. It simply means that the number of times that the short term assetscan cover short term debts. It indicates the ability to meet short term

obligations as they come due.Short term creditors prefer a high current ratio since it reduces their risk.Shareholders may prefer a lower current ratio so that more of the firmsassets are working to grow the business.As per industry norm, current ratio of 1.5 is preferred, which means thatthe company has the capacity to overcome its current liabilities by just usingtwo-third of its current assets.

Here the current ratio is less than even 1 and has been in a narrow range of

0.79 and 0.90, over a period of five years. This low ratio indicates that thecompany uses most of its assets to grow the business and keep less of themin the form of current assets.


23/47

23

Debt Equity Ratio:

Debt to Equity Ratio indicates the proportion of equity and debt that thecompany is using to finance its assets. It is calculated by dividing totalequity from total liabilities.It means the number of times of debt for every rupee of equity.Lower the ratio, Safer it is for the company and Higher the ratio, higher isthe risk for the company and investors.

Here, the debt-equity ratio of IOCL decreased in regular intervals from1.27 in FY 2002 to 0.60 in FY 2005 and then increased to 0.79 in FY 2006,

this indicates that the company gradually decreased the risk and opted for asafer approach in its financing over a period of years.

Interest Cover:

The interest coverage ratio is a measurement of the number of times acompany could make its interest payments with its earnings before interestand taxes; the lower the ratio, the higher the companys debt burden.

As a general rule of thumb, investors should not own a stock that has aninterest coverage ratio under 1.5. An interest coverage ratio below 1.0indicates the business is having difficulties generating the cash necessary topay its interest obligations.

In this case, one does not need to worry about the interest coverage ratio,as the company has a very high ratio and have maintained that consistently.Though again, in last two years, the ratio has been decreased considerably,but it is not a matter of concern as the ratio is still higher than ideal ratio

of 1.5


24/47

24

The table below shows the fundamental information of the Company, theIndustry to which it belongs, i.e. Oil and Gas Sector and the Market aswhole.

The Bar graph below show the Annual Earning Per Share (EPS) Trend of thecompany.It also shows the projected EPS for the company in next financial year.


25/47

25

2.2.3) Hindustan Petroleum Corporation Limited:

HPCL is a Fortune 500 company, with an annual turnover of over Rs 74,044crores, 20% refining & marketing share in India and a strong marketinfrastructure. The Corporation operates 2 major refineries producing awide variety of petroleum fuels & specialities, one in Mumbai (West Coast)of 5.5 MMTPA capacity and the other in Vishakapatnam (East Coast) with acapacity of 7.5 MMTPA. HPCL holds an equity stake of 16.95% in MangaloreRefinery & Petrochemicals Limited, a state-of-the-art refinery at Mangalorewith a capacity of 9 MMTPA. In addition, HPCL is progressing towardssetting up of a refinery in the state of Punjab.

HPCL also owns and operates the largest Lube Refinery in the countryproducing Lube Base Oils of international standards. With a capacity of335,000 Metric Tones this Lube Refinery accounts for over 40% of thecountry's total Lube Base Oil production.The vast marketing network of the Corporation consists of Zonal offices inthe 4 metro cities and 85 regional offices facilitated by a supply &distribution infrastructure comprising Terminals, Aviation Service Stations,Bottling Plants, and Inland Relay Depots & Retail Outlets.

The Corporation over the years has moved from strength to strength on allfronts. Our refining capacity steadily increased from 5.5 million tonnes in1984/85 to 13.82 million tonnes presently. On the financial front, theturnover grew from Rs. 2687 crores in 1984-85 to an impressive Rs 74,044crores in 2005 - 06.


26/47

26

The above graph indicates the performance of the HPCL Stock in Last Fiveyears.


27/47

27


Mar'02

Mar'03

Mar'04

Mar'05

Mar'06





Operating Profit Margin (%)

4.57 5.76 6.30 3.62 1.46

Profit Before Interest And Tax Margin

(%)

3.40 4.71 5.25 2.62 0.57









Current Ratio 0.96 0.83 0.88 0.91 0.94




Interest Cover 5.15 16.76 54.56 21.10 2.80


28/47

28

Ratio Analysis:


HPCL showed consistent and gradual increase in its Gross Profit Margin fromFY 2002 to FY 2004 and then decreased considerably to a very lowpercentage in FY 2005 and FY 2006. This is the serious matter of concernfor the investors and the company should be working hard to increase thisPercentage of Gross Profit Margin in future years.


HPCL showed a very consistent increase from FY 2002 to FY 2004. Itincreased gradually from 15.87 % in FY 2002 to 34.72 % in FY 2004. Butthen, after that it really decreased considerably to a very low percentage.It first decreased to 17.16 % in FY 2005 and then decreased to 3.41 % in FY2006.This is very bad news for the investors and for the company.Such considerable decrease in the percentage earnings on capital invested inthe business by the shareholders can be very disappointing for the investorsand the company should take care of it now and generate better returns infuture.


The ratio here has gradually and consistently increased since FY 2002 to FY2004. It increased from 4.66 in FY 2002 to 6.61 in FY 2004 and thendecreased to 6.55 in FY 2005 and then to 5.95 in FY 2006. These ratios

show that the company has been quite efficient over the period of years.

Debt Equity Ratio:

The Debt-Equity ratio of HPCL decreased gradually from 0.54 in FY 2002 to0.21 in FY 2004 and then increased to 0.24 in FY 2005 and to 0.52 in FY2006. It shows that the Debt holding pattern in the company is inconsistent.


29/47

29

The table below shows the fundamental information of the Company, theIndustry to which it belongs, i.e. Oil and Gas Sector and the Market as

whole.

The above statistics show that HPCL generates 15.5 % of the Revenuegenerated by Oil and Gas Sector completely and 10.7 % of the Revenuegenerated by whole Market.This is actually a good sign for the company and the investors that thecompany is generating good amount of revenue.



30/47

30

2.2.4) Bharat Petroleum Corporation Limited:

Bharat Petroleum Corporation Limited (BPCL) is one of India's largest PublicSector Undertaking companies.

It is engaged in the petroleum industry in India. The Company has refineriesat Mumbai and Kochi with a capacity of 12 million metric tons (MMT) and 7.5MMT per annum, respectively, for refining crude oil. The Company holds a62.96% interest in Numaligarh Refinery Ltd. The crude oil processed at thisrefinery as of March 31, 2006, was 2.13 MMT. Bharat Shell Limited, a jointventure company between Bharat Petroleum Corporation Limited and ShellOverseas Investment markets Shell branded products. The Companyproduces a wide variety of petroleum products, including diesel oil, fuel oil,aviation fuels, naphtha, liquefied petroleum gas (LPG), automotive LPG,benzene, toluene, sulphur and bitumen.

BPCL was featured on the Forbes Global 2000list for 2005at position 1087and It is a Fortune Global 500 Company as per the ranking of 2006,it wasranked at position 368

Mahendra Singh Dhonisigned on as the Brand Ambassador for BPCL in 2006.


31/47

31

The above graph indicates the performance of the Bharat petroleumCorporation Stock in last five years.


32/47

32


Mar'02

Mar'03

Mar'04

Mar'05

Mar'06






Profit Before Interest And TaxMargin (%)

4.10 4.62 5.13 2.34 0.77









Current Ratio 0.77 0.73 0.79 0.80 0.81




Interest Cover 5.32 9.06 26.01 10.68 2.64


33/47

33

Ratio Analysis:


Though this stock had a decent increase in gross profit margin from 4.54 %in FY 2002 to 5.98 % in FY 2004, but the decrease to 3.06 in FY 2005 andthen to 1.38 in FY 2006 is the matter of concern for the investors. Thecompany needs to be consistent and gradually increase its Percentage ofGross Profit Margin.


BPCL showed a very consistent increase from FY 2002 to FY 2004. Itincreased gradually from 20.32 % in FY 2002 to 33.07 % in FY 2004. Butthen, after that it really decreased considerably to a very low percentage.It first decreased to 15.91 % in FY 2005 and then decreased to 4.71 % in FY2006.This is very bad news for the investors and for the company.

Such considerable decrease in the percentage earnings on capital invested inthe business by the shareholders can be very disappointing for the investorsand the company should take care of it now and generate better returns infuture.


The ratio here has gradually and consistently increased since FY 2002 to FY2005. It increased from 4.95 in FY 2002 to 6.79 in FY 2005 and thendecreased to 6.13 in FY 2006. These ratios show that the company has beenquite efficient over the period of years.

Debt Equity Ratio:


34/47

34

The Debt-Equity ratio of BPCL decreased in regular intervals from 0.99 inFY 2002 to 0.54 in FY 2005 and then increased to 0.79 in FY 2006.Thisindicates that the company gradually decreased the risk and opted for asafer approach in its financing over a period of years.




35/47

35

2.2.5) Oil and Natural Gas Corporation Limited:

Oil and Natural Gas Corporation Limited (ONGC) was set up as a Commissionon August 14, 1956. The company, which is located in Dehradun, India,became a corporate on June 23, 1993, which has now grown into a full-fledged horizontally integrated petroleum company. Today, ONGC is aflagship public sector enterprise and Indias highest profit makingcorporate, achieving the record of being the first Indian corporate to

register a five digit profit figure of Rs. 10,529 Crore in the year 2002-03.Indian government holds 74.14% equity stake in this company.

ONGC has produced more than 600 million metric tonnes of crude oil andsupplied more than 200 billion cubic metres of gas since its inception, thusfuelling the increasing energy requirements of the Indian economy. Today,ONGC is a Fortune Global 500 Company and is also the most valuablecompany in India, contributing 77 percent of Indias crude oil production and81 per cent of Indias natural gas production.

To sustain this growth, ONGC has drawn up ambitious strategic objectives,which include doubling the oil and gas reserves. Having accreted six billiontonnes oil and oil equivalent reserves in its first 45 years of operation,ONGC now aims to double these reserves by 2020. The second strategicobjective is to augment the global recovery factor from the existing 28 percent to the global norm of 40 per cent in next 20 years.

Out of the six billion tonnes of oil and gas reserve accretion, four billion

tonnes is expected to come from Offshore and Deep Waters. To improvethe recovery factor from the existing fields, ONGC is investing Rs. 2,000crore in 15 re-development schemes.


36/47

36

The above graph indicates the performance of ONGC Stock in Last Five

years.


37/47

37


Mar

'02

Mar

'03

Mar

'04

Mar

'05

Mar

'06






Profit Before Interest And Tax Margin(%)

43.44 46.74 41.98 42.18 45.35









Current Ratio 1.37 1.24 1.34 1.45 1.44




Interest Cover 42.44 143.42 296.43 525.37 465.95


38/47

38

Ratio Analysis:


This is probably the best stock the investor can have in terms of GrossProfit Margin. The company has been consistent and maintained a stable anda very high Percentage of Gross Profit Margin


ONGC showed a very promising increasing in the Percentage of Return onCapital employed from FY 2002 to FY 2003. It considerably increased from29.84 % to 46.77 % and then decreased to 31.09 % in FY 2004 and sincethen it has increased gradually to 35.71 % in FY 2006. This is a very positivesign for the investors, as the company is maintaining such high percentage ofreturn on capital employed.


The ratio here increased from 69 % in FY 2002 to 100 % in FY 2003, It thendecreased to 74 % in FY 2004 and then increased to 87 % in FY 2005 andthen again decreased to 79 % in FY 2006. This shows that the trend wasquite inconsistent for the stock, but it has been quite efficient. It shouldwork towards improving the consistency and also the efficiency.

Debt Equity Ratio:

The Ratio here is very low, when compared to its competitors. It shows thatthe company follows a safer approach then its competitors.


39/47

39

The ratio decreased from 13 % in FY 2002 to 7 % in FY 2003 and then againincreased to 16 % in FY 2004 and then to 24 % in FY 2005 and then finallydecreased to 22 % in FY 2006.

Interest Cover:

In this case, one does not even need to think about the interest coverageratio, as the company has a very high ratio and it kept increasingconsiderably in each financial year.It increased from 42.44 in FY 2002 to 525.37 in FY 2005 and then it

decreased to 465.95 in FY 2006. As far as Interest Cover is concerned, thecompany is doing extremely well by maintaining such Interest Cover Ratios.




40/47

40

2.2.6) Reliance Industries:Reliance Industries is India's largest private sectorcompany with a turnoverof US $19.976 billion and profit of US $2.033 billion for the fiscal yearending in March 2006making it India's first and only private sector Fortune500 company. It was founded by the late Dhirubhai Ambaniin the 1970s.After severe differences between the two sons of the founder DhirubhaiAmbani, the group was divided between the two sons Mukesh and AnilAmbani in 2006.

Reliance ( RIL ) enjoys global leadership in its businesses, being the largestpolyester yarn and fibre producer in the world and among the top five to tenproducers in the world in major petrochemical products.

The Group exports products in excess of USD 11 billion to more than 100countries in the world. There are more than 25,000 employees on the rollsof Group Companies. Major Group Companies are Reliance Industries Limited(including main subsidiaries Reliance Petroleum Limited and Reliance Retaillimited), Indian Petrochemicals Corporation Limited and Reliance IndustrialInfrastructure Limited.

Among Indian shareholders25% own a Reliance share. Reliance has morethan 3 million shareholders, making it one of the world's most widely heldstocks. Reliance Industries Limited. , subsequent to its split in January 2006


41/47

41

has continued to grow from strength to strength. Reliance companies havebeen among the best performing in the Indian stock market.

The above graph indicates the performance of the Reliance Industries Stock

in Last Five years.


42/47


43/47

43

Ratio Analysis:


Reliance has a very good percentage of gross profit margin and it has beenconsistent over the period of five years. Its a good sign for the company aswell as investors.


The Return on Capital Employed for Reliance has also been very consistentand very stable. The company needs to maintain this consistency and work toincrease the return.


Here, the Asset Turnover Ratio has been quite stable throughout. Thecompany should maintain the consistency and try to increase the efficiencyfurther.

Debt Equity Ratio:

The Debt-Equity ratio of Reliance Industries decreased in regular intervalsfrom 0.78 in FY 2002 to 0.49 in FY 2006. This indicates that the companygradually decreased the risk and opted for a safer approach in its financing

over a period of years.


44/47

44




45/47


46/47

46

3)References:1) www.bseindia.com2) www.nseindia.com3) www.icicidirect.com4) www.moneycontrol.com5) www.indiabulls.com

6) www.hindustanpetroleum.com7) www.bharatpetroleum.com8) www.ongcindia.com9) www.ril.com10) www.iocl.com11) www.netmba.com12) www.google.com13) Stock Market Analysis for Intelligent Investors - N J Yasaswy

14) Company Annual Reports


47/47

Documents

Final Project Report on capital and derivative market