Chapter 1

Introduction

The traditional financial statements comprising the balance sheet and the profit

and loss account is that they do not give all the information related to the financial

operations of a firm. Nevertheless, they provide some extremely useful information to the

extent that the balance sheet mirrors the financial position on a particular date in terms of

the structure of assets, liabilities and owners’ equity, and so on and the profit and loss

account shows the results of operations during the year. Thus, the financial statements

provide a summarized view of the financial position and operations of a firm. Therefore,

much can be learnt about a firm from a careful examination of its financial statements as

invaluable documents / performance reports. The analysis of financial statements is, thus,

an important aid to financial analysis.

The analysis of financial statements is a process of evaluating the relationship

between component parts of financial statements to obtain a better understanding of the

firm’s position and performance. The first task of the financial analyst is to select the

information relevant to the decision under consideration from the total information

contained in the financial statements. The second step is to arrange the information in a

way to highlight significant relationships. The final step is interpretation and drawing of

inferences and conclusions. In brief, financial analysis is the process of selection and

evaluation.

MEANING AND RATIONALE

Ratio analysis is a widely-used tool of financial analysis. It can be used to

compare the risk and return relationships of firms of different sizes. It is defined as the

systematic use of ratios to interpret the financial statements so that the strengths and

weaknesses of a firm as well as its historical performance and current financial condition

can be determined. The term ration refers to the numerical or quantitative relationship

between two items/variables.

1

What the ratios do is that they reveal the relationship in a more meaningful way

so as to enable equity investors, management and lenders make better investment and

credit decisions.

The rationale of ratio analysis lies in the fact that it makes related information

comparable. A single figure by itself has no meaning but when expressed in terms of a

related figure, it yields significant inferences.

BASIS OF COMPARISON

Ratios reflect the relationship between variables. They enable to draw conclusions

regarding financial operations. The use of ratios, as a tool of financial analysis, involves

their comparison, for a single ratio, like absolute figures, fails to reveal the true position.

Comparison with related facts is, therefore, the basis of ratio analysis. Four types of

comparisons are involved: (i) trend ratios, (ii) inter firm comparison, (iii) comparison of

items comparisons within a single year’s financial statement of a firm, and (iv)

comparison with standards or plans.

Trend ratios involve a comparison of the ratios of a firm over time, that is,

present ratios are compared with past ratios for the same firm. The comparison of the

profitability of a firm, say, year 1 through 5 is an illustration of a trend ratio. Trend ratios

indicate the direction of change in the performance-improvement, deterioration or

constancy-over the years.

The inter firm comparison involving comparison of the ratios of a firm with

those of others in the same line of business or for the industry as a whole reflects its

performance in relation to its competitors.

Other types of comparison may relate to comparison of items within a single

year’s financial statement of a firm and comparison with standards or plans.

2

TYPES OF RATIOS

Ratios can be classified into six broad groups:

i) Liquidity ratios

ii) Capital structure / leverage ratios

iii) Profitability ratios

iv) Activity / Efficiency ratios

v) Integrated analysis of ratios and

vi) Growth ratios.

ACQUISITION / TAKEOVERS

Takeover implies acquisition of controlling interest in a company by another

company. It does not lead to the dissolution of the company whose shares are being/have

been acquired. It simply means a change of controlling inter3est in a company through

the acquisition of its shares by another group. Takeovers can assume three forms: (i)

negotiated/friendly, (ii) open market/hostile and (iii) bail out. The first type of takeover is

organized by the incumbent management with a view to parting with the control of

management to another group, through negotiation. The terms and conditions of the

takeover are mutually settled by both the groups. Hostile takeovers are also referred to as

raid on the company. In order to takeover the management of, or acquire controlling

interest in, the target company, a person/group of persons acquire shares from the open

market/financial institutions/mutual funds/willing shareholders at a price higher than the

prevailing market price. Such takeovers are hostile to the existing management. When a

profit earning company takes over a financially sick company to bail it out, it is known as

bail out takeover. Normally, such takeovers are in pursuance of a scheme of

rehabilitation approved by public financial institutions/scheduled banks. The takeover

bids, in respect of purchase price, track record of the acquirer and his financial position,

are evaluated by a leading financial institution. Corporate takeovers in the country are

governed by the listing agreement with stock exchanges and the SEBI Substantial

Acquisition of Shares and Takeover (SEBI Code) Code. The main elements of the

regulatory framework for takeovers are briefly described below.

3

Listing Agreement: The takeover of companies listed on the stock exchanges is

regulated by Clause 40-A and 40-B of the listing agreement. While Clause 40-A deals

with conditions for continued listing, Clause 40-B contains the requirements to be met

when a takeover offer is made.

Conditions for continued Listing: The company agrees that the following would also be

the conditions for continued listing:

(a) When a person acquires or agrees to acquire 5 percent or more of the voting rights

of any securities, the acquirer and the company should comply with the relevant

provisions of the SEBI Takeover Code.

(b) When any person acquires/agrees to acquire any securities exceeding 15 percent

of the voting rights in a company or if any person who holds securities carrying,

in aggregate, less than 15 percent of the voting rights and seeks to acquire

securities exceeding 15 percent of the voting rights of the company, he should

comply with the relevant provisions of the SEBI Takeover Code.

Takeover Offer: The company also agrees that it is a condition for continuous listing

that whenever the takeover offer is made or there is any change in the control of the

management of the company, the person who secures the control and the company whose

shares have been acquired would comply with the relevant provisions of the SEBI

Takeover Code.

The SEBI Substantial Acquisition of Shares and Takeover Code (SEBI Takeover

Code): A takeover bid is generally understood to imply the acquisition of shares carrying

voting rights in a company, in a direct or indirect manner, with a view to gaining control

over the management of the company. Such takeovers could take place through a process

of friendly negotiation or in a hostile manner, in which the existing management resists

the change in control. Both the substantial acquisition of a shares and change in the

control of a listed company are covered by takeover bids. The main elements of the SEBI

Code are: (i) disclosure of shareholding and control in a listed company, (ii) substantial

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acquisition of shares / voting rights/control, (iii) bail out takeovers and (iv)

investigation/action by the SEBI.

Bail Out Takeovers Such takeovers refer to a substantial acquisition of shares in a

financially weak company, not being a sick industrial company, in pursuance to a scheme

of rehabilitation approved by a public financial institution or a scheduled bank (lead

institution). A financially weak company means a company that has at the end of the

previous financial year accumulated losses, which have resulted in the erosion of more

than 50 percent but less than 100 percent of its net worth (the sum total of the paid-up

capital and free reserves) at the beginning of the previous financial year.

HOSTILE TAKEOVER

Strategies: The acquirer company can use any of the following techniques aimed at

taking over the target company.

Street Sweep: This technique requires that the acquirer should accumulate large amounts

of stock in a company before making an open offer. The advantage is that the target firm

is left with no choice but to give in.

Bear Hug: In this case, the acquirer puts pressure on the management of the target

company by threatening to make an open offer. The board capitulates straightway and

agrees to a settlement with the acquirer for change of control.

Strategic Alliance: This strategy involves disarming the opposition by offering a

partnership rather than a buyout. The acquirer should assert control from within and

takeover the target company.

Band Power: This implies entering into an alliance with powerful brands to displace the

partner’s brands and, as a result, buy out the weakened company.

Defensive strategies: The target company can also use one of the following strategies to

defend itself against the attack mounted by the acquiring company in its bid for open

market takeover.

Poison Pill: This strategy involves issue of low price preferential shares to existing share

holders to enlarge the capital base. This would make hostile takeover too expensive.

5

Poison Put: In this case, the target company can issue bonds that encourage holders to

cash in at high prices. The resultant cash drainage would make the target unattractive.

Greenmail: In this strategy, the target company should repurchase the shares cornered by

the raider. The profits made by the raider are after all akin to blackmail and this would

keep the raider at a distance from the target.

Pac-man Defense; this strategy aims at the target company making a counter bid for the

raider’s company. This would force the raider to defend himself and consequently call off

his raid.

White Knight: In order to repel the move of the raider, the target company can make an

appeal to a friendly company to buy the whole, or part, of the company. The

understanding is that the friendly buyer promises not to dislodge the management of the

target company.

White Squire: This strategy is essentially the same as White Knight and involves sell out

of shares to a company that is not interested in the takeover. As a consequence, the

management of the target company retains its control over the company.

Evidently, hostile takeovers, as far as possible, should be avoided as they are

more difficult to consummate; in other words, friendly takeovers are better forms of

corporate restructuring.

6

Chapter 2

Design of the project

Objectives

1. To ascertain the main reasons for incurring loss by the company prior to takeover

by ONGC.

2. To study the impact on the financials of the company post-takeover.

3. To ascertain the long term benefits for the company due to takeover.

4. To find out the current financial position of MRPL.

Research methodology.

The research methodology used in here is analysis of secondary data such as the

annual reports and published data from the company website. The main objective of this

study is to find out the impact on the financials of MRPL by ONGC stake holding from

March 2003. For the study, the balance sheet of the company for the past 3 years i.e.,

from 2003 to 2005 is being used and the data collected from the study is mainly from the

annual reports and also company details provided by the guide.

Limitations

1. The fortune of MRPL is tied with the volatility international prices of crude and

products.

2. Domestic sale contribute to the major part of the revenue of MRPL. This state of

economy directly influences the turnover and profitability of the company.

3. Customs and excise duty regime on the petroleum products and crude oil exert

significant influence on the margins of the company.

7

4. The financial data analysis done as a part of the study is based on different

financial ratios. Thus the inferences from the analysis are subject to all the

limitations of a typical ratio analysis exercise.

5. The precision of the analysis might have been affected by the window dressing of

financial data.

Data and tools of analysis.

1. The Ratio Analysis has been used.

2. To compare between present performances with past performance Comparative

Financial Statement from 2003 to 2005 is used.

The collected data was classified, tabulated and analyzed with the help of tools in MS-

Excel.

8

Chapter 3

Industry profile

Introduction

Oil, gas, hydroelectricity, nuclear power and coal are the constituents of

conventionally used primary energy. Wind and Solar are the examples of non-

conventional sources.

Driven by a boom in the automobiles sector, demand in the Indian oil sector has been

growing consistently. There is a huge potential for demand growth in India because of

higher rate consumption compared to the World average and increasing share of oil and

gas in primary energy consumption. The oil and gas sector gained importance on account

of its multiple and cost-effective application compared to coal, hydroelectricity. Oil

prices have a significant impact on the economy.

IMPORTANCE OF OIL AND GAS IN THE ECONOMY

The oil and gas sector spares and equal importance worldwide. If contributes to

foreign exchange reserves through exports, for countries, like Russia where nearly half

the currency earnings corns prove crude oil exports oil has varied applications in different

segments of the economy. Natural gas is used for lighting and cooling purposes in urban

areas and for transportation. The sector also its use in manufacturing plastics, clothes,

fertilizers, ropes etc.

Gas became important since the oil price stocks, which led to supply descriptions,

inflation, output loss and reversion.

Crude oil and refined petroleum products account for about 30% of India’s total imports.

The Indian oil sector is under the purview of the Ministry of Petroleum and

Natural Gas (MoP&NG). The oil and gas sector has 3 sub sectors: Oil and Gas

Exploration and Production (E&P), Oil Refining and Marketing of refined products

(R&M) and Distribution of Natural Gas.

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3.1 Diagram showing Indian Petroleum Sector

Oil Exploration and Production (Upstream Sector)

Oil and gas is expected to experience a sustained growth in demand, which is

primarily a function of economic growth. As per the MoP & NG around 2/3 of oil

exploration area in India is either not or inadequately explored. There is a potential for

locating additional reserves.

With deregulation, the upstream NOCs are likely to see an increase in the

profitability and hence the additional resources can be employed in E&P activities. The

domestic upstream companies are now improving recovery from existing fields,

improving reserve accretion by bidding for domestic fields and acquiring equity in oil

assets abroad, integrating into downstream areas and maintaining this will lead to revenue

growth and will help them to diversify their risk portfolio. While ONGC is a leading

upstream player, IOC is dominant in downstream project.

The Indian Petroleum Sector.

Upstream Sector Downstream Sector

Oil & Gas Exploration

Refining & Marketing

Natural Gas Distribution

IOC, BPCL, HPCL, ONGC, RIL, CPCL, KRL, NRL, MRPL.

GAIL, RIL.

ONGC, OIL, RIL.

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In India there is a great potential for locating additional reserves. This is more

valid today after the gas discovery by Reliance.

Oil Refinery and Marketing of Refined Products (Downstream Sector)

With full control of petroleum sector, price at retail end would vary in accordance

with the international trends. However, since petroleum products are for mass

consumption, socio-political reasons may prevent frequent changes in the prices of

product. This may prevent a high growth in marketing margins.

Another impact of dismantling the oil pool account would be that the liquidity

position of the oil company should be better because of improved certainty in cash

inflows.

In view of uncertainty, oil companies have initiated a number of measures to give

competitiveness in a deregulated market. Some of these are strengthening

import/marketing infrastructure, enhancing scale of operation, undertaking environmental

measures, entering into domestic/overseas alliance and setting up hedging mechanism to

mitigate its exposure to price volatility and undertaking business restructuring to ensure

operational efficiency.

The majority of India’s oil reserves are located in fields offshore Bombay and

onshore in Assam. The offshore Bombay High regional field account for about 2/3 of

India’s oil production. India contains natural gas reserves of 25 trillion cubic feet (Tcf).

About 70% of these reserves are located in associated and non-associated fields in the

offshore Bombay High region as well as in the offshore and onshore regions of Gujarat.

Indian analysts estimated that by 2010, the country will need eight coastal LNG receiving

terminals. At least 2 LNG terminal sites are currently under study.

At that time, domestic production is anticipated to satisfy only about 1/3 of

demand, with the balance coming from imports. Imports will either be through

international pipelines or via liquefied natural gas (LNG) shipments from countries like

Iran, Bangladesh, Indonesia and Myanmar.

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ONGC

ONGC is Asia’s best Oil and Gas Company, as per a recent survey conducted by

US based magazine ‘Global Finance’.

Holds largest share (57.2%) of hydrocarbon acreages in India.

Every 6th LPG cylinder comes from ONGC.

About 1/10 of Indian refining capacity.

Created a record of sorts by turning MRPL around from being a stretcher case for

referral to BIFR to among the BSE top 30, with in a year.

Owns 23% of Mangalore-Hasan-Bangalore Product Pipeline (MHBPL)

connecting MRPL to the Karnataka inter-land.

The market capitalization of ONGC group constitutes 8% of the market

capitalization of BSE.

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COMPANY PROFILE

Vision, Mission and quality Policy:

Vision: Vision is a vividly descriptive Image of what a company wants to be or

wants to be known for in future.

“Vision” Statement of the “MRPL” :

Is “to be a world class Refining and Petrochemicals Company, with a strong

emphasis on productivity, customer satisfaction, safety, Health and Environment

Management, Corporate Social responsibility and care of employees”.

Mission:

Mission reflects the essential purpose of the organisation, concerning particularly

why it is existence, the nature of the business it is in and the customers it seeks to serve

and satisfy.

Mission of the Company is as follows:

Sustain leadersip in energy conservation efficiency, productivity and Innovation.

Capitalise on emerging opportunities in the domestic and International Market.

Strive to meet customers’ requirements to their satisfaction.

Maintain global standards in health, safety and Environmental norms with a

strong commitment towards community welfare.

Continuing focus on employee welfare and employee relations

Imbibe highest standards of business ethics and values.

Quality Policy:

Commitment towards.

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Satisfied internal customers, external customers, business associates and the

society through excellence in quality of products and processes.

Continual Improvmeent in products, process, services and quality management

syste.

Satisfied, motivated and committed employees.

Safe working conditions and ecofriendly environment.

Retail outlet with ATM and other facilities is opened near the site to reach

consumers in supplying Petrol and Diesl.

The supply of raw materials for local Industrial units like Mangalore Chemical

Factory, BASF Chemicals etc.

Marketing of products to various corporate units arround India.

Ownership Pattern:

It is a Public Sector Comopany. The Major state is owned by Owner. The

ownership Pattern is given below:

TABLE -1

1. Oil and Natural Gas Commissions 71.62

2. Hindustan Petroleum Corporation Ltd. 16.95

3. Resident Individuals 8.54

4. Non Resident Individuals 0.62

5. Domestic Company’s 0.71

6. GIC and subsideries 0.83

7. Banks and financial Institutions 0.20

8. Non Domestic Comopany 0.48

9. Mutual Funds 0.05

HISTORY

The idea of MRPL was generated in 1987 when HPCL was looking for a partner

to start refinery in South India, it was also a dream project of Aditya Vikram Birla which

was known as Petro Gold.

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A tripartile agreement was signed between the Govt. of India, HPCL and Indian

Rayon Limited during 1987. It was incorporated on 7 th March 1988 after a memorandum

of understanding executed to the President of India.

A detailed project report was prepared by Lummus Crest and Engineers India

Limited (EIL) which was submitted to the Govt. for approval. Work for project was

started in 1992. It was designed and managed by international consultant if repute like

Toyo Engineers Corporation of Japan, Mitsui and Company of Japan, Mitsubishi

Corporation of japan, Engineers India Limited and many other reputed companies.

The technology for the project was given by companies like Universal Oil Product

Company of USA, ABB Lummus of Holland, KTI Holland, Porner of Austria which are

potented.

The 1st phase was commissioned in 1996 with a refining capacity of 3.96 MMT to

increase the capacity to 9.09 MMT the second phase was commissioned during 1999.

The cost of project was around Rs. 2700 crore for the I phase and Rs. 3690 crore for the

II phase.

MRPL was initially set up during June 1991 as a joint sector company promoted

by Indian Rayon and Industries Ltd. and its associates (forming part of Aditya Birla

Group) and Hindustan Petroleum Corporation Ltd., a public sector company. This has a

distinction of being a first joint sector refinery in India and also the fifth oil refinery in

South India.

The unit was initially set up with a refining capacity of 3 million metric tons per

annum during March, 1996. The refinery is designed to process 30-40 degree API crude

to produce various essential petroleum products namely, LPG (Cooking Gas), Naphtha,

lead-free Motor spirit (Petrol), Kerosene, Aviation Turbine Fuel (ATF), Diesel, Fuel Oil,

Bitumen and Sulphur. The plant is located at Kuthethoor (distance of 22 kms from

15

Mangalore) in the outskirts of Mangalore thus being accessible to coastline (16 kms from

site).

To augment the capacity, the unit commissioned the second phase of operations

during 1999 consequent to which the capacity has increased to 9.69 million metric tons

per annum. The unit has well-established infrastructure including state-of-art Laboratory

for efficient measurement of product quality.

The products are sold through HPCL, who has retail outlet network. However,

recently MRPL has started the process of marketing some of the products like Sulphur,

Bitumen, Furnace oil, Naphtha, Reformat – to Non-HPCL customers also.

From 31/03/ 2003, Oil & Natural Gas Corporation Limited – ONGC has taken

over management control of MRPL and now MRPL is a subsidiary company of ONGC.

The manufacturing process and the interrelationships are captured in the flow

chart provided in next page. The products are manufactured in strict compliance to IS

standards.

The total plant consists of following manufacturing facilities, which were

designed, installed by International consultants of repute under the project management

consultation by Toyo Engineering Corporation.

Sl.

No.

UnitConsultants / Technology

Phase-1 Phase-2

1.Crude & Vacuum Distillation Unit

EIL EIL

16

2. Soaker Visbreaker Shell/ABB Lummus,

Holland

Shell/ABB Lummus,

Holland.

3. Hydro cracker Unit UOP, USA UOP, USA

4. CCR Plat forming Unit UOP, USA UOP, USA

5. Merox UOP, USA UOP, USA

6. Hydrogen KTI, Holland KTI, Holland

7. Bitumen EIL / Porner, Austria Not Applicable

8. Power Plant L&T/ ABB Boilers DLF/ABB Boilers

9. Sulphur Recovery Unit KTI, Italy KTI, Italy

10. Reformat Splitter Unit Toyo Engineering India Ltd. Common for both Phase-1

& Phase-2

11. Gas oil Hydro Desulphurization

Unit

Japan Energy Corporation/

Toyo Engg. Corporation

Common for both Phase-1

& Phase-2

3.2 Table showing different companies who had undertaken the work of completing

Phase-1 & Phase-2.

MANUFACTURING FACILITIES

Crude & Vacuum Distillation Unit:

The Atmospheric & Vacuum Distillation Units and Naphtha Splitter Unit

designed by EIL are heat – integrated to achieve high energy efficiency, thereby reducing

fuel oil consumption and in turn reducing air emissions.

Hydro cracker Unit

The Hydro cracker Unit, second in India and first in southern part of India

produces high quality sulphur – free diesel Kerosene and ATF. The plant is designed for

100% conversion of heavy, low value gas oils to lighter and valuable products.

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Soaker Visbreaker

Shell Soaker Visbreaker technology, under the license of ABB Lummus of

Holland has been adopted to upgrade heavy vacuum residue to naphtha and gas oil. This

is the first unit in India to have vacuum flash column, producing vacuum gas oil which is

used for supplementing the feed stock to hydro cracker unit.

Plat forming Unit

A state-of-the-art unit, the Continuous Catalytic Regeneration type Plat forming

Unit (CCR) produces lead-free, high octane motor spirit (Petrol). Hydrogen produced as

a by-product, is used in the hydrocrack unit.

Merox (Technology: UOP, USA):

LPG and Kerosene Merox Units convert mercaptans to disulphide.

Hydrogen

The Hydrogen Plant designed by M/s. KTI – Holland produces Hydrogen by

Steam Reforming of Naphtha. Hydrogen purity of 99.9% is achieved through Pressure

Swing Adsorption (PSA) Unit, the technology for which is given by UOP.

Bitumen

This Unit employs the highly efficient Biturox process given by M/s. Porner of

Austria to produce paving grade asphalt.

Power Plant

Keeping in view the power situation in the district, MRPL has installed a 112.5

MW power plant to meet its entire power requirement, through five turbo generators of

22.5 MW each. There are seven boilers of 140 MT/Hr. capacities each.

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Sulphur Recovery Unit

The unit was licensed by KTI Italy and produces 99.9% purity sulphur using the

most modern and sophisticated process of Selection process. There are three sulphur units

to meet the produce, the above said grade sulphur with a capacity of 100 tonnes per day

for each of unit.

Reformer Splitter Unit

In order to meet the stringent specifications of benzene content in motor gasoline,

reformer splitter unit is installed. The unit employs simple distillation process to remove

the benzene from the motor gasoline to the specified levels.

Gas oil Hydro desulphuriser Unit

This plant is designed to process high sulphur diesel stream from CDU-1 and

CDU-2 to meet the sulphur specification of diesel (0.25% sulphur) as stipulated by the

Govt. of India.

OTHER SUPPORT FACILITIES

Two Oil Jetties to receive crude oil and despatch petroleum products by ocean

tankers.

Total of 79 Nos. of storage tanks including 4 Nos. of LPG Horton Spheres.

Raw Water line, 43 KM long from river Nethravathi. A weir has been constructed

across the river.

Well-equipped laboratory with sophisticated analytical instruments.

Blast-proof Centralised Control Room.

State-of-the-art Distributed Digital Control System for entire refinery operation.

Telecommunication facilities between the Port and the Refinery.

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Product Profile of MRPL

MRPL is manufacturing the following products by distillation of crude and other

secondary processing facilities:

1. Liquefied Petroleum Gas (LPG): Specification for LPG is IS 4576- 1999. The

Stock of the LPG as on 14th August, 2007 was 79.7 Metric tones (M.T.) The darling

of housewives for it’s cleanliness and effective use.

2. Naphtha: The specification for Naphtha is fertilizer grade. The stock of the naphtha

as on 14th Aug, 2007, was 904 M.T. this is used in Fertilizer and Petrochemical

industries.

3. Motor Spirit: generally known as petrol, it is the fuel for two wheelers and cars

whose consumption has gone up by leaps and bounds in the past few years. MRPL is

the only company to produce unleaded petrol from day 1 of production. The stock of

the M.S. as on 14th, Aug 2007 was 2771 MT.

4. Kerosene: still the poor man’s electricity in remote places, apart from being used as

a fuel.

5. Aviation Turbine Fuel (ATF): this particular product has to undergo stringent

laboratory tests before being dispatched. It is used as fuel in domestic aircrafts and

defence aircrafts. The specification for ATF is IS 1571-2001 (Domestic) stock was

2835 MT.

6. High Speed Diesel (HSD): this is used in all heavy vehicles, trucks, tankers, railways

etc. MRPL has achieved less than 0.25% of sulphur levels in diesel as prescribed by

the Ministry of Petroleum. MRPL has achieved less than 0.25% of Sulphur levels in

Diesel as prescribed by the Ministry of Petroleum. The stock of Deisel was 14387

MT.

7. Fuel Oil: this is basically used in furnaces and boilers. This product is basically and

in furnaces and boilers. Stock was 6171 MT.

8. Bitumen: MRPL produces different grades of Bitumen for use in laying roads,

highways and airport runways. There are 2 grades of Bitumen. It is used in laying

roads, highways and airport airways. The stock of Bitumen as on 14th was 258 MT.

9. Sulphur: this is directly dispatched from the sulphur recovery unit by trucks.

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Before the products are dispatched, they are subject to blending, sampling, testing and

certification to meet the specifications. These products (except sulphur and bitumen) are

sold to M/S HPCL, who as per the agreement, are the sole distributors. Sulphur, bitumen

and naphtha are directly marketed by MRPL. It is used in fertilizers. Stock was 159

MT.

Safety:

“Safety First” – is our motto.

Lectures & Seminars on Industrial safety for MRPL staff, contractors and other

industries are regularly conducted.

MRPL is the convenor of the Mangalore Chapter of National Safety Council.

One of the best equipped live fire-fighting ground is used for training all staff.

Safety and house-keeping committees regularly review the plant safety.

Mutual aid scheme with neighbouring industries already in place.

Mock fire drill & on-site emergency plan

Occupational Health Centre

The occupational health centre is manned round the clock by qualified male nurses. In

case of emergency in the refinery the patient will be brought to the OHC for first aid and

after they will be referred to the hospital for further treatment. Medical officers of MRPL

hospitals are also available at OHC at the time specified. OHC is also equipped with an

ambulance.

Training – A tool of HRD:

Continuous In-house & external training programs organised for employees based on

their training need identified.

Fire training.

To bring about safe working practices and avoid all unsafe practices, employees are

given safety training at the time of induction.

First Aid Training certified by St. Johns Ambulance is a routine feature.

Regular lectures by vendors & licensors.

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Training simulators for all process units have been installed and are used for training

operators and supervisors.

Vocational training for college students.

Committed to Environment in Every Aspect of Refining:

Measures taken for the protection of environment at the design stage itself.

The Process units designed to achieve higher overall thermal efficiency of the

refinery thereby reducing fuel consumption and emissions.

Tall stacks resulting in reduced ground level concentration of sulphur dioxide (SO2).

On-line SOX & NOX analysers in stacks.

Low sulphur fuel oil is used in furnaces.

Amine Treating Unit scrubs hydrogen sulphide (H2S) from fuel gas. The Sour Water

Stripper Unit strips the hydrogen sulphide off the process waste water. The stripped

sour water is recycled back to Crude Unit.

Highly efficient Sulphur Recovery Unit (99% Recovery), licensed by M/s. KTI,

Italy, recovers elemental Sulphur from hydrogen sulphide, thus reducing SO2 emission

further. Presently, MRPL is the only refinery where more than 99% recovery of

Sulphur is achieved.

ECO-FRIENDLY MEASURES

Waste Water Treatment

The waste water treatment plant installed treats refinery waste water containing

sulphide, phenol, ammonia, oil etc. so as to get treated water, meeting the limits of

Karnataka State Pollution Control Board (KSPCB). The treatment consists of oil

separation, chemical treatment, biological treatment and filtration. The treated waste

water is discharged into the sea at a distance of 900 m. and at a depth of 6.5 m. The

location of discharge point was selected by National Institute of Oceanography after

carrying out detailed study on the effect of this water on marine life. The quality of

22

treated waste water and the marine environment around the discharge point is being

monitored by an independent agency all round the year.

In actual practice, the treated waste water quality surpasses KSPCB limits. In

order to conserve water, MRPL is recycling about 70% of treated waste water to cooling

tower. MRPL is one of the few refineries in the world which reuses treated waste water

continuously.

MRPL has developed in-house and implemented a process for treating the

effluent with Hydrogen Peroxide, which gives excellent results.

MRPL’s commitment to the protection of the ecological system does not end at

the Design and Operation Stage. The refinery constantly monitors the quality of treated

waste water and air emissions. A well-equipped Mobile Air Monitoring Van has been

employed in and around the refinery for this purpose.

An environment Cell is functioning to take care of all related issues.

Green Belt

MRPL has also developed a Green Belt around the entire refinery. The plant

species have been specially selected to blend with the local flora. Some of the species are

expected to act as bio-indicators. Till date more than 118000 saplings have been planted.

The tree density and plant species are as per NEERI’s recommendation.

Rehabilitation of project-affected families

About 500 families have been displaced by the MRPL project. In order that they

continue to live with the same community, a self-contained rehabilitation colony has been

built with about 500 housing sites.

The colony has been provided with facilities such as roads, water supply,

electricity, sewerage etc.

23

Besides, to improve the community life of the residents, a community centre, a

shopping centre, a playground and a health centre have also been provided.

Social Commitments:

As an organisation committed to the discharge of its social responsibilities, we

have created a Community Development Department to undertake various developmental

activities based on the needs of the neighbouring communities.

The Community Development Department has focussed on health, sanitation,

medical and educational activities in nearby villages. Besides infrastructural needs such

as roads, crematoriums, play-grounds, bus-shelters etc. are built in the villages.

Apart from the above, four project-affected villages viz. Bala, Kalavar, Permude

and Kuthethur have been adopted for long term development under the Community

Development Programmes. Under an integrated village development programme of

Government of Karnataka, called “Swasthi Grama Yojana” the Company is sharing 40%

of the total developmental cost in the above four villages. The activities taken up by the

Company include providing drinking water, community halls, roads, additional class

rooms in schools etc.

The Company also is running a school under the CBSE scheme. About 65% of

the 940 students are from the neighbouring villages. A hospital is being equipped with

various facilities, and is thrown open to public at very nominal charges.

LOCATION

MRPL is located in the South West coastal District of Dakshina Kannada, which

is in Karnataka State. It is 22 kms for commercial city of Mangalore. It is located on a

beautiful hilly site, which is surrounded by lush green environment. It has 2 plateaus.

The upper plateau is 60 to 75 meters above sea level and lower plateau 6 to 14 meters

above sea level. It is above 370 kms from Bangalore.

24

6 kms 8 kms

MangaloreNMPT Suratkal

NH17

MRPL

8 kms

3.3 Diagram showing location of the companyNearest place Destination Distance

1. Airport

2. Sea port

3. Railway station

4. Industrial estate

5. Town

Bajpe

New Mangalore Port

Thokur

Bykampady

Surathkal

12 kms

16 kms

06 kms

14 kms

06 kms

3.4 Table showing nearness of the company from other facilities

REASONS FOR SETTING UP IN MANGALORE

- Proximity to seaport

- Most the growing needs of South India.

- It is well connected by road, rail, air and waterways.

- Bulkiness of raw materials

- These materials highways NH17, NH48 and NH13 connect Mangalore

respectively.

- Ideal climate conditions for setting a refinery.

- Availability of good infrastructure and service facilities.

- Nearness to other associated companies like MCF, KIOCL, BASF, HPCL,

IOCL AND BPCL which use some of the products and provide mutual aid.

- Availability of good quality work force in Mangalore, who are well

educated.

- Nearness to industrial estate.

- Availability of good transformation facility for transporting products.

25

NEW MANGALORE PORT TRUST (NMPT)

New Mangalore port Trust is another major advantage and it is very useful to

MRPL. New Mangalore Port is all weather port, which spread in an area of 2352 acres

including water area of 338 acres. In a month near about 25 to 30 ships of crude oil

arrive at fast for MRPL.

On a port there are three main jetties out of that ‘virtual jetty’ is used for

petroleum products. MRPL has laid crude and product line to the port for transporting

the products from the ship to the port and vice versa.

MRPL has given Rs.200 million to the port in the form of long term loans and

adjusted towards the port charges. Port has constructed oil Jetty which has capacity of

65,000 to 12,000 DWT. It has also commissioned Virtual Jetty costing Rs.140 million

for handling the increased traffic of petroleum products.

Advantages of NMPT to MRPL:

- Congestion free port on the west coast of India.

- Hassle free single window clearance and documentation system and online

data acquisition from the port.

- Competitive and attractive port charges.

- It is a high tech port in handling liquid cargo.

- Largest LPG handling port in India.

- It has six automatic loading and unloading facilities.

- It can birth fully laden ships of 245 meters length.

- It is a deepest inner harbor, which provides 14 meter drafts for huge oil

tankers.

26

History of MRPL:

1993: The Company has already tied up the entire Foreign Exchange requirements of

the project. The Company has tied up process technologies with internationality reputed

technology suppliers.

1995: The Company had already tied up the entire funs required for the project.

1996: The Company has already tied-up the debt (both foreign exchange and rupee)

required for the expansion of capacity.

1997: MRPL commissioned its three million tones refinery towards the end of 1995-

1996 and it has been operating at more that 100 per cent capacity.

1998: The Company has entered into an agreement with the National Securities

Depository Limited (NSDL) to facilitate investors to hold the Shares in the electronic

form.

1999: The Company had issued 376947036 FCDs of Rs.19.26 each to the Promoter

Companies for raising part Funds required for the expansion project which were

27

converted into 376947036 equity shares of Rs.10/- each at a premium of Rs.9.26 per

equity share. MRPL is signing a crude-sourcing deal with the Chevron-Texaco combine.

2000: The Company a Joint venture between the AV Birla group and Hindustan

Petroleum is set to register losses of around Rs.300 crores for the 1999-2000 financial

years. The Company has enhanced its refining capacity to 12 million tones through a

cost-effective process of debottlenecking some units. The Company is expanding its

refining capacity from the existing 3 to 9 million tones per annum.

2001: Refineries and Petrochemicals Ltd (MRPL) has reported a net loss of Rs.185.04

Crore for the year ended March 31, 2001.

2002: Mangalore Refinery & Petrochemicals Ltd has informed that IDBI has appointed

their nominee Shri G M Ramamurthy on the Boar of the Company. The board of

directors of Oil and Natural Gas Corporation (ONGC) has approved the acquisition of the

Adithya Birla group’s state in the joint venture Mangalore Refinery and Petrochemicals

Ltd (MRPL.)

2003: Mangalore Refinery and Petrochemical Ltd. Have informed BSE that ONGC has

acquired its 37.38% equity stake. Shri. M.C. Bhargodia, Shri B.N. Puranmalka, Shri P.

Ramakrishnan, Shri Ravi Kastia have resigned as directors of the Company. ONGC and

MRPL have signed a Memorandum of Understanding for the supply of crude oil.

Becomes the third largest refinery in India.

2004: MRPL prepays Rs.2,380/- Cr under debt restructuring package. MROPL inks

agreement with Shell.

2005: MRPL signs pact with Saudi, Iran firms for crude supply. MRPL forges alliance

with Ashok Leyland for retail outlets. The Centre for High Technology (CHT) selects

Mangalore Refinery and Petrochemicals Ltd (MRPL) for Jawaharlal Nehru centenary

awards for energy performance of refineries for 2003-04.

28

2006: Mangalore Refinery forges alliance with Abu Dhabi firm. MRPL inks agreement

with Mauritius Company. Mangalore Refinery & Petrochemicals Ltd (MRPL) has

informed that ICRA Ltd. has assigned an Issuer Rating of “IR AAA” (pronounced as “IR

Triple A”) to the Company.

2007: Mangalore Refinery & Petrochemicals Ltd (MRPL) has appointed Shri. V P Joy

as Director of the Company, January 16, 2007. Mangalore Refinery & Petrochemicals

Ltd. (MRPL) has appointed Shri. V K Dewangan, Deputy Secretary (E-I), Ministry of

Petroleum & Natural Gas as Director of the Company, March 05,2007.

ORGANISATION CHART

29

BOD

Chairman

Managing Director

Director(Finance)

PresidentOperations

AssociatePresident Refinery

Associate President Business

G.M. Projects President Marketing

AVPFinance

AVPHR

AVPMATERIALS

SR MGRIS

IS

GMINT

VPMAINT

GMOPER.

AVP TS

DGM

DGM

SR MGRSECURITY

GMMEC

GMINS

DGMELECT.

M

DGMPLAN

DGMF &S

GMCPP

DGMCDU

M

DMHCU

GMHYD

GMOMS

RSM

DGM LAB DGMENGG

DGM PP DGMPE & E

DGME & S

Financial Performance

Financial performance of MRPL from 2002-2006(Rs. in millions)

Particulars Year ended 31-3-02

Year ended 31-3-03

Year ended 31-3-04

Year ended 31-3-05

Year ended 31-3-06

Turnover 53539.1 85807.7 126122.2 206925.5 282428.6PBDIT 2878.3 4026.1 13572.2 20991.63 11908.9Interest and finance charges 6722.9 5670.7 3734.2 2296.19 1877.7Gross profit/(loss) after interest but before depreciation and tax

3844.6 (1644.6) 9838.1 18695.44 10031.2

Depreciation and amortization

3944.5 4048.4 4093.0 4086.7 3805.4

Provision for earlier years claims

- 834.6 - - -

Deferred tax credit (2864.6) (2409.7) 1150.6 5124.74 2151.1Profit/(Loss) after tax (4924.8) (4118.1) 4594.1 8797.58 3716.1

3.5 Table showing financial performance of MRPL from 2002-2006

30

STRUCTURE OF FINANCE DEPARTMENT AT MRPL

3.6 Diagrm showing structure of financial department of MRPL,Mangalore

FUNCTIONS OF MANGALORE CENTRAL ACCOUNTS

- Maintenance of production records

- Sale billing and obtaining certification of HPCL

- Crude oil receipt and customs clearance accounting.

- Maintenance of indirect for records

Central excise records

Customs records

Sales tax records

- Centralized payroll function and all payment related to personnel.

- Preparation of monthly management information system

Monthly financials

VP (Finance & Co. Sec)

A.V.P. (Finance)

DGM (Finance) DGM (Finance) DGM (F & A), Mumbai

Manager Manager Manager Manager Manager Manager

Dy. Manager / Executives

Dy. Manager / Executives

Non-mgt. staffs Non-mgt. staffs

Non-mgt. staffs Non-mgt. staffs Non-mgt. staffs Non-mgt. staffs

31

Monthly production report

Monthly target

Daily profitability

- Insurance claim lodgment and settlement

- Processing all payments for supplies and works and service

- Export and direct marketing billing and realization

- Maintenance of fixed asset register.

Operational as well as financial performance of the company has reached

new hights of excellence during the year 2004-2005.

- Highest ever capacity utilization of 122% best among all refineries in

India.

- Lowest-even fuel and loss of 6.53% best among all refineries of similar

complexity in India.

- First refinery in India to produce MS (Petrol) and HSD (Diesel) to Euro

III specification.

- Lowest-energy consumption among all infineries with similar complexity

in India-recognized by the Centre for High Technology, Ministry of Petroleum and

Natural Gass, Govt. of India.

- Efficient turn around of all primary and secondary units of 3.69 million

metric ton (MMT) p.a (phase I) train in record time of 19 days.

- Highest ever turnover of Rs. 206925 million, Highest ever export

realization of Rs. 61913 million.

- Lowest ever interest and finance cost of Rs. 2296 million debt – equity

ratio improved to almost 1:1.

- Highest ever not profit of Rs. 8797 million accumulated losses of Rs.

11845 million (when ONGC took over MRPL) wiped out.

- Maiden divided of 10% proposed and recognition for outstanding

achievement in safety management.

SOME OF THE KEY ACHIEVEMENTS OF MRPL DURING THE RECENT

YEARS ARE

MRPL was awarded ISO 9001 certification during the year 2001 and ISO 14001

certification during the year 2002.

32

MRPL leads all public sector refineries in capacity utilization and energy

efficiency according to the evaluation done by Center for High Technology

(CHT), Ministry of Petroleum and Natural Gas.

It is the first refinery in India to produce petrol (Motor spirit) and diesel (High

Speed Diesel) conforming to EURO III specifications.

MRPL has signed a term contract on April 9, 2005 with Ceylon Petroleum

Corporation for expert of approximately 3,20,000 MT of refined products (Motor

spirit, High speed Diesel and Aviation Turbine Fuel) against a line of credit of

USD 150 million extruded by EXIM Bank under Govt. to Govt. frame work.

Shipping arrangements leave already been lined up through Trans chart (Ministry

of Shipping, Govt. of India).

This company has bagged the first prize in Jawaharlal Nehru Centenary Awards

for Energy Conservation (ENCOM) for 2003-2004.

MRPL has joined hands with Ashok Leyland – renowned manufacturer of heavy

vehicle-chassis to form a Joint Venture Company (JVC) for setting up Retail

Outlets for distributing Petroleum products and servicing facilities for trucks. The

company has been authorized by the Ministry of Petroleum and Natural Gas to set

up 500 retail outlets (ROS) in the country. These ROS will be set up at locations

along various National and State Highways.

MRPL has processed 38 different types of Crude, sourced from West Africa,

Saudi Arabia, Kuwait, Iraq, Sudan, Qatar, Abu Dhabi, Yemen, Kazakhstan,

China, Vietnam, Malaysia, Indonesia, Brunei and India (Mumbai High).

RECENT EVENTS

- With in a year of bring taken over by ONGC, MRPL has registered a net

profit of Rs.459 crores.

33

- Net profit Rs.459 crore against net loss of Rs.412 crore in the financial

year 02-03.

- Operating profit Rs.1357 crores, up 237% from Rs.403 crore in the year

2002-03.

- Refinery crude runs 10.5 MMT, up 39% from 7.25 MMT in the year

2002-03.

- Turnover Rs.12612 crore, up 47% from 8581 crore in the year 2002-03.

- Export sales Rs.4478 crore, up 134% from 1913 crores.

- Shell ties up with MRPL for petrol products.

- MRPL repays Rs.2380 crores under debt restructuring package.

- Equity shares of MRPL a subsidiary of state showed ONGC; enter ‘A’

group of scripts at Bombay stock exchange from March 1, 2004.

- ICRA has assigned an A1+ (+1 one plus) rating, indicating highest safety,

in the short term to Rs.300 crores commercial paper / short term debt program of

MRPL. ICRA was also upgraded the long term resting of the company from LBBB

to LA< indicating adequate safety.

- MRPL, a subsidiary of ONGC, has prepaid the entire facilities and ‘B’ of

Rupee Term Lenders under Debt Restructuring Package (DRR) aggregating to

Rs.2380 crore today. MRPL has also given notice to Facility ‘C’ Lenders to prepay

the existing outstanding of facility ‘C’ amounting to Rs.257 crore on 19th January,

2004. MRPL had an option under DRR to prepay these loans facilities without any

prepayment premium.

- ONGC has granted long term loan of up to Rs.2600 crore to its subsidiary

MRPL (current holdings at 71.63%) at Bank Rate (presently 6%pa). The

refinancing of these loans facilities will result into saving of approximately Rs.82

crores p.a. for MRPL, as the facilities under DRR were at average interest rate of

9.15% p.a.

- The operating performance of MRPL has been fast improving after

ONGC’s entry into MRPL in March 2003. In the first 3 quarters of the current

financial year itself MRPL has achieved crude processing rate at the annual rated

capacity for the Refinery. The refinery has actually processed 929.3 TMT Crude in

December 2003 (the highest so far) which represents annualized capacity of 11.15

MMT, against the rated capacity of 9.69 MMT.

34

PRE-ACQUISITION PERIOD

MRPL a project costing around Rs.6000 crores was initially set up on June 1991

as a joint venture company by HPCL a public sector company and Indian Rayon and

Industries Ltd. and its associate companies. Aditya Birla Group which had 37.5% of

share in MRPL which comprised of Grasim Industries (18.92), Hindalco Industries

(12.05), Indian Rayon and Industries (5.16) and Indo Gulf Corporation (1.27) and HPCL

with 37.5% giving only 25% to others which include domestic and non-domestic

companies, banks and financial institutions. Even though the company was set up in

1991 the production of the same started only in the year 1996 with refining capacity of

3.69 MMT p.a. MRPL is the first joint venture refinery and the fifth oil refinery in

Southern India and has a refinery capacity in of 9.69 million metric tones p.a.

PRE ACQUISITION CAPITAL STRUCTURE

3.7 Pie chart showing pre-acquisition capital structure of MRPL

The pre-acquisition period of MRPL has undergone a lot of problems, continuous

loss for the 3 financial years from 1999-2000 to 2001-2002, for working capital

management and managerial aspects compelled MRPL to it look into the financial policy

of the company and come up with a solution. The company was facing severe

underutilization of capacity.

35

MRPL was facing severe cash flow problems by virtue of partner. Company

HPCL changing the settlement cycle for payment from 3 days to 20 days. The change has

impacted the refinery, which currently owes Indian Oil about Rs.450 crore for crude oil.

The two partners have never been able to sort out their differences and the slack demand

for petrol-products has added to the problems. MRPL has been straddled with surplus

petrol-products and had to export furnace oil at a loss. MRPL was denied duly free

imports of capital requirement and 100% of their crude oil requirements are imported.

They does not have an extensive export market. As a result their foreign exchange

outflows were much higher than their inflows. Currently the company is making

payment through letter of credit for supplies from Chevron. As a result of which they are

losing out on account of heavy foreign exchange fluctuations.

Aditya Birla group has sought to exit from MRPL, which has an asset base of

7000 crore, as it was posting huge losses in absence of marketing margins and raising

debt. MRPL which posted a loss of Rs.299 crore in 1999-2000, has recorded a loss of

Rs. 220 crore in the first 9 months of 2000-01. With debt equity ratio of 6:1. MRPL’s

total barrowings stood at Rs.5408 crore, of which short term borrowings were Rs.40/-

crores and the long-term loans from he banks were to the tune of Rs.1933 crore. The

financial institutions have a total exposure of Rs.1875 crore in the joint venture.

Considering large build up of losses, continuing weakness in refining margins and

requirement of fresh capital, MRPL co-partner A.V. Birla group decided to exit the of the

tripartite MoU dated 26-6-87, “If India Rayon decides to sell its stake the first sight of

purchase should be given to HPCL and if it is not interested then the Indian Rayon stake

shall sell the joint venture company shares on the floor of the stock exchange or to a third

party that may be mutually agreed by HPCL and IRIL”.

The investment committee constituted by both HPCL and Birla group is of the

view that the new management would have to modify the existing configuration of the

refinery to achieve value addition. According to initial estimates, it would require fresh

investments to the tune of Rs.1000 crore to improve the throughout of the refinery.

Another important consideration that the proposed improvement of MRPL is it would be

36

absolutely essential that ownership and operation of the Mangalore Bangalore Pipeline is

vested with HPCL.

The Government will have to help and intervene in the financial restructuring of

MRPL. It has to be made financially viable and steps would have to be initiated to

reduce the debt liability. Since the exist of the A.V. Birla group would not result in a

fresh infusion of capital into MRPL, the viable option for MRPL may be to convert it to a

subsidiary of HPCL. HPCL, having first right of referral was offered the stake at Rs.14-

Rs. 16/ share and sought governments help in procuring soft loans and equity infusion by

Oil Industrial Development Board.

HINDRANCES IN ACQUISITION OF MRPL

- Indian Oil had plans to fully to buy the stake of loss making unit MRPL but it was

strongly discouraged by two outside directors known as navratna directors on the

Indian Oil board to buy the Aditya Birla groups 27% stake in MRPL staking that

there is no justification in buying into the loss-marking refinery, specially with

international refining margins at all time lows.

- A.V. Birla group had initiated to sell the stake in MRPL with HPCL. Indian Oil

and Reliance for stake sale but could not close the deal because of ‘irresponsible’

price quotes. HPCL has evaluated MRPL’s share at Rs.1.60 while the A.V. Birla

Group had fixed the price range from Rs.14-17 per share.

- The feasibility of a margin option with HPCL was considered difficult in view of

the fact that the Central Government’s equity in HPCL is the threshold of 51.01

percent. The company would require an intervention by the Centre to seek

concessions and deferred payments facilities in the debt repayment.

POST ACQUSITION CAPITAL STRUCTURE

37

MRPL SHARE PRICE FROM 2000-2006

MRPL SHARE PRICES FROM 2000-2006

0

10

20

30

40

50

60

31.03.00 31.03.01 31.03.02 31.03.03 31.03.04 31.03.05 31.03.06

YEARS

MR

PL

SH

AR

E P

RIC

ES

3.9 Chart showing MRPL share prices from 2000-2006

The MRPL stock shot up 5.44% to a high at Rs.13.15 in the year 2000. The stock

prices were up due to reports that Oil and Natural Gas Corporation (ONGC) is keen on

acquiring the 37.5% stake held by the Aditya Birla Group in MRPL. A total number of

1029485 shares were traded during the day of announce of ONGC acquiring MRPL. The

graph above shows a hike in the MRPL share price from the year 2000 to 2005. Share

price has been constant till 31-03-03 before the acquisition but the increased to new

levels after the acquisition by ONGC to Rs.54.6 in the financial years 2004 and a slight

dip in the share price in the year 2005. The sudden increase in the price levels is due to

the ONGC acquisition and writing off all the debts and losses, which MRPL has

38

acquired, in the due course of time. The debt equity ratio which was 6:1 has been

reduced to 1.02:1 and net profit increased to a new level of Rs.8797.58 million.

The company has earned net profit of 4594.15 million for the year 2003-04 as

against net loss of Rs.4118.06 million in the previous year. This achieving the turn

around in the very first year itself after becoming the subsidiary of ONGC. The company

is no longer a sick company as its accumulated losses have gone down below 50% of the

net worth as on 31st March 2004. The company has entered the elite club of top 30

companies by Market Capitalization at the Stock Exchange, Mumbai (BSE) on 17th Aug.

2003.

MARKET CAPITALIZATION

The market capitalization of the company on BSE touched Rs.100000 million on

7th January 2004. Equity shares of the company are now treated under ‘A’ category at

BSE effective 1st March 2004.

The speed, the quality and the impact of MRPL’s turnaround are unprecedented in

India corporate history. The refinery has achieved 100% capacity utilization for the first

time and has been consistently operating well above the rated capacity. Against a loss of

Rs.4118.06 million in the previous year. MRPL registered net profit after tax of Rs.

4594.15 million in 2003-04. Of equal significance is the fact that the company which

was about to file bankruptcy under a crushing high cost were in the very recent fast is

now repaying even low interest loans extended by the parent company ONGC.

DEBT RESTRUCTURING PACKAGE

ONGC successful negotiated a proactive Debt Restructuring Package (DRP) with

the Lender’s consortium of bank and financial institutions bringing about sea changes in

the financial structure of the company.

SALIENT FEATURES OF THE DRP

a) Rupee loans of Rs.600 crores were paid on 31-03-2003 out of equity of Rs.600

crore infused by ONGC.

39

b) Rupee term lenders and deferred payment Guarantee (DPG) lenders have

converted Rs.358.20 crore of their loans into equity. Rs.9.19 crores into 0.01%

non-cumulative redeemable preference shares and Rs.147.83 crore into secured

zero coupon debentures. Preference shares and CD are repayable into annual

installments at the end of 9th and 10th years from 1-7-02.

c) The interest rate of Rupee Term Borrowing has been reduced from average of

13.61% pa. to 9.15% p.a. payable in a skipped up manner to match the interest

payments with the projected cash flows.

d) DPG lenders have sanctioned term loans of Rs.1700 crore to meet the repayment

obligations towards principal and interest on foreign currency borrowing in the

future.

e) Debt equity ratio has come down from 9.77 to 3.45:1 on implementation of DRP.

Average DSCR post-DRP has been set at 1.57.

f) The term loans are repayable in 8 years after a moratorium of 4 years from 1-7-

02.

g) MRPL can repay the rupee term loans at any time without any repayment

premium.

BENEFIT TO ONGC BY THE ACQUISITION OF MRPL

- MRPL has accumulated losses of Rs.2800 crore over the part three years, which can

be set off against ONGC’s taxes thereby reducing its tax liability by 2000 crore.

ONGC with profits of over Rs.5100 crore, is one of the largest corporate tax payers in

India.

- ONGC’s strategy for the future, which envisages the company to be a vertically

integrated oil-major involved in every aspect of the value chain from oil exploration

and production to petrochemicals.

- The acquisition will mark the entry of ONGC, an oil exploration and product

company, into the down stream business of refining and marketing of petroleum

products.

- It would enjoy the benefits of integration enabling it to employ competitive pricing

strategies in the marketing of the future.

40

- ONGC’s plans to acquire MRPL comes after it received the rights to market petrol

and diesel and hence benefiting the company by entering into the refinery sector and

opening retail outlets in South India.

BENEFIT OF MRPL

- The value of the MRPL script shot up in the last two years from Rs.7 to Rs.50 in

the stock market.

- The company has achieved a remarkable financial performance, earning a net

profit of Rs.8797.58 million up 91.50% from Rs.4594.15 million. The entire

accumulated losses of Rs.11845.05 million as on 31st March 2003, when ONGC

acquired management control of MRPL, have been wiped out in just two years.

- The parent company, ONGC has sanctioned a long term unsecured loan of

Rs.16,000 million at bank rate presently 6% p.a. during January 2004 to enable the

company to repay its rupee loans amounting to Rs.26,730 million carrying average

interest at 9.15% p.a. The company has already prepaid Rs.9000 million out of

Rs.24000 million loans actually availed from ONGC.

- MRPL has been marked as the 12th most valuable public sector company by

Business Today based on the financial results of 2003-04.

- At the same time of take over of MRPL by ONGC the debt equity ratio was

reduced to 3.45% under the DRP. This has now improved to a healthy 1.04% as on

31st March 2005.

- Based on the improved credit profile the company has been able to successful

raise unsecured short term working capital facilities of US$540 million at very

competitive LIBOR related interest rate during the year.

- The company exported products (Motor spirit, Naphtha, Reformat, HSD, ATF,

FO, LSHS) worth Rs.61913 million during the year (up to 38% from Rs.44,775

million).

41

PRESENT SHAREHODING PATTERN OF MRPL

3.10 Pie chart showing present share holding pattern of MRPL

ONGC, which bought Aditya Birla Group’s stake in the loss making MRPL, has

hiked its stake in the company to 72% as on 11-07-2003 by exercising the call option for

MRPL shares held by various banks and financial institutions. ONGC hold the maximum

of 72% in MRPL making it the subsidiary of ONGC group and HPCL with 17%. The

others with 11%, which include Domestic and non-domestic companies, Resident and

Non-resident individuals, GIC and subsidiaries, Banks and Financial institutions and

Mutual funds.

42

MILESTONES ACHIEVED AFTER ACQUISITION

- Highest ever capacity utilization of 122% best among all refineries in India.

- Lowest ever fuel and loss of 6.53% best among all refineries of similar

complexity in India.

- First refinery in India to produce MS (petrol) HSD (Diesel) to Euro III

specifications.

- Lowest energy consumption among all refineries with similar complexity in India

–recognized by the centre for high technology, Ministry of Petroleum and Natural

Gas, Govt. of India.

- Efficient turn around of all primary and secondary units of 3.69 MMTPA (phase)

train in record time of 19 days.

- Highest ever turnover of Rs.206925 million and debt equity ratio improved to

almost 1:1.

- Highest ever net profit of Rs.8797 million- accumulated loss of Rs.11845 million

(when ONGC took over MRPL) was wiped out.

- Maiden dividend of 10% proposed.

- Recognition for outstanding achievement in safety management.

2ND QUARTER RESULT OF MAPL

- Capacity utilization 128% (up 11% from 115%).

- Turnover Rs.7244 crore (of 57% from Rs.4619 crores.

- Exports Rs.2019 crore (up to 27% from Rs.1587 crore)

- Throughout 3.11 MMT (up 11% from 2.79 MMT).

- Net profit Rs.116 crore (down 2% from Rs.169 crore)

MARKETING

The oil marketing PSUs – Indian Oil Corporation, Bharath Petroleum Corporation and

Hindustan Petroleum Corporation is marketing the entire 9.69 MTPA produce of petrol-

products from the refinery of ONGC’s subsidiary MRPL through its retail outlets.

Various initiates taken in the area of direct marketing have started showing results and

the company has secured entry into the HSD business of some very large consumers.

The Direct marketing sales have achieved almost 266% growth during the 2nd Quarter.

43

(Rs.187 crore against Rs.51 crore)

Chapter 4

Data Analysis

USE OF FINANCIAL RATIOS

To evaluate the financial performance of a company, the financial analyst needs certain

yard stick. The yard stick frequently used is a ratio of index relating to pieces of financial

data to each other.

FINANCIAL ANALYSIS: (Summary of MRPL Basedon 19th Annual report)

Financial as well as operational performance of the Company reached new

heights of exvcellence during the year under review:

(1) MRPL has got highest - ever capacity utilization of 129% which is also the

highest among Indian refineries.

(2) Highest ever refinery Crude Thruput at 12.54 MMT

(3) Lowest specific Energy consumption at 63.8 MBTU/BBL.

Dividend:

The Board of the Company has decided to recommend higher divided of 8%

which will absorb Rs.140.23 crore excluding Rs.23.84 Crore as tax on Divident. Despite

substantial Imrpoved financial performance, the board has decided only a Marginal hike

in Divident payout keeping in view the large requirement of funds for the on going

refinery upgradation and explansion project, Involving capital expenditure of

approximate of Rs.8000 Crore.

RATION ANALYSIS:

Ratio Analysis is a powerful tool of financial Analysis. A ratio is definded as

“The indicated quotient of 2 Mathematical exopression and as the relaionship between 2

or more things”

Ratio Analysis and Interpretation of financial statements. In fact, it is the

most widely used tool of financial analysis. Some Important financial ration’s on

the financial health and working of the Company are as follows:

44

1. CURRENT RATIO:

Current AssetCurrent Liability

Year Current assets (In Million)

Current Liabilities (In Crores)

Current Ratio

2003-04

2004-05 36849.15 26417.56 1.39

2005-06 37687.54 24568.47 1.53

2006-07 44618.43 31315.24 1.42

The ratio indicates the companys commitment to meet its short term

liabilities. An Ideal current ratio is 2. The ratio is considered as a safe margin of

the solvency. But in above situation MRPL’s financial stability is good since the

current assets exceed the current liabilities.

2. DEBT EQUITY RATION:

Long Term DebtShareholder equity

The debt equity ratio is determined to ascertain the Soundness of the long-term

financial policies of the company. At the time of take over of MRPL by OWGC,

the Debt equity ratio was reduced to 3.45:1, and is the 2005 it was Improvided to

1.06:1. In 2006 further Improved 0.87:1 and In the year 2007 the long term equity

ratio is 0.76:1.

Year Long term debt(In Crores)

Share Holder equity (In Crores)

Debt equity Ratio

2004-05 34665.33 17618.00 1.06

2005-06 33072.72 17618.04 0.87

2006-07 21056.87 27567.96 0.76

45

3. EARNINGS PER SHARE:

Net Profit available to equity holders

No. of ordinary shares outstanding.

Years EPS

2005 5.02

2006 2.12

2007 3.00

Earning per share for the year 2007 is 3.00 and for the year 2006 is 2.12

and 2005 is 5.02. But it shows that the earnings by equity share is increased from

2.12 to 3.00 is the last year.

4. RETURN ON ASSET:

PAT X 100 Pat Total Asset Profit after Tax

From the table the ratio is 5.93:1 it means that for every 1 rupee of Investment the company is earning 5.93 rupee. So, the company is profitably employing its assets.

Year Profit after Tax(In Millions)

Total Asset (In Crores)

Return on asset Ratio

2004-05 8797.58 82762.44 10.63

2005-06 3716.15 83011.38 4.48

2006-07 5255.23 88555.83 5.93

Bibilography:

MRPL, 19th Annual Report.

4.1 Chart showing the current Ratios from 2003 to 2006.

46

The current ratio shows the ability of the firm to meet its current obligations. In

the year 03-04 the company has the highest ratio of 1.56 compared to 02-03 and 04-05,

which is only 1.39 as the current ratio. In the year 2003-04 the all current assets

(inventories, sundry debtors, cash and bank balance, loans and advances) were higher

compared to other financial years. A company having current aserts composed of

principally of cash and current receivables is generally regarded as more liquid than a

firm which current assets consists primarily of inventories. In the financial year 2005-

2006 the current ratio has gone up to 1.53% due to increase in inventory and cash

holdings.

QUICK RATIO

NET PROFIT RATIO

47

4.4 Chart showing net profit ratio.

The net profit margin gives the relative efficiency of the firm after taking into

account all the expenses and income taxes but not extraordinary charges. In the financial

year 2002-03 being a net loss shows a ratio negative ratio of -5.11 but the ratio shows an

increasing trend and increases during the year due to the increase in profits and a

considerable increasing in the sales after 2002-03. In the financial year 2004-05 net profit

was high i.e., 4.75. But in the financial year 2005-06 it came down to 1.48% due to the

high operating cost.

TURNOVER

-5.11

4.034.75

1.48

-6

-4

-2

0

2

4

6P

erce

nta

ge

2002 - 2003 2003 - 2004 2004 - 2005 2005-2006

Years

Net Profit Ratio

48

Turnover of MRPL from 2003 to 2006.

4.5 Chart showing turnover of MRPL from 2003-2006.

The turnover of MRPL has increased tremendously from 2003 to 2006. There has

been a 64% increase in the turnover from the year 2004-2005. The turnover of MRPL

shows an increasing trend. Here the turnover is inclusive of the excise duty for all the

financial year from 2003-06.

EARNING PER SHARE

85,807.77

126122.24

206925.5

282428.64

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

Millions

2002-2003 2003-2004 2004-2005 2005-2006

Year

Turnover

49

Earning per share of MRPL for the last four years

4.6 Chart showing EPS

EPS measures the profit available to the equity shareholders on a per share basis,

that is, the amount they can get on every share held. It shows the profitability of the

company and amount of earnings attributable to each equity share.

The earning per share of the company has gone up to 5.02% in the financial year

2004-05 compared to the last two years. In the financial year 2004-05 the profit has gone

up to 8798.58 million after tax compared to 4594.15 million during the financial year

2003-04. There has been considerable increase in the profit after tax due to which the

earning per share of the company has gone up in the year 2004-05. But in the current

financial year 2005-06 PAT has come down and also the earning per share.

DEBT EQUITY RATIO

-5.15

3.62

5.02

2.12

-6

-4

-2

0

2

4

6

Rupees

2002-03 2003-04 2004-05 2005-06

Year

EPS

50

4.7 Chart showing the debt equity ratio

The debt equity ratio shows the credit worthiness and financial risk of the firm.

The debt equity ratio of MRPL shows a decreasing trend. In the financial year 2002-03

the company had high debt equity ratio by borrowing from banks and other financial

institutions and debt constituted the major part in financing the operations of the

company but later on in the next financial years the role of debt was reduced considerably

by ONGC and paying of most the debt by MRPL with the help of ONGC and inducting

more money by grants and subsideries from Government and presently the company is

having a debt equity ratio of 0.87:1.

3.8

2.36

1.060.87

00.5

11.5

22.5

33.5

4P

erc

enta

ges

2002 - 2003 2003 - 2004 2004 - 2005 2005-2006

Years

Debt equity ratio

51

SUNDRY DEBTORS TO SALES

4.8 Chart showing sundry debtors to sales

Percentage sundry debts to sales were highest in the year 2004 because sundey

debtors considered good has gone up to Rs.8093.31 million and only Rs.19.75 million

was considered doubtful and the lowest in the year 2003 with 4.16%. In the financial year

2005 it has been reduced to 5.43% because of increase in the doubtful debts going up to

449.19 million. And further decreased to 4.69% in the financial year 2005-2006. In the

financial year 2005-2006 Rs.11530.20 million worth sundry debtor considered good and

Rs.181.12 million worth sundry debtors considered doubtful. Overall it indicates the

effectiveness of credit policy pursued by the company.

4.16

7.12

5.434.69

012345678

Percentages

2002 - 2003 2003 - 2004 2004 - 2005 2005-2006

Years

Sundry debtors to sales

52

CAPACITY UTILIZATION

Chart showing capacity utilization

The above chart shows the capacity utilization by the company. Over the years it has

been increased considerably. During the financial year 2005-06 it has gone up to 125%.

75

104122 125

0

20

40

60

80

100

120

140

Percentages

2002-03 2003-04 2004-05 2005-06

Years

Capacity Utilization

53

Chapter 5

BALANCE SHEET AS AT 31 ST MARCH, 2007

PARTICULARS As at31.03.2007(Rs. In Millions

As at31.03.2006(Rs. In Millions

At at31.03.2005(Rs. In Millions

I. SOURCES OF FUNDS

SHAREHOLDERS’ FUNDS

Share Capital 17,618.04 17,618.04 17,618.00

Reserves and Surplus 9,949.92 6,335.35 4,018.33

LOAN FUNDS

Secured Loans 4,378.23 5,797.13 8,934.37

Unsecured Loans 19,304.84 27,275.59 25,730.96

DEFERED TAX LIABILITY (NET)

5,989.56 1,371.34 -

TOTAL 57,240.59 58,397.45 56,301.66

II. APPLICATION OF FUNDSFIXED ASSETS

Gross Block 73,041.31 67,793.61 67,401.91

Less: Depreciation 30,363.80 26,834.85 23,353.45

Net block 42,677.51 40,958.76 44,048.46

Capital work-in-progress 987.09 4,092.30 779.77

43,664.60 45,051.06 44,828.23

INVESTEMENTS 272.80 272.78 -

CURRENT ASSETS, LOANSAND ADVANCESInventories 24,982.71 18,907.71 19,116.17

Sundry Debtors 11,948.66 11,530.20 9,607.98

Cash and Bank Balances 1,328.97 51.86 91.63

Other Current Assets 18.38 3,783.00 3,781.64

Loans and Advances 6,339.71 3,415.47 4,252.73

44,618.43 37,687.54 36,849.15

54

Less: CURRENT LIABILITIES AND PROVISIONSCurrent liabilities 29,499.96 22,789.19 23,671.33

Provisions 1,815.28 1,824.74 2,789.45

31,315.24 24,613.93 26,460.78

Net Current Assets 13,303.19 13,073.61 10,388.37

TOTAL 57,240.59 58,397.45 56,301.66

PARTICULARS 2007Rs. InMillions

2006Rs. InMillions

2005Rs. InMillions

INCOMEIncome On OperationsSale of Products (Gross) 323,768.75 282,428.64 206,925.50Less: Excise DutySale of Products (Net)Other IncomeIncrease/ (Decrease) in stocks

EXPENDITURERaw Materials consumedOperating & Other Expenses

PROFIT BEFORE INTEREST, DPRECIATION & TAXInterest and Finance ChargesDepreciation/ AmortizationMiscellaneous Expenditure written off

PROFIT BEFORE TAXProvision for Wealth TaxProvision for Income Tax:

Current Tax Fringe Benefit Tax Prior Years’ tax adjustment Deferred Tax

55

FINDINGS

- The company was facing severe underutilization of capacity and severe cash flow

problems by virtue of partner.

56

- In the financial year 2002-03 the company had high debt equity ratio of 3.8 by

borrowing from banks and other financial institutions and debt constituted the

major part in financing the operations of the company.

- The net profit ratio shows an increasing trend from the year 2003 to 2005. The

net ratio which was -5.11 in the year 2003 rose to 4.75 in the year 2005 and shows

the efficiency of the firm.

- The earning per share of the firm has increased from 2003 to 2005. In the year

2002-03, the ratio shows a negative of -5.15 as due to loss company has incurred

in the same period. The next 2 financial plans shows an increase resulting in

improvement in the earning power of the firm, this increase is due to the increase

in the turnover and increase in the profits and the year 2005 it is 5.02.

- The capacity utilization has increased from 56.52% in the financial year 2001-02

to highest ever-capacity utilization of 122% best among all refineries in India

during the financial year 2004-05.

- There is an increase in Raw-materials stock by 121% over previous year during

financial year 2004-05 and closing stock is 12 days requirement.

- Share price has been constant till 31/3/2003 before the acquisition but increased to

new levels after the acquisition by ONGC.

- MRPL earned a net profit 371.6 crore (down from Rs.800 crore) after making

provisions for financing and interest charges of Rs.188 crore (Rs.230 crore),

depreciation of Rs.350 crore (Rs.378 crore) and deferred tax / current tax liability

of Rs.251 crore (Rs.81 crore).

- The debt was reduced considerably by ONGC and presently the company is

having a debt equity ratio of 0.87:1.

- In the year 2005-06 EPS has come down to 2.12 as the profit after tax has come

down.

- In the financial year 2005-06 the net profit ratio has come down to 1.48%.

- Reduction in net profit is mainly due to:

(i) Discount on products (MS, HSD, Kerosene (PDS) and LPG

(Domestic), advised by PSU OMCs (IOC/BPC/HPC)

(ii) Reduced product off take (43% against 55%) by the OMCs in

domestic market having higher margins.

(iii) Reduction in refining margins in line with global trend.

57

- During the financial year2005-2006 the operational performance of the company

has reached new heights of excellence:

- Highest ever capacity utilization of 125% which is also the highest among

all refineries in India.

- Highest ever turnover of Rs. 28243 crore and highest ever export earning

of Rs. 11917 crore.

- Debt equity ration improved to 0.87:1.

SUGGESTIONS AND RECOMMENDATIONS

- Presently most of the refining products are used in the domestic market and

constitute a major part. Steps should be undertaken to export more of refined

products to international markets and getting maximum revenue out of the report.

58

- Actions have to be taken to increase the refinery capacity from the present 9.69

MMT p.a. to 15 MMT p.a. Therefore the company has to provide with additional

capacity and value addition.

- Price earning ratio of the company has gone down from the financial year 2005-

06 due to decrease in the market price and increase in he earning per share. An

investor while looking to invest price – earning capacity of the firm is one major

factor the investor looks into before investing and the company has to improve its

share price.

- To avoid new loans from financial institution and banks for the next couple of

years till the company achieves consistency and clearing of all its commitments

and it also avoid the debt burden in the long run.

Chapter 6

CONCLUSION

MRPL was initially set up as a joint sector company promoted by Indian Rayon

and Industries Ltd. and its associates (forming part of Aditya Birla Group) and

59

Hindustan Petroleum Corporation Ltd., a public sector company. Later company started

incurring huge losses due to low capacity utilization, high cost of debt, increase in

operating expenses etc. In the year 2003 ONGC came to the aid of loss making

company. After ONGC took over MRPL, it started earning profit. Operational as well

as financial performance of the company has reached new hights of excellence during

the year 2004-2005, such as highest ever capacity utilization of 122% best among all

refineries in India, first refinery in India to produce MS (Petrol) and HSD (Diesel) to

Euro III specification, highest ever turnover of Rs. 206925 million, highest ever export

realization of Rs. 61913 million, lowest ever interest and finance cost of Rs. 2296

million debt – equity ratio improved to almost 1:1, highest ever not profit of Rs. 8797

million and accumulated losses of Rs. 11845 million (when ONGC took over MRPL)

wiped out.

But during the financial year 2005-06 there is a slight decrease in the net profit

and ERS of the company. But the has growth plans such as, implementation of the

ISOM project for up gradation of facilities to produce Motor Sprit (petrol) of

Euro III/IV quality and Mixed Xylene Project for producing value added Mixed Xylene

and MRPL/ONGC Board have approved the Refinery Up gradation Project, which will

enhance refining capacity to 15MMTPA (at present 9.69MMTPA).

BIBLOGRAPHY

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