“PROJECT FINANCE FOR PRRPL AND FINANCIAL ANALYSIS OF

IOCL AND ITS PIPELINE DIVISION”

By:

Parul Midha

PGD-FM/09/007

This Presentation Entails :

Research Methodology Industry Profile Company Profile Pipeline Division Project Finance-PRRPL Financial Analysis-IOCL Financial Analysis-Pipeline Division Contribution to IOCL-Pipeline Division Recommendations Learning

Research Methodology Systematic way to carry out activities to achieve objectives. Research-Type :

Analytical Fundamental Historical Objectives :

To determine the feasibility of the PRRPL To analyze the financials of IOCL and

Its pipeline division Scope :

Focus on Project finance Analysis of IOCL-Pipeline’s Financials.

Limitations : Limited Availability of Time. No Opportunity to visit Refinery.

Where’s Problem, Info, or

Knowledge ? Lets find out….

Stimulate Mind & Knowledge to achieve

Objectives.

Data Analysis

What to do? How to do?

Reservoir of Information, Data, Knowledge

Data Collection

Data Processing

Research Methodology

Working with proper

Consultation & Guidance, for

maximum Contribution

Leave the Footprints

Industry Profile

Petroleum : An oily liquid existing at various places in the Earth’s crust.

Technology-Intensive & High Capital Investment 2% of world market-business worth USD 30bn 13% yearly growth, one of the fastest growing sector Global oil majors benchmark their production costs

with OPEC Historically, Administered Pricing Mechanism (APM)

regulation was in place, but now dismantled with presence of private players.

Volatile Prices of Crude & Petro Products, dependency on international market

Industry Profile Downstream Sector

Public IOCL HPCL BPCL

Private Reliance Shell Essar

Company Profile 18th Largest petroleum company in the world. India’s largest Commercial Enterprise. Ranks 125th on the Fortune Global 500 listing (2010), & classified as A+

Grade PSU in India. 1959 : Began operation as Indian Oil Company Ltd. 1964 : IOCL was formed, with the merger of Indian Refineries Ltd. Golden Jubilee year 2009-10 :

48% Share in Petroleum Product Market 34% Share in Refining Capacity 71% Share in Downstream Sector Pipelines Capacity

IndianOil owns & operates 10 of India's 20 refineries with a combined refining capacity of 60.20 MMTPA .

Cross-country pipelines network spans more than 10,329 kms. It operates the largest & widest network of fuel stations in

India, numbering about 18,278. CMD: Mr. B M Bansal

CITP - Values1964>>125th-Fortune 2010

Rs.2,827.06 Cr - 2009

IOCL

Divisions

Pipelines

Marketing

Refinery

R&D

Pipeline Division Has a network of 10,329km which serves as

the backbone of refining and marketing operations

It has a throughput capacity of 74.41 MMTPA. 3 Crude and 18 product pipelines with 10

more under implementation.

Product 5963Km (33.41MMTPA)

Crude 4363Km

(41 MMTPA)

10329Km (74.41MMTPA)

Project Finance What is it all about?? Project finance-A ten stage process

I• Need for a new Pipeline

II• Cost Estimates are prepared

III• Detailed Feasibility Report (DFR)

IV• Board Approval

V• Purchase Requisitions

VI• Tenders are invited

VII

• Techno Bids and Commercial Bids are receivedVIII

• Project commences

IX• Insurance

X• Commissioning of the project

Project finance for PRRPL PRRPL – “Paradip-New Sambalpur-Raipur-

Ranchi Pipeline” Need-Railway Tariffs. Length of the pipeline -1108 Km Products- MS,SKO & HSD Throughput projections till 2027. Minimum 33% as common carrier. Construction Schedule – 36 months

Capital cost Rs1793 Cr (Inc Rs610 Cr FC) Annual Operating Cost Rs67 Cr Financing- Debt:Equity =1:1 Debt@11%p.a. (8instalments with 1yr

Moratorium period) Working capital(Internal sources) IRR 16.8% (w/o IDC) > Hurdle Rate FINANCIALLY VIABLE

Comparative Ratio Analysis of IOCL, HPCL and BPCL Profitability Ratios

IOCL leads among the state owned oil companies in all the Profitability ratios consistently.

Liquidity Ratios

Due to the massive scale of operations it is way below its competitors in this category.

Activity Ratios

DTR and FATR are all below that of competitors.

Financial Analysis of Pipeline Division Operating Profits Analysis

Cost of Transportation (COT) Analysis

2005-06 2006-07 2007-08 2008-09 2009-100

500

1000

1500

2000

2500

3000

295.229999999999

417.15 435.32

2514.37

2827.06

Operating Profit

(Rs in Crores)

(Rs in Crores)

Financial Analysis of Pipeline Division Variable Cost Per MT Analysis

Ratio Analysis- Specific to pipeline division

2006 2007 2008 2009 20100

10

20

30

40

50

60

70

80

39

4754

68

56

Variable Cost Per MT

(Rs per MT)

Particulars 2006 2007 2008 2009 2010

Total Variable Cost(Rs Crores) 173 242 308 403 356

Throughput (TMT) 44832 51222 56686 59171 63992

Variable Cost Per MT(Rs) 39 47 54 68 56

Contribution to IOCL-Pipelines Division E-Payment Analysis (April,May’10)

SAP related work- Cost Estimates checked for-

PRRPL Hot Crane Restoration of Sanganer CBR Trichy Pipeline

Tenders-Commercial & Price bid evaluation for “Hot Crane” Tender(Public) “Restoration of Sanganer plant” Tender(Limited)

Cntd..

Preparation of CapEx reports for April’10 and May’10 (MS Excel, Macros)

Preparation of Schedules X and Schedule V (Balance sheet) of 2009-10. (Analysis of payments to foreign parties using SAP)

Preparation of insurance Claim file(Sanganer plant Fire)

Recommendations

The controllable costs of Rs.76.88 Cr. in 2010 should be reduced, to increase profits.

Current Ratio of 0.67:1 is low, so is quick ratio & stock-to-working capital ratio; it should be improved to amend IOCL’s liquidity position.

Working Capital of IOCL is negative Rs207Cr, because of CL>CA, therefore steps should be taken to turn it into positive. Either it should work on ↑CA or ↓CL or both.

DTR of 48.15 is almost half that of competitors like BPCL. Measures should be taken by improving credit terms and standards.

The ratios of operating costs, establishment costs per employees, per tonne are very high; it is very pertinent to bring them down.

Learnings

SAP-POs, Asset management,E-Pay Analysis ,Cost estimates,

Petrochemical,

Pipelines Industry &

its Major Market

Players

IOCL Pipelines; & Transportation Process

IOCL-Pipelines Finance Dept. Hierarchy

Financial Ratio

Analysis & IOCL-

Pipelines’ Specific

Cost Ratios

Tenders-commercial bid-

price bid

Corporate Culture, Behavior & Values

Excel

Applications

In IndianOil Corporation

Ltd.-Pipelines Division

Thank You

Have a Nice Day