CHAPTER I INTRODUCTION

The origin of the oil industry in India can be traced back to the last part of the 19th century when petroleum was discovered in Digboi in Northeast. After independence, industry-which had Burmah Shell, Esso and Caltex as majors players-was nationalized. Every activity exploration, development production and refining, rnarketing distribution was controlled by the various oil companies. Since Indian economic liberalization programmer started however, the Indian oils and gas sectors has gone through some every fundamental changes. But post April, 2002, the oil segment has been totally freed from the shackles if the government with the dismantling of the administered pricing mechanism and oil companies being given the right to price mechanism and oil companies being given the right to price their products at the retail outlets.

INDUSTRY STRUCURE :The domestic oil industry is largely controlled by the government with the Ministry of Petroleum and Natural Gas at the helm and was being assisted by directors general of hydrocarbon (DGH), Gas Linkage Committee, Oil Industry Development Board (OIDB) and Oil coordination committee (OCC) till OCC was replaced by another regulatory board. The Present board has been named as Petroleum Planning and Analysis Cell. In line with the proposed the formation of the single regulatory authority for both natural gas has both natural gas and downstream petroleum activities instead of two separate authorities for the downstream and upstream Petroleum activities that was announced post liberalization.

This regulatory body will take care of the followings.1)Administer subsidy on kerosene for public distribution system and domestic cooking gas and freight subsidy for far - flung areas.2)Maintain information data bank and communication system to deal with emergencies and unforeseen situations.3)Forecast arid evaluate petroleum import arid export trends and Operationalize the sector specify surcharge schemes.Besides the above, the cell is also is expected to take care of the following:

1)The availability of petroleum and gas products in different regions of the country especially remote areas.

2)Establishing the quality specifications ,monitoring compliant, environmental standards and targets for technological achievements.

3) Ensuring equitable access to the pipelines and monitoring of the tariff. Monitors arid regulate tariff of common usage facilities.

4)To monitor the implementation of polices pertaining to downstream oil Sector activities lay down or pronounced by the Govt.

5)Protection of consumer interest with respect to price quality and availability of products.

6)Prevent unfair trade practices and cartelization.

Among exploration and production companies oil & natural gas corporation (ONGC) and oil have a virtual monopoly with more than 84% of the production in upstream crude oil and gas industry. However private players are allowed in this segment with the launch of new exploration and licensing policy (NELP)in marketing and distribution of gas, GAIL is the largest company.The refining sector is again ,dominated by PSUs like Indian Oil Corporation (HPCL), Chennai Petroleum Corporation (IOCL), Bharat petroleum corporation (BPCL), Hindustan Petroleum Corporation (HPCL) Chennai petroleum corporation (CPCL), Kochi Refineries (KRL), and Bongaigaon Refinery & Petrochemicals (BRPL) of which the first three has the rights to marks its product like Petrol ,diesel and kerosene. The last three are stand alone refineries.From 1st April 2002 administer price mechanism (APM) was dismantled. State subsidies were scrapped for all products, excepts for kerosene and cooking gas (LPG). Subsidies for these politically sensitive items would continue for three to five years before being phased out. However, now subsidies will be provided for in the budget. In addition to that, Oil companies will be free to set to their own prices at the pump. But the petroleum ministry would cushion the impact of the same for at least the coming three months to prevent consumers being hit by big price fluctuations.

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Petrol., Diesel, LPG and kerosene are the four main petroleum products whole sale accounts for about 70% of the total sales in India. In volume the terms it IS roughly around 77MT and in value terms it is roughly Rs. I,45,000 Crores sold every year. Margins for petrol is marginally higher than. that of diesel, by about 1.3 dollars/barrel.

The four major products in a snapshot:

HSD: It is the largest selling of all fuels and accounts for 85% of the automotive fuels. It accounts for 42% of sales volume of oil companies. The diesel market roughly amounts to Rs 92,000 corer per annum.

It is sold mainly in two ways. One is sold at low-margins wholesales to bulk consumers like the railways and state transport companies. The other way, (highest volume sold in this way) are to retail sales to truck, heavy vehicles and agricultural segment.

Diesel sales have roughly fallen by 8% over the last one-year due to the downturn in the economy.

Petrol: It accounts for roughly 9.3 MT of fuel sales. In volume terms it is roughly around its 28,000 corer per year. Sales are growing @ 1.7% over the past one year.

Kerosene: It amounts to Rs. 13,000 crore in term of sales. It is sold two ways. One through the public distribution system and the second though free market operation kerosene, till date subsidized though it is going to be phased out in the next 3-5 years.

LPG: Sales of about Rs.12,000 crores accrued from his last year. Though this product provided the maximum margins to the oil companies (about $5/barrel). Though private players are allowed to sell this products since 1994, all the made losses due to the subsidy to the LPG sold by the oil companies. But imports of petrol and diesel would be continued to be regulated and would be allowed only after established norms of a free market and a credible regulatory mechanism.

ENERGY: Demand for energy has been growing and the market is bound to expand with an ever growing population. While the sale has been witnessing a steady growth over the past few year, the bottom line that oil and gas companies have seen a sharp and consistent rise in profits. Right now, oil, gas, colas, hydel and nuclear are the five sources of energy supply. Going forward in the energy sector, gas is expected to replace the demand for oil and is expected to constitute 20% of the energy supply by 2025.FY 2002FY 2007FY 2012FY 2025

OIL33.835.833.725

GAS10.410.210.120

COAL52.149.350.350

HYDEL2.53.23.42

NUCLEAR1.21.52.53

TOTAL100100100100

CURRENT SCENARIO :

The administered pricing mechanism dismantled w.e.f April 1 2002. Deregulation has brought for the industry and protection of consumer interest. The APM was designed to keep price of essential Petroleum products (such as LPG and Kerosene) with in the common man's reach. Thus, the government kept prices of petroleum products loan ,by subsidizing the prices of these products with recourse to the oil pool account the kept on growing to unsustainable proportions. The APM mechanism functioned on retention price concept, where in oil marketing companies were assured a post-tax return of 12% on their net worth. With the dismantling of APM, the oil pool account too was scraped with nearby Rs 15,000 crore due too oil companies till March 31,2002.From 1st April 2002 administered price mechanism (APM) was dismantled. State subsidies were scrapped fro all products, except for kerosene and cooking gas )LPG). Subsidies for these politically sensitive items would continue for three to five years before being phased out. However, now subsides will be provided for the budget. In assist to that, il companies will be free to set their own prices at the pump. But the petroleum ministry would cushion the impact of the same for at least the coming three months to prevent consumer being hit by big price fluctuations. Post-APM, the market based environment ensures better pricing, efficient working capital management and higher emerging for oil PSUs. Deregulation has made PSUs more competitive and has let to a strong performance at the bourses.Petrol, Diesel, LPG and Kerosene re the four main petroleum products whose sales account for about 70% of the total sales on India. In volume terms it is roughly around 77MT and in value terms it is toughly Rs1,45,000 crores sold every year. Marginally higher than that of diesel, by about 1.3 dollars/barrel.

Some of the key highlights were :1.Sector moves from APM to market determining pricing mechanism (MUPM).

2. Dis-investment of HPCL and BPCL announced by Government.

3. IOC, ONGC & GAIL to remain national oil companies on near future.

4.Enter of private and multinational companies in the oil sector imminent.

Demand drives :

The major demand drivers in this sector are the growth in GDI rate overall industrial growth and increase in transportation. With the commissioning of Reliance Petroleum, the country has become more than self reliant in refining. But crude oil imports continue to increase even though these will be reduction in petro-products imports. India currently imports about 70% of its total crude requirements with the launch of NELP, many private players are permitted for exploration and production of crude oil and expansion in refining sector companies is expected to cater the demand.Risk factors : Inter firm rivalry. Competition in the sector is likely to intensify.

The government as stipulated a fixed investment of minimum Rs 200 crores for new entrant.

Entry barriers.

Limited bargaining power on raw materials.

Critical success factors : Gross Refining Margins : High.

Cost of crude: buy crude by entering into terms contracts and through tender process. Crude which will give lesser quantity of heavier distillate products and more of a heavier refinery important. Location of a refinery important

Tariff protection Pipeline network

Environment regulations

Marketing network and infrastructure.

Sales composition.Mergers & Acqusitions :As part of its plan of restructuring the oil sector, the government decided on the integration of standalone refineries in public sector and accordingly, sold its stakes in and Numaligarah are made subsidiaries of BPCL, while and CPCL became subsidiaries of IOCL.This arrangement will strength the standard the stand- alone refineries to face the increasing challenges of deregulation and enhance supply of petroleum products to LOC and BPCL in the southern and northeastern regions.

In private sector, Reliance Petroleum has decided to merge itself with the parent Reliance Industries to become the first private company to enter the list of fortune 500. Globally, mergers paved the way for higher returns with lower ratio of labour to assets.

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Government policy:The following key recommendations were announced in the union Budgets 2002-03.

The pricing of Petroleum products will become market determined.

The oil pool account will dismantled on April 1, 2002 and the outstanding balances will be liquidated by issued of oil bonds to the concerned oil companies.

Private companies will be permitted in distribution subject to specified guidelines.

A petroleum Regulatory Board will be set up to oversee the sector.

Subsidies to refineries in the North-East will continue on a rationalized basis.

Freight subsidies will continue to be provided for LPG and kerosene to far-flung areas.

As a result of the dismantling of APM, the price of diesel will come down by around 50 paisa per liter and of petrol by around Re 1 per liter. These changes in prices will come into effect from March 1, 2002, initially as part of the Oil Pool Account.

Need for the study:Financial performance Appraisal is the process of identify the financial strength and weakness of the firm by properly establishing relationships between the items of the balance sheet and profit and loss account. Management of the firm can undertake financial analysis or by parties out side the firm, viz., owners, creditors investors and others. The nature of analysis will differ depending on the purpose.

Trade creditors: Trade creditors are interested in firm ability to meet this claims over a very short period of time this analysis will therefore confine to the evaluation of the firm's liquidity position.

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Suppliers of the long term debt: Suppliers of long term debt are concerned with the firm's long term solvency and survival they analysis the firm's profitability over time its ability to generate cash to be able to pay interest and repay principal and the relationship between various source of funds (Capital structure relationships).

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Investors: Investors are most concerned about the firm's earning they concentrate on the analysis of the firm that show steady growth in earning they concentrate on the analysis of the firm's present and future profitability they are also interested in the firm's financial structures to the extent it influences the firm's earning ability and risk..

Management: Management firm would be interested in every aspects of the financial analysis it is there overall responsibility to see that the resource of the firms are used most effective and efficiently that the firm's financial condition is sound.

In financial analysis, a ratio is used as a bench marks for evaluating the financial position and performance of a firm. The relationship between two accounting figures expressed mathematically is known as financial ratio (or simply as a ratio). Ration help to summarizes of financial data and to make qualitative judgment about the firm's financial performance.Many diverse groups of people are interested in analyzing the financial information to indicate the operating and financial efficiency, and growth of he firm these people use ration to determine those financial characteristics of the firm to which they are interest with the help of ratios, one can determine.

The ability of the firm to meet its current obligations.

The extent to which the firm has used its long term solvency by borrowing funds.

The efficiency with the firm is utilizing its assets in generating sales Revenue.

The overall operating efficiency and performance of the firm.

In the financial literature of a lot of importance has been attached to financial ratios for assessing the financial health of the firm the importance of ratios analysis lies in the fact that it present facts on a comparative basis ands enable the drawing of inference regarding the performance of firm. Ratio analysis is relevant in assessing the performance of a firm in respect of following aspects.

Liquidity position :With the help of ratio analysis conclusion can be drawn regarding the liquidity position of a firm. The liquidity of a firm would be satisfactory if it is able to meet its current obligations when they become due. A firm can be said to have the ability to meet its short-term liabilities if it has sufficient liquid funds to pay the interest on its short maturing debts usually within a year as well as the principal. This ability is reflected in the liquidity ratios of a firm. The liquidity ratios particularly useful in credit analysis by banks and others suppliers of short term loans.

Long term solvency :

Ratio analysis is equally useful for assessing the long term financial viability of a firm. This aspect of the financial position of a borrower is of concern to the long term creditors, security analyst and the present and potential owner of a business. The long term solvency is measured by the leverage/capital structure and profitability ratios which focus on earning power and operating efficiency. Ratio analysis reveals the strength and weakness of a firm in this respect.

The leverages ratios, for instances, will whether a firm has a reasonable proportions of various sources of financer or whether heavily loaded with debt in which case its solvency of financer or whether heavily loaded with debt un which case its solvency is exposed to serious strain. similarly, the various profitability ratios would reveal whether or not the firm is able to offer adequate returns to its owners consistent with the risk involved.Operating Efficiency :Yet another dimension of the use of the ratio analysis, relevant from the view point of management is that it throws light on the degree of efficiency in the management and utilization of its assets. It would recall that the various activity ratios measure this kind of operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon the sale generated by the users of its assets- total as well as its components.Over all profitability :

Unlike the outsider parties which are interested in one aspect of the financial position of a firm, the management is constantly concerned about the overall profitability of the enterprise.

That is, they are concerned about the ability of the firms to meet its short term as well as the long term obligations to its creditors, to ensure a reasonable return to its owners and secure optimum utilization of the assets of the firm. This is possible if an integrated view is taken and all the ration are considered together.

Inter-firm comparison :Ratio analysis not only throws light on the financial position of a firm but also Serves as a stepping stone to remedial measures .This is made possible due to inter-firm Comparison /comparison with industry averages. A single figure of particular ratio is meaningless unless it is related to some standard or norm. one of the popular techniques is to compare the ratios of a firm the industry average. It should be reasonable expected that the performance of the firm should be in broad conformity with that of the industry to which it belongs .An inter-firm comparison would demonstrate. The relatives position vis-a-vis its competitors. if the results are at various either with The industry average or with those of the competitors, the firm can seek to identify the Probable reasons and ,in that light, take remedial measures.

The above aspects of important to predicate the firms ability to meet the Sustainable growth these are all applicable to oil industry like HPCL also. The Following are the reasons take up financial analysis as subject to study. To review the whole financial performance of HPCL

To analyses the various reasons which are resulting in profitability of the firm.

To analyse how effectively does the company utilise its assets in generating the sales

To analyse the level of current assets relative to current liabilities.

To know how efficiently and frequently does the company convert current

assets into cash

To analyze the trends in collection period and fixed assets turnover in this Context HPCL as sampling unit is selected to study the financial performance.

OBJECTIVESI.To review the position of the petroleum industry in India.

2. To review the profile of the organization.

3 To appraise the financial performance of the HPCL .

4 To offer the suggestion wherever necessary basing on the study.

5 To make comparative study of different years.

METHODOLOGY:Data collection: there are two methods of collecting data "Primary Data" and "Secondary Data".

Primary Data:Having personal interaction with officials and staff in the finance department collects primary data for the study.

Secondary DataSecondary data is the existing data from published sources obtained from firm annual reports balance sheets and other financial statements etc. In the study maximum information is collected from secondary data only.

Period of study: five (5) years i.e. the financial years of 2000-01 to 2004-05 details were examined.

Statistical Techniques:

Graphs, Averages, Correlation are used.

Chapterization

The study is presented in four (IV)chaptersChapter-1Deals with introduction to petroleum industry in India .need for the study the study ,objectives of the study along with methodology.

Chapter-2 : Deals with financial a profile of Hindustan corporation Ltd.

Chapter-3 : Deals with financial performance HPCL with the help of the appropriate Financial management techniques (ratio analysis) and there interpretation.

Chapter-4 : finally this chapter deals with summary ,suggestion and Bibliography will be presented.

CHAPTER-II

PROFILE OF HINDUSTAN PETROLEUM CORPORATION LTD.

COMPANY PROFILE:

HPCL accounts for about 20% of the nation's refining capacity .On west Coast is the Mumbai refinery with a capacity of 5.5 million metric tones per annum While the other at Visakhapatnam, on the east coast, has a capacity of7.5 million Metic Tones per annum.HPCL is mega public sector undertaking (PSU) and is the second largest Integrated oil company in India, with Nav Ratna status .it has two refineries producing a wide variety of petroleum products fuels, Lubricants and specially products; one in Mumbai (west coast) started in 1954 with refining capacity of 1.25 MMPTA .Now Mumbai refinery having a capacity of 5.5 MMPY A and the in Visakhapatnam east coast with a capacity of7.5 MMTA. The corporation also operates the only joint venture refinery in flee country. The corporation also operates the only joint venture refinery in flee country. The 9 MMPTA, in associated with Aditya Birla Group of companies and is progressing towards second joint venture in the state of Punjab. HPCL is the results of successful of four establish companies HPCL was born of di, successful merger of ESSO, lude Indian Ltd., Caltex oil refinery India Ltd., and Kosan gas company of India Ltd. the company was renamed HPCL with effect from July 5th 1947 Indian oil & gas sector accounts for more than 30% of Indian's oil import bill and the sector contributes over 20% to the national exchequer through customers and excise.

India's share to world oil & gas production is less than 1 % with petro-product consumption of less than 3%. The objective of self-reliance in th4 sector has become a distant dream far exceeding production and with crude prices souring high in international markets.

CORPORATE VISION STATEMENTS :To be a leading world class company in hydrocarbons and energy related sectors with a global presence.

CORPORATE MISSION STATEMENT :HPCL will be a fully integrated company in the hydrocarbons sector pf exploration and production refining marketing and petrochemicals focusing on enhancement of productivity, quality and profit ability, caring for customers and employees, environment protection and cultural heritage. It will also attain international dimension by diversity into other energy related fields and by taking up translational operations. The above statement would be the guiding forces for defining the scope and reach of HPCL during the next 25 years HPCL would provide the full range of services integrated across the business in energy sectors and geographic boundaries and distinguish itself on the corporate horizons.

VISION 2020:The long perspective plan vision 2020 was prepared with the active involvement of different functional departments so that the corporations strategies and action plans are fully integrated swot analysis and a survey on managing the changes was undertaken in the contest of the present in peratives and in orders prepare suitable strategies and action plans. The corporation formulated its vision mission statements and developed corporate values, objectives and goals.

REFINING PROCESS :Crude Oil itself is in an unrefined form and has no direct use. Its value as a commodity is realized only when many different hydrocarbons components are separated out, broken down or combines with other chemicals in refinery to provide products than can be marketed. Each crude oil has its own unique characteristics that determine the products it will yield after refining built to meet specific demands for particular markets. The trend is away from heavier products towards maximization of middle distillates and gasoline. As a result, the processes are continually getting upgraded.

PRODUCTS :Light distillates:1. Liquid Petroleum Gas (LPG) mainly used for cooking purpose.2. Naphtha

Low Aromatic Naphtha (LAN)

High Aromatic Naphtha (HAN)3. Motor Spirit (M.S)/Gasoline/petrol

Use for indigenous vehicles M.S.

93R- use for foreign vehicles.

4. propyleneRaw materials for petrochemicals.MIDDLE DISTILATES :1. Mineral Turpentine Oil (MTO)Used in paint industry

2. Aviation Turbine Fuel (A TF)Used as fuel planes

3. Superior Kerosene Oil (SKO)Kerosene

4. High Speed Diesel (HSD)

Used as fuel for heavy vehicles.

5. Jute Batching Oil (JBO)

Used for jute machines lubrication.

6. Light Diesel Oil (LDO)

Used as fuel for ships.

7. Wash Oil (WO)

Used as lubricants for lather machines.

HEAVY ENDS :

1. Fuel Oil (Fa)

Used for boilers

2. Low Sulphur Heavy Stocks (LSHS) Used as oil usually blended

3. Bitumen / Asphalt

Used for laying roads.

SWOT ANALYSIS :

Strengths

1) Profit snaking

2) Adequate surplus

3) Technically strong management

4) Qualified employees

5) Capital market for petroleum products

6) Ability adapt to high technologies

7) Dedicated operating staff and experience maintenance crew strong technical service support

8) Well laid down systems and producers

9) Adequate captive power generations better career prospects

10) Highly experiences and qualified employees

11) Good water supply

12) Expansion feasible because expenditure need not be incurred from grass root level.

WEAKNESS :1)R&D being expensive and a long run programmed purchasing of technology is more feasible and preferably.

2)Handling of different types of crude mix thereby lending to sub optimal changes frequently in paint operations.

3)Lack of infrastructure facilities in and around Visakhapatnam to take up emergency maintenance jobs.

OPPORTUNITIES :1)Scope for further expansion and diversification possible by incurring one-fourth of expenditure only.

2) Availability of highly qualified, skilled and experience employees.

3) Scope of lifting of control on petroleum products prices by government of India.

4) Increasing sustained demand of petroleum products.

5) Highly for by products and petrochemicals feed stocks.

THREAT AND COMPETITORS :I)Growing industrial relation problems.

2) Concern about environmental problems keeping in view increasing awareness among the public and politicizing of environmental problems.

3)To generate sufficient internal resource for financing party/wholly expenditure on new capital projects.

4)To develop long term corporate plan to provide adequate growth of the activities of the operation.

OBJECTIVES OF HPCL :1)To serve the nations vital interest in the oil and related sectors.

2) To maintain continuity of supplies through their refinery and marketing network at optimum cost to provide up to date technical assistance to the customer to conserve and put the most efficient use, valuable energy resources.

3)To earn a reasonable return of investment.

4) To work towards achievements of self - reliance in the field of oil refining for formulation and distribution systems.5)To create strong research and development base the field of oil refining and stimulate R&D in developing new petroleum products so as to minimize their imports.

6)To maximize utilization of the existing facilities in order to improve efficiency and increase productivity.

7)To keep in pace with the developments of international petroleum refining technology.

THE PRODUCTS STATE OF HPCL :1) MS-MOTOR SPIRIT

2) HSD-HIGH SPEED DIESEL

3) SKO-SUPERIOR KEROSENE OIL

4) LPG-LIQUIFIED PETROLEUM GAS

5) LDO-LIGHT DIESEL OIL

6) JDO-JUTE BATTING OIL

7) FO-FURNANCE OIL

8) ATF-A VIATION TURBINE FUEL

9) NAPTHA

10) LUBRICNATS

11) MINERAL TURPENTINE

12) FUEL OIL 13) ASPHALT

14) LSHS

VISAKHA REFINERY :

HPCL Visakha refinery was commissioned in private sector in the year 1957 as Caltex oil refining India Ltd., (CORIL). It was the first oil refinery on east coast and the first oil refinery on the east and the first major industry in the city of Visakhapatnam in the state of Andhra Pradesh. The installed capacity of the refinery was 0.65 MMTPA in 1957. The government of India acquired the unit in the year 1976 by paying a compensation of Rs.13 00 Lakhs and amalgamated the same with HPCL effect from 9th may 1978 with the commissioning of VREP during Jan-Sept 1985 at a coast of 16144.64 Lakhs the capacity of Visakha refinery has increased to 4.5 MMTPA. CORIL was taken over by the government of India and merged with HPCL in 1978. The refinery has expanded in a phased manner over the years. The first expansion of refinery after 1957, was through de-bottlenecking of units in 1978 where in the crude processing capacity increased from 0.65 MMTP A.

Another major expansion of the refinery was completed in 1985 in which the crude processing capacity increased from 1.5 MMTP A to 4.5 MMTPA. On September 14th 1997 formation of vapor cloud of LPG receiving facility caused an explosion and fire damaging some refinery and marketing terminal and other buildings. The damages to various assets including equipments, stocks, stores and also loss of profit was cleared under the insurance policy. An amount of Rs. 138.35 crores was received from the insurance company towards the loss of profit.REFINERY MAKES THE FOLLOWING PRODUCTSLPGDOMESTIC COMMERCIAL(COOKG GS) COOKING GAS

PETROL#NORMAL PETROL

0.05 WT% SULPHUR PETROLTRANSPORTATION FUEL

KEROSENEDOMESTIC(COOKING FUEL)

DIESEL#NORMAL PETROL

0.05 WT% SULPHUR DIESELTRANSPORTATION FUELPOWER GENERATION

LOW SULPHUR HIGH FLASH DIESELNAVY GRADE DIESEL

AVIATION TURBO FUELAVIATION TRANSPORTATION

PROPYLENEPETROCHEMICALS

NAPTHA

#FUEL

#FERTILISERS

#PETROCHEMICALS

INDUSTRIAL, POWER GENERATION,

PETROCHEMICAL FEED BACK STO

MINERAL TURPENTINE OILPAINT INDUSTRY SOLVENT

JUTE BATCHING OILJUTE INDUSTRY SOLVENT

LIGHT DIESEL OILMARINE DIESEL (SHIPPING)

FUEL

#LIGHT

#HEAVYINDUSTRIAL

REFINERY PERFORMANCE :

HPCL refineries have received the highest ever combined crude through put of 12.93 MMT as against the previous best of 12.33 MMT achieved during 2001-2002. Mumbai refinery achieved crude through put of 6.08 MMT as against its installed capacity of 5.5 MMT which represent a capacity utilization of 110.4 degrees. The fuel loss at Mumbai refinery was 6.88% which is better than MOD target of 7%. Visakha refinery achieved the highest crude through put of 6.85 MMT as against previous best of 607 MMT achieved during 2001-2002. The fuel and loss at visakha refinery was 5.95% which is better than the MOD target of 6.5%.

AWARDS RECEIVED DURING 2003-2004:

1)Golden peacock award for good corporate governance from the institute of directors.

2) Golden peacock national quality award from institute of directors.

3) Good corporate citizen award from the Bombay chamber of commerce and industry .

4)National safety award for 2002 from national safety council Maharashtra chapter.

5) Greenest environment excellence award.

6) Jawaharlal Nehru centenary award for Visakha refinery.

7) NPMP award for Vijayawada Secunderabad pipeline project.

LONG TERM SETTLEMENT FOR VISAKHA REFINERY :A MOD was reached with the unions of VR on wage revision and settlement included increase of working hours, reduction in national/festival holidays, change in overtime formula/divisor, job flexibility, attendance linked benefits etc.,

1.Visakha refinery bagged an award for "Best innovate measure" in environment from honorable mayor of Visakha.

2.Visakha refinery bagged second prize for best improvements in energy conservation for the year 2001-2002

FUNCTIONS OF DIRECTORS :1. Director Refineries: Director Refineries is the key role in the organization he is responsible for the production of the finished products i.e. Refining the crude. Refining is the process of distillation cracking and treatment. So it comprises complex units and its operation with sophisticated technology. The duty of the Director Refineries is to look after operations and Maintenance of the units mainly.

2. Director Marketing: Director marketing is the person to convert the inventory into cash. He will be Responsible for Direct Sales, Lubes, LPG, Aviation fuel stations etc.

3. Director Finance: The Director finance is difficult separate from production (Refineries) Marketing and other functions. Mainly the finance director functions is raising funds investing them in assets and distributing returns earned from assets to share holders respectively.

4. Director HR: Human Resource Management can be said as the most important of all resource. HR Directors directly or indirectly responsible for employing people developing their services in tune with the job and organization requirements.

REFINING PROCESS :Crude Oil itself is in an unrefined form and has no direct use. Its value as a commodity is realized only when many different hydrocarbon components are separated out, broken down or combined with other chemicals in refinery to provide products that can be marketed. Each crude oil has its own unique characteristics that determine the products it will yield after refining built to meet specific demands for particular markets. The trend is away from heavier products towards maximization of middle distillates and gasoline. As a result, the processes are continually getting upgraded.

PRODUCTS:Light Distillates:1.Liquid Petroleum Gas (LPG) mainly used for cooking purpose.

2. Naphtha

Low Aromatic Naphtha (LAN) High Aromatic Naphtha (HAN)3. Motor Sprit (M.S)/Gasoline/Petrol

Use for indigenous M.S.

93R - use for foreign Vehicles.

4. Propylene

Raw materials for petrochemicals

MIDDLE DISTILATES

1. Mineral Turpentine Oil (MTO) Used in paint industry.

2. Aviation Turbine Fuel (A TF)Used as fuel for planes.

3. Superior Kerosene Oil (SKO)Kerosene

4. High Speed Diesel (HSD)

Used as Fuel for heavy vehicles.

5. Jute Batching Oil (JBO)

Used for jute machine lubrication.

6. Light Diesel Oil (LDO)

Used as fuel for Ships7. Wash Oil (WO) machines.

Used as lubrication for lather

Heavy Ends:

1. Fuel Oil (Fa)

Used for boilers

2. Low Sulphur Heavy Stocks (LSHS)Used as oil usually blended

3. Bitumen I Asphalt

Used for laying roads

SWOT ANALYSIS:1.Profit Making

2. Adequate surplus

3. Technically strong management

4. Qualified employees

5. Capital market for petroleum products

6. Ability adapt to high technology

7. Dedicated operating staff and experienced maintenance crew strong Technical service support

8. Well laid down systems and producers

9. Adequate captive power generation better career prospects

10. Highly experienced and qualified employees

11. Good water supply

12. Expansion feasible because expenditure need not be incurred from grass root level.

Weakness:1.R & D being expensive and a long run programme purchasing of technology is more feasible and preferably.

2.Handling of Different types of crude mix thereby lending to sub optimal changes frequently in paint operations.

3. Lack of infrastructure facilities in and around Visakhapatnam to take up Emergency maintenance jobs.

Opportunities :1.Scope for the further expansion and diversification possible by incurring one fourth of expenditure only.

2. Availability of highly qualified, skilled and experienced employees.

3. Scope of lifting of control on petroleum products priced by government of India.

4. Increasing sustained demand of petroleum products.

5. High for by-products and petrochemical feed stocks.

Threats and competitors :

1.Growing industrial relation problems.

2. Concern about environmental problem keeping in view increasing awareness among the public and politicizing of environmental problems.

3. To generate sufficient internal resources for financing party I wholly expenditure on new capital projects.

4. To develop long term corporate plan to provide adequate growth of the activities of the operation.

Objectives of HPCL:

1.To serve the nations vital interest in the oil and related sectors.

2.To maintain continuity of supplies through their refinery and marketing network at optimum cost to provide up to date technical assistance to the customer to conserve and put the most efficient use, valuable energy resources.

3.To earn a reasonable return of investment.

4.To work towards achievements of self - reliance in the field of oilrefining, formulation and distributions systems.

5.To create strong research and development base the field of oil refining and stimulate R&D in developing new petroleum products so as to minimize their imports.

6.To maximize utilization of the existing facilities in order to improveefficiency and increase productivity.

7.To keep in pace with the developments of international petroleumrefining Technology.

The product state of HPCL:

1. MS-MOTOR SPIRIT

2. HSD-HIGH SPEED DIESEL

3.SKO-SUPERIOR KEROSENE OIL

4. LPG-LlQUIFIED PETROLEUM GAS

5. LDO-LIGHT DIESEL OIL

6. JDO-JUTE BATTING OIL

7. FO-FURNANCE OIL

8.ATF-AVIATION TURBINE FULE

9. NAPTHA

10. LUBRICANTS

11. MINERAL TURPENTINE

12. FULE OIL

13. ASPHALT

14. LSHS

Memorandum of understanding :The sustained of the entire HPCL team have instrumental in the corporation Achieving an all around "Excellent" MOU rating foe eleven consecutive years up to 2002-03.

It is expected to qualify for "Excellent" rating of the MOU parameters for the year 2003-04 which will be the 13th consecutive year of Excellent rating.

Refinery performance:

HPCL refinery achieved the highest ever-combined crude thru put of 12.93 MMT as against the previous the best of 12.33 MMT achieved during 2001-02.

Mumbai Refinery achieved a crude thru put of 6.08 MMT, as against its installed capacity of 5.50 MMT, which represents a capacity utilization of 110.5. The fuel R loss at Mumbai refinery was 6.88%, which is better than MOU target of 7%. Visakh, Refinery achieved the highest ever crude thru put of 6.85 MMT, as against previous best of 6.70 MMT achieve during 2001-02. The friel & loss at Visakh Refinery was 5.95%, which is better than the MOU target of 6.5%.

Gross refining margins of Mumbai Refinery averaged at $2.84 per barrel as against 1.18 per barrel for the year 2001-02. Gross refining margins of Visakh Refinery averaged at $4.4 per barrel as against $1.67 per barrel for the year 2001-02. Both the refineries have initiated steps to put new facilities to produce fuels to meet future specifications.

Making the Mumbai Refinery independent of the vagaries of supply of power initially 3 units of GTG were commissioned with total installed capacity of 30 MW raging. These units were designed to run on BI-1 gas/Refinery naphtha, which would cause minimum air pollution. Presently, mumbai Refinery has 5 units of GTC s with a total installed capacity of 65 MW ISO rating making Mumbai refinery self sufficient oil power requirement.

Another milestone in increasing the productivity of the refinery was the replacement of pneumatic control system with latest microprocessor based Digital Control System in 1995-96.

Yet another step ill the field of automation was commissioning of Management system (CMMS) called MAXIMO in January 2001. MAXIMO is considered to be the best of breed of all the modern systems. That provides Maintenance and materials management support. HPCL is one of the fete organization in the world who have implemented all the features of the above package. This has improved our competitiveness 64% regard to increase plant upturned and reduce inventory of maintenance spares.

The Refinery has over the years, built flexibility to process various types of crude's. It has processed 43 different types of high sulphur & low Sulphur crude's, Major crude's processed are:

High Sulphur Crude:1. Arab Mix

2. Basrah

3. Zakum

4. Iranian Light

Low Sulphur Crude :

1. Bombay High

2. Qua ibone

3. labuan

4. lapis

5. Marib

6. Bonny Light

Visakh Refinerv - Salient Features :

HPCl Visahka Refinery was commissioned a 1957 as caltex oil Refinery India Limited (COIRIL). It was the first oil Refinery on the last coast and the First major industry in the city of Visakhapatnam, Andhra Pradesh. The installed capacity of the Refinery was 0.65 million metric tonnes per Annum (MMTPA) in 1957. CORIL taken cover by Government of India merged with Hindustan petroleum Corporation Limited (HPCl) in 1978.

The Refinery has expanded in phased manner over the year. The first expansion of Refinery after 1957, was though debottleing of units in 1978 where in the crude processing capacity increased turn 0.65 MMTPA [13200 bbis/day to 1.5 MMTPA 30400 Bbls/day] 1978.

Another major expansion of the Refinery was completed in 1985 in which the crude processing capacity increased from 1.5 MMTPA [30400 bbls/days] 1978.

In order to meet the growing demand of the petroleum products ill the country, another major expansion project was carried out and completed in 1999. After the commissioning of this expansion project, the crude processing capacity increased from 4.5 MMTPA [91200 bbs/days] to 7.5 MMTPA [152000 bbls/day].

Visakh Refinery is a fuel based Refinery generating major product of mass consumption life petrol, Diesel and Kerosene. Hence, crude meeting general purpose characteristics can be processed with the existing Refinery configuration. Visakh Refinery has flexibility to process wide range crudes procured across the globe and raging from high sulphur to low sulphur and non bituminous category to bituminous and Lubes based crude.Some of the crude processed at refinery includes:CountryCrudes

KuwaitKuwait

IranIran Mix. Lavan Blend

IraqBasrah Lt.

UAEDubai, Ummshaif, Upper Zakum,

Murban

Sandi ArabArab Mix, Arab Medium

EQyptZeit bay suex Mix

North YemenMasila

LibyaEssider

NigeriaQualboe, Bonny

AngolaCabuan, Nemba, Palance

MalaysiaLubuan Tapis Miri Lt.

UKBrent Blend

AustraliaSkua

IndonesiaMinas

PakistanBadin Blend

Beside these crudes, Refinery has also processed indigenous crudes like Bombay high, Ravva, Krishna Godavari Basin crude, Ratna Hira, Panna etc.

Marketing Performance :

Company Achieved the Highest Sales growth of 4.9% vis-a-vis 1.2% recorded by the industry for the Year. The Market sales (Including exports) registered 18.84 MMT Corresponding to 52,605.14 Crores during the year as against 18.02 MMT Corresponding to Rs 45,309.67 Crores during 2001-02.Economic Scenario :

The global economy went through a turbulent please in the year 2002-03 due to simmering geopolitical tensions in the Middle East, fall out from the bursting of the equity market bubble and the outbreak of SARS in east Asia. Global GDP growth for the year 2002 was estimated at 3.0% compared to 2.3% in 2001. Advanced countries grew at 3% while the GDP growth in the developing countries was 4.6%. Although growth in the second and third quarter of 2002 was stronger than expected geopolitical factors and continued aftershocks of equity bubble burst slowed the recovery in the advanced country.

Poor Monsoon for the second year in a row curtailed the growth of Indian economy. The economy. The agriculture output was hit by the severe monsoon failure.

As per revised estimates Released by CSO, the growth in GDP during 2002-03 was 4.3% as compared to the growth rate of 5.6% during 2001-02. This Comprises 6% growth in industry and 7.1 % in services against 3.3% and 6.8% growth registered respectively in 2001-02 GDP for the agriculture sector declined by 3.2%.

Inflation as measured by 'VPI, was 3.4% in 2002-03 as against 3.7% in 2001 - 02. The price of fuel group rose by 5.6% during 2002-03 as compared with 9.1 % rise Recorded in 2001-02. W PI of manufacturer goods and primary articles increased by 2.7% and 3.3% respectively in the same period.

Exports registered an impressive growth of 19% during April - March 2002 - 03, as compared with decline of 0.4% recorded in 2001 - 02. Imports were up by 19% during 2002 - 03, as against 3% increase in the corresponding period of 2001 - 02. Nos - POL imports grew by 16.57% in 2002 - 03 against 9.19% growth recorded by US$ 20 billion in 2002 - 03 alone to record A new high of $74.805 billions. -lie interest rates hit record lows in line with prevailing trends in the global market.

Thus, the economic scenario was marked by recovery in the industrial sector on the back of Infrastructure Spending. Low Inflation and Strong Growth in Foreign Exchange Reserves. On The Negative Side, However, Agriculture Sector Growth Suffered Due To Paucity of Rainfall, Bringing the GDP below 5%.

Indian Economy Is projected to Register The Highest Growth Rate of the Last Decade in 2002 - 04 and at 8.1 %, The Growth Rate is Double than that of 2002 - 03. The three Major Indices of Growth, Inflation and Balance of payments resulted In A resilient India economy to which Agriculture sector was the major Contributor.

Oil Consumption Increased By About 3.7% In 2003 - 04. Diesel Consumption increased by 1.8% in 2003 - 04. Reversing the Declining and / or Stagnant Trend of last three years. Bitumen Consumption went up by about 13.4% In the Context of large Scale Road Construction Projects.

It is expected that the current Momentum could In the Next Financial Year Economy could clock a healthy growth rate in 2004 - 05 Also. This in turn Indicates a positive Environment for the Oil Sector.

Downstream oil sector in the country faces several constraints including supply overhand, competition from Gas on the competition from new Entrants on the marketing segment, Volatility in crude price Etc., As a result competitive Intensity of the oil selector continues to rise and the challenge before the company is to ensure continued Growth and profitability Refining capacity still surpasses consumption. Overall refining capacity in the country, As on 31 March 04, was 125.6MMTPA: Crude Thrust during the year was around 119 MMT.

Consumption of the Petroleum Products 2003 - 04 on the other hand was Much Lower At 108 MMT. Inevitably, Surplus Production was exported. Product Exports and Imports during 03 - 04 were around 14.6 MMT and 7.87MMT Respectively.

New Auto fuel policy announced by the Government of India Mandated EURO-III EMMITION norms for eleven major cities with Effect from April 2005. These Emissions norms changes in Petrol and Diesel Quality Including Reduction Sulphur Limits. To meet new fuel requirements' Refineries can either process light sweet crude or make hefty, investments to refine Heavy sour crude into Light. Sweet petroleum products.

Indian Refineries would need to increase the complexity and Capability of Operation.

Refineries are expect to spend RS. 30,000 Crores to meet new fuel specification - RS 18,000 Crores by 2005 and additional RS 12,000 Crores by 2010. Refiners are planning Brownfield Expansion In Conjunction with investments to produce Clean Fuel.

Hence, further capacity expansions are on the Anvil. Refinery Capacity is expected to increase to 143.3 MMT by April 2007. As per Estimates, Demand is expected to be around 123.6 MMT in 2006 - 07. Thus surplus in Refining capacity is Likely to continue in the near future.

ABOUT HPCL :HPCL Refineries achieved the ever combined crude Thrust of 13.7 MMT as against previous of 12.9 MMT achieved during 2002 - 03

MUMBAI REFINERY :

Mumbai Refinery achieved crude of 6.11 MMT against installed capacity of 5.5 MMT which represents utilization of 111 %. It achieved highest ever production of ATF, MTO and 500 NLOBS during the year. It also achieved the best ever specific energy consumption of 116.1.BTU/BBL/NRGF as compared to previous best of 116.1 MBTU/BBL/NRGF achieved during 2002 - 03. Gross refining margins of Mumbai refinery for 2003 - 04 averaged at 4.26 per barrel as against $2.84 Per Barrel for the Year.

VISAKHA REFINERY:

Visakha Refinery achieved the ever thrust of 7.59 MMT against previous best of 9.85 MMT. Achieved during 2002 - 2003, which corresponds to 101.2% capacity utilization of installed capacity of 7.5 MMT pa. It achieved the highest ever production of propylene, LPG, Naphtha of 738 TMT as compared to previous best of 580 TMT during 2002 - 03. The specific energy consumption has improved consistently during the last 5 Years and has attained the lowest figure of 127.3 MBTU/BBL/NRGF during 2003 - 04.

Gross refining margins of Visakha Refinery for 2003 - 04 averaged at $4.61 for Barrel as against $4.40 per Barrel for the year 2003 - 04.HPCL recorded a growth rate of 4.9% vs. 1.4% Industry and improved its market share from 19.7% to 20.4% with total volume of 18.35 MMT. The performance of various business line was excellent.

JOINT VENTURES :Man-alone Refinery & Petrochemical Ltd. (MRPL)

As a part of MRPL's financial restructuring, ONGC acquired the Entire equity stake of AN. Birla Group in MRPL on 3.3.2003. The Fls/Leanders of MRPL converted Rs. 365 Crores of debt into equity and Rs. 160 Crores of debt into lCBs. Consequent to the above, ONGC holds 51% of the equity of MR-PL and HPCL's equity stands at 16.97%. In accordance with financial restructure package of MRPL, HPCL is not required to contribute any fresh equity in MRPL. The working capital assistance, which was hitherto being provided by HPCL, is now extended by ONGC. A fresh Shareholder Agreement dated 3.3.2003 has been signed between HPCL and ONGC to take care of the interests of HPCL during the year, MRPL has achieved a thru of 7.25 MMT.

Hindustan Colas Ltd. (HINCOL) :

The performance of HINCOL, a joint venture with Colas, SA, France for producing and marketing Bitumen Emulsions continues to be Encouraging. HINCOL, sales during 2002 - 03 was 455300 MT, an increase to 25% against the previous year. In addition Bitumen Emulsions, Hincol has been successfully marketing wide - range of value added Bitumen products like Modified Bitumen, Cut Back Bitumen etc. During the year it commissioned fourth manufacturing plant Vadodara. HINCOL has it consistently declaring dividends for the last four years. HINCOL is considering setting up of new manufacturing facilities at Visakha and Calcutta in near Future.

South Asia LPG Co. Pvt. Ltd. (SALPG) :

This joint Venture Company with fine Elf of France envisages the construction of all LPG underground Cavern storage of 60,000 MT capacity and associated receiving and dispatch facilities at Visakhapatnam. This project is the first of its kind (south Asia and would facilitate imports of LPG in large vessels, resulting in saving ill freight costs. The costs of the project is estimated to be Rs. 3333 million and the project completed period is 32.5 months. All the statutory approvals have been received for the project. The financial closure of the project has been completed. The construction of the cavern is expected to commence on signing of land lease agreement with Visakha port trust.

Petronet India Ltd. (PIL) :

This company was formed in joint venture with other PSU oil companies act as a nodal agency for the development of identified and prioritized petroleum products pipelines in the country. Petronet India LTD is though separate joint venture companies, co- promoted with other oil companies. So far, PIL has co-promoted five JV companies.

The Vandinarkandla pipeline and I Cochin - karur pipeline are in operation, while Mangalore - Bangalore pipeline is under commissioning and trial runs are in progress.

Petronet MHB Ltd. (PMHBL) :

This company was formed along with Petro net India Ltd. for the construction and operation of Mangalore Hassan - Bangalore pipeline. The 364 Km long product pipeline with a tap off point at Hassan is being executed at an estimated cost of Rs. 6670 million. Govt. of India have approved induction of INGC as equity partner with 23% stake in PMHBL, whike Petronet India Ltd. and HPCI would hold 26% each. The project is under commissioning and trial runs are in progress.

Prize Petroleum Co. Ltd. (PPCL) :

This company has been formed in partnership with financial institution viz. ICICIIHDFC for participation in exploration and production of hydrocarbons. Prize petroleum is evaluating various opportunities for participating in producing oil and gas fields.

GAIL :

During the year, the company signed a JV agreement with GAIL Ltd. For setting tip a joint venture company for distribution and marketing of green fuels in the state of Andhra Pradesh State Government is also expected to participate in the joint venture.

The activities relating to incorporation of JV company and preparation of feasibility report are in progress.

Manpower : Out of total manpower strength of 11213 employees in the organization 27.3% belong to the SC/ST category.

Awards received during 2003-04 :1.Golden peacock award for good corporate governance from the institute of directors.

2. Golden peacock national quality award form the institute of directors.

3.Good corporate citizen award form the Bombay chamber of commerce and industry.

4.National Safety award for 2002 from national safety council, Maharashtra Chapter.5.Greentech environmental excellence award.

6.Jahawarlal Nehru centenary award for energy conservation for Vishakha refinery.

7.NPMP award for Vijaywada Secunderanad Pipeline Project.

The Efficiency Criterion:

Since huge investment have gown into the public sector and from which the country needs returns for further growth and development, there is an urgent need to Need to focus attention more emphatically on resource mobilization aspect rather than on their resource mobilization aspect rather than on their social obligation aspect.

Mumbai Refinery Salient Features :HPCL Mumbai refinery with an installed capacity of 5.5 million tons per annum (MMTPA) is one of the most complex in the country is constructed on an area of 321 acres. This versatile refinery which is first of modern refineries symbolizes the country's industrial strength and progress in the oil industry. This fully integrated refinery comprises fuels and lube blocks.Initially, Mumbai refinery was started in 1945 as a refinery block with crude processing units.

1. Crude Distillation Unit

2. Catalytic cracking Unit

3. Thermal Reformation

4. Treating Units

At that time, the refinery used to produce just 5 grades of products namely petrol, Kerosene, Diesel, LIDO and Furnace oil. The expansion of Mumbai refinery over tile years has brought its capacity in 15 MMTPA and various processing units like, bitumen clawing Food Grade Hexane, Solvent 14/25 etc. have been added to the refinery.A low cost expansion of the fuels refinery was undertaken in 1985 where by a separate crude distillation unit and vacuum Distillation unit were installed with crude processing capacity of 2.0 million Tonnes. It was the first swing refinery of its kind in the country, which had the flexibility to process heavy tube bearing high sulfur as well as MM we beating crude's of various types, this particular unit called FRE (FUEL REFINARY EXPANSION) gave the flexibility to process various types of crude's. The lube Refinery which produces lube oil stocks was commissioned in 1969 as a joint venture between 1-sso Government of India with a capacity of 1,65,000 T of LOBS. This lobe Refinery process reduces crude. Oil from Persian Gulf crude, ill tile vacuum towel to get various grades of tube oil based started in the year 1983 tube refinery processing units were further.CHAPTER-III

THE THEORETICAL FRAMEWORK OF RATIO ANALYSIS

FINANCIAL ANALYSIS---

Financial analysis is the starting point for making plans, before using any sophisticated forecasting and planning procedures. Understanding the past is a perquisite for anticipating the future.USERS OF FINANCIAL ANALYSIS :Financial analysis is a process of identifying the financial strength and weakness of the firm by properly establishing relation between the items of the balance sheet and the profit and loss account. Financial analysis can be undertaken by management of the firm, or by parties outside the firm viz, owners, creditors, investors and others. The nature of analysis will differs depending upon the purpose of the analyst.

TRADE CREDITORS are interested in firm's ability to meet their claims over a short period of time. Their analysis will, therefore, confine to be evaluations of the firm's liquidity position.

SUPPLIERS OF LONG-TERM DEBT on the other hand, is so concerned with the firm's long term solvency and survival. They analyse the firm's profitability over time, it's ability to generate cash to be able to pay interest and repay principal and the relationship between various sources of funds (capital structure relationship). Long term creditors do analyse the historical financial strength, but they place more emphasis on the firm's projected or proforma, financial statement to make analysis about its future solvency and profitability.INVESTORS who are invested their money in the firm's shares, are most concerned about firm's earning. They restore more confidence in those firm's that show steady growth in earnings. As such, they concentrate on the analysis of the firm's present and future profitability. They are also interested in the firm's financial structure to the extent it influence the earnings ability risk.MANAGEMENT of the firm would be interested in every aspect of the financial analysis. It is their overall responsibility to see that the resource of the firm is used most effectively and efficiently, and that the firm's financial condition is sound. NATURE OF RATIO ANALYSIS

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as "the identical quotient of two mathematically expressions" and the relationship between two or more things in financial analysis, a ratio used as a benchmark for evaluating the financial position and performance of a firm. The absolute accounting figures reported in the financial statement do not provide of the firm. An accounting figure conveys meaning when it is related so some other relevant information. The relationship between two accounting figures. Expressed mathematically, is know as financial ratio. Ratio helps to summarize large quantities of financial data and to make qualitative judgment about the firm's financial performance.

STANDARDS OF COMPARISON

The ratio analysis involves comparison for a useful interpretation of the financial statement. A single ratio it self does not indicate favorable or unfavorable condition. It should be compared with some standard of comparison may consist by:

Past Ratio Ratio are calculated from past financial statement of the similar firm.

Projected Ratio Ratios are developed using the projected or proforma of financial statement of the same firm.

Competitors Ratio Ratios of same selected firms, especially the most progressive and successful competitors at the same point of time.

Industry Ratio Ratios of the industry to which the firm belongs.

TYPES OF RATIOS :Several Ratios calculated from the accounting data can be roped into ratios classes accounting to financial activity or function to be evaluated. The parties interested in financial analysis are short and long term creditors, owners and management. Short term creditors main interest is in the liquidity position or the short term solvency of the firm. Long term creditors on the other hand are more interested in the long term solvency and profitability of the firm. Similarly, owners concentrate 'on the firm's profitability and financial condition. Management is interested in evaluating every aspect of the firm's performance.

Ratios are broadly divided into four groups

-

1.Liquidity Ratios.

2. Leverages Ratios

3.Activity Ratios

4.Profitability Ratios

1) Liquidity Ratios:

Liquidity Ratios measure the firm's ability to meet current obligations.

2)Leverages Ratios :Leverage Ratios show the proportions of debt and equity in financing firm assets.

3)Activity Ratios :

Activity Ratios reflect the firm efficiency in utilizing its assets.4)rofitability Ratios Profitability Ratios measures over all performance and effectiveness of the firm.

debottle necked and capacity increase to 2,25,000 T to meet growing of tube products.

Lube oil base stokes production got a fillip with the commissioning of Refinery expansion stage two in 1994-95 when new propane desphalting unit, extraction Unit and a hydrogen plant. The old extraction units were modified so that an Eco Friendly solvent NMP after this expansion the capacity of lube refinery has gone up to 3,35,000 TPA of lube which is the largest of its kind in India and represents about 4'1% of installed capacity in the country. As the important milestone in the Mumbai refinery was the commissioning of gas turbine based captive power plant 1989.

PRACTICLE ASPECT OF RATIO ANALSIS

I. LIQUIDITY RATIOS :

Liquidity Ratios measure the ability of the firm to meet its current obligations.1.CURRENT RATIO :

Current ratio can be derived by dividing current assets with current liabilities and express relationship between them it measures short term solvency of the firm. Ideal current ratio is 2: 1.

Current assets included here are inventories sundry debtors, cash and bank balances other current assets and advances. Current liabilities included are sundry creditors provisions.

Current assets

Current ratio = -----------------------

Current Liabilities

In Table No 1, the current ratio of HPCL is below the normal standard of 2:1 from the year 2000 - 2001 to 2004 - 2005. Only in 2001 - 2002 the ratio decreased up to 2002 - 2003. Respectively and again improved in the year 2003 - 2005 to some of its current obligations but the firm liabilities are year by year increased but in the last year (2004- 05) the liabilities was decreased. So we have investigate further about the quality of the asset before relying upon the ratio.

Table No. 1 Current Ratio(Rs. In Crores)YearCurrent AssetsCurrent LiabilitiesCurrent Ratio (In Time)Ratio (in percentage)

2000-017956.414919.181.62162

2001-026084.184764.661.28128

2002-038548.597901.871.08108

2003-049430.177566.151.23123

2004-059507.306988.671.36136

2005-0611,009.987954.891.38138

2.QUICK RATIO :

Acid test or Quick Ratio is more refined measure of the liquidity it established relationship between Quick or Liquid Assets and Current Liabilities. Liquid Assets include cash and those Assets which can be converted into cash immediately without loss of value such as securities (temporary investment, immediately without loss of value such as securities (temporary investments, Debtor and bills receivables (Book Debts) stock (Inventories) and prepaid expenses are not included in quick assets and these assets take some time in realization and also subject to fluctuation in value.Quick Ratio is calculated by dividing liquid or quick assets by total current liabilities. Ideal quick ratio is 1: 1

Current asset - InventoryQuick ratio = -----------------------------------

Current Liabilities

The Table No 2, show the company with a high value of quick ratio can suffer from the shortage of funds. When we examine the quick ratio of HPCL. It is against the conventional rule. In the above table from 2001-2005 quick ratio is below normal standard thus from short term solvency is not good the quick assets are less than the current liabilities from 2001 2005.Table No. 2 Current Ratio

(Rs. In Crores)

YearQuick AssetsCurrent LiabilitiesCurrent Ratio (In Time)Ratio (in percentage)

2000-01476.854919.180.8383

2001-022458.484764.660.5252

2002-033426.057901.870.4343

2003-044027.647655.150.5353

2004-053820.096988.670.5555

2005-063199.697957.890.4040

II. LEVERAGE RATIO1.DEBT TO NET WORTH RATIO :

Do to net ratio measures the relative claims of creditors and owners against the firms assets. Ratio indicates relationship between outside funds and share holder quality the share holder equity is also called net worth. There from this ratio is also known as debt equity ration. Ideal ratio is 1:1.

Total DebtDebt to Net worth ratio = -----------------------

Net worth or equityHere debt included secured and unsecured loans of the firm equity (Net Worth) includes capital reserves and surplus.The table No.3 shows HPCL debt equity ratio decreasing trend. Debt to Net worth Ratio declaiming stage is beneficial to the firm the ratio decreased from 2001 2004 in the above table and again the rates increased in the year 2004-05.Table No. 3 Debt to Networth Ratio(Rs. In Crores)

YearTotal DebtNet Worth or EquityTotal Debt to net worth ratio (in times)Ratio )In Percentages)

2000-013569.536486.270.5555

2001-023171.575897.680.5454

2002-031365.936678.850.2020

2003-041700.807742.810.2222

2004-052185.358440.850.2626

2005-066663.838735.740.7676

2.PROPRIETORY RATIO :

This ratio is called equity assets or ratio of Net worth to total assets or stock holders equity ratio. This ratio shows the extent to which the share holders own the business. It is calculated by dividing owner(s) equity by total assets as shown below.

Total share holders equity or Net WorthProprietory ratio = ------------------------------------------------

Total AssetsTotal share holders equity is comprised of the total post up amount of equity and presence shares capital plus the total or accumulated amount of reserved and surplus.Total Assets include fixed assets, current assets and investment.The ratios of particulars importance to the investors because the presence of a high percentage of share holders funds indicates that there is a relatively little danger of winding up forced reorganization in the event of default in the payment to outside liabilities

From the table No. 4 it can be observed that the proprietory ratio decreased from 2000-01 till 2002-2003 however the proprietory ratio sncreased in the year 2003-2005 as the Net worth was increased.Table No. 4 Proprietary Ratio(Rs. In Crores)

YearNet WorthTotal AssetsProprietary Ratio (in times)Ratio )In Percentages)

2000-016486.2714974.120.4343

2001-025897.68150006.970.3939

2002-036678.8517346.690.3838

2003-047742.8118552.840.4242

2004-058440.8518989.620.4444

2005-068735.7424738.900.3535

3.ASSETS PROPRIETORSHIP RATIO :

This ratio express the relationship of the fixed assets (less depreciation) with the funds contributed by the owners of share holder it is expressed as

Fixed AssetsAssets Proprietorsip ratio = -----------------------

Net worth

If assets proprietary ship ratio is unduly high it means that the capital is not circulatory but is locked up in fixed assets and the business firm is dependent for working capital on outside finance.It can be observed from the table no.5 that the asset proprietorship ratio as increased in the year 2001-2002 and rates. It is decreased the higher the ratio, the lesser would be the protection to the creditors. If the ratio is less than 1, it indicates that the working capital is partly financed by share holders fund.Table No. 5 Asset Proprietary Ratio(Rs. In Crores)

YearFixed AssetsNet WorthProprietary Ratio in TimesRatio )In Percentages)

2000-015926.966486.270.9191

2001-026484.985897.681.09109

2002-036435.26678.850.9696

2003-046578.117742.810.8585

2004-056943.648440.850.8282

2005-067337.408735.740.8484

III.ACTIVITY RATIO :1.CURRENT ASSET TURNOVER RATIO :This ratio indicates the efficiency with which current assets can be generated into sales is for every rupee of investment in current assets the ratio indicates the amount of sales generated therefore a high ratio implies by an large amore efficient use of funds this a current assets turnover ratio indicates the working capital management of a firm

Net Annual AssetsCurrent Assets turnover ratio = --------------------------

Current AssetsThe table no. 6 show the current asset turnover ratio interpreting the reciprocals of these ratio one may say that for generating a scale of one rupee the company needs Rs. 0.18 the variations just 13% in the five years.Table No. 6 Current Assets Turnover Ratio(Rs. In Crores)

YearNet Annual SalesCurrent AssetsCurrents Assets Turnover Ratio in timesRatio )In Percentages)

2000-0147179.937956.415.9590

2001-0245286.546084.187.4740

2002-0352605.148548.596.2670

2003-0456332.579430.176.0600

2004-0564689.519502.306.8680

2005-0674044.1111009.986.7670

2.TOTAL ASSETS TO TURNOVER RATIO :

The total asset turnover ratio reveals the sales generated bys application of assets in a firm the ratio is calculated by dividing the sales with the total assets of the company the total asset turnover ratio deposits the sales generated for every rupee total assets invested. The total assets are computed as the total fixed assets plus investments plus current assets. A high ratio deposits that the rate of utilization of assets are good.

SalesTotal Assets to Turnover Ratio = --------------------------

Total Assets

The table no. 7 shows the total assets to turnover ratio, the firms ability in generating sales from all financial resources committed to total assets the total assets turnover 3.15 times implies that HPCL generates a sale of Rs. 3.15 for one rupee investment in fixed and current assets together in the total five years. Table No. 7 Total Assets to Turnover Ratio(Rs. In Crores)

YearSalesTotal AssetsTotal Assets to Turnover Ratio (in times)Ratio )In Percentages)

2000-0147179.8314974.123.15315

2001-0245286.5415006.973.02302

2002-0352605.1417346.693.03303

2003-0456332.5718552.843.04304

2004-0564689.5118989.623.41341

2005-0674044.1124738.902.99299

3.NET WORKING CAPITAL TURNOVER RATIO :

This ratio helps to measure the efficiency of the utilization of net working capital. It signifies that for an amount of sales a relative amount of working capital is needed. If any increase in sales is contemplated working capital should be adequate this ratio helps to maintain adequate level of working capital. This ratio is computed by dividing sales by working capital.

SalesNet Working Capital Turnover Ratio = --------------------------

Net Working Capital

As firms may also like to relate net current assets to sales. It may thus computes net working capital turnover by dividing sales by net working capital the reciprocal of the rates is 0.064 this the company needs Rs. 0.006 of net current assets this gap will be met from bank harrowing and long term sources of funds.Table No. 8 Net Working Capital Turnover Ratio(Rs. In Crores)

YearSalesNet Working Capital Net Working Capital Turnover Ratio (in times)Ratio )In Percentages)

2000-0147179.933037.2415.531,553

2001-0245286.541319.5234.323,432

2002-0352605.14646.7281.348134

2003-0456332.571775.0231.733173

2004-0564689.512513.6325.742574

2005-0674044.113055.0924.242424

4.DEBTORS TURNOVER RATIO :

Debtors turnover indicates the number of times debtors turnover each year. Generally higher the value of debtors turnover the more efficient is the management of credit the liquidity positions of any firm is dependent u on the debtors debtor turn over can be calculated by dividing total sales by the year end balance of debtors.

SalesDebt Turnover Ratio = --------------------------

Debtors

If the firm extends credit to its customers book debts are created in the firms accounts and they are expected to be converted into cash over a short period of time so as to measure this period the debtors turnover ratio is calculated it shows how quickly the debtors are converted into cash. By observing the HPCL debt turnover ratio in the year 2000-2001 is very high and remaining years are almost all same thus high ratio is because of oil industry.Table No. 9 Debt Turnover Ratio(Rs. In Crores)

YearSalesDebtors Debt Turnover Ratio (in times)Ratio )In Percentages)

2000-0147179.93563.0183.798379

2001-0245286.54784.3957.735773

2002-0352605.14862.37616100

2003-0456332.571000.2956.325632

2004-0564689.511048.6161.696169

2005-0674044.111392.2653.185318

5.AVERAGE COLLECTION PERIOD :

It shows with what into cash this ratio is in fact interrelated with and dependent up on the receivable. Turnover ratio it is calculated by dividing the days in a year by the debtors turnover ratio.

Days in year Average Collection Period = -------------------------- Debtors Turnover Ratio

On the other hand too low a collection period is not necessary favorable rather it may indicate a very restrictive credit and collection policy because of the fear of bad debt losses, the firm sells only to those customers whose financial conditions are undoubtedly sound and who are very prompt in making the payment such a policy success in avoiding the bad debt losses, but it so severely curtails sales that overall profits an reduced right now it is not applicable to HPCL here after to be consider.Table No. 10 Average Collection Period(Rs. In Crores)

YearDays in year Debtors Turnover RatioAverage Collection in No. of days

2000-0136083.798379

2001-0236057.735723

2002-03360616100

2003-0436056.325632

2004-0536061.696169

2005-0636053.185318

IV.PROFITABILITY RATIO 1.GROSS PROFIT RATIO :

The ratio establishes relationship of gross profit with sales to measure the operating efficiency of the firm and to reflect into processing policy the ratio is calculated by dividing the gross profit by sales thus

Gross Profit Gross Profit Ratio = -------------------------- x 100 SalesGross profit is the result of relation ship between prices sales volume and costs. Any change in any of these factors would effect the gross profit to sales ratio. A high ratio is an indication of good management or a high selling price of the product or low cost of production. A high G.P. ratio is a great satisfaction to the management the gross profit increased gradually but 2001-02 year gross profit ratio decrease after that reaches high ratio. It indicates of good management.Table No. 11 Gross Profit Ratio(Rs. In Crores)YearGross ProfitSalesGross Profit Ratio (in times)Ratio (In Percentages)

2000-012139.8847179.934.54454

2001-022037.3945286.544.49449

2002-033137.7552605.145.96596

2003-043641.4356332.576.46646

2.NET PROFIT RATIO :This ratio measures the relationship between profits and sales of the firm and is obtained by dividing the net profits by net sales depending upon the concept of net profit employees the rates can be computed in three ways.

Net Profits after tax & interest Net Profit Ratio Margin = -------------------------------------- x 100 Sales

Net Profits before taxes & interest

= ------------------------------------------ x 100 Sales

From the table no. 12 we cannot find much variation in the net profits of the company, in the year 2001-2002 the ratio is 1.74. It is lower in all the five years after that improved following two years only. So management has to be concrete to improve the profits. Table No. 12 Net Profit Ratio Margin(Rs. In Crores)YearNet WorthProfit After Tax SalesNet Profit Ratio Margin (in times)Ratio (In Percentages)

2000-011088.0147179.832.31281

2001-02787.9845286.541.74174

2002-031537.3652605.142.92292

2003-041903.9456332.573.38338

2004-051277.3364689.511.97297

2005-06405.6374044.110.050.5

3.RETURN ON EQUITY RATIO :

This ratio carries the relationship of return to the sources of funds provides by the owners of the firm to measure the rate of return on share holders funds. The profitability according to this ratio is calculated by dividing the net profits after taxes by the total share holders equity (preference share capital + ordinary share capital + share premium + reserves and surplus accumulated losses). The share holders equity may also be known as not worth thus.

Net Profit After Taxes Return on Equity Ratio = -------------------------------------- Total Share holders equityA return on the share holders equity calculation is to see the profitability of the owners investments. Return on Equity (ROE) indicate how well the firm has used the resources of owners. In fact this ratio is one of the most important relationship in financial analysis the earning of a satisfactory return is the most objective of a business. From the above table HPCL returns on equity is in increasing trend expect in the year 2001-02 the change in the ROE is 38.88% in the year 2000-01 to 2003-04 the return equity for the 2000-01 is 0.18% for every one rupee of net worth the profit after tax in only seventeen paise.Table No. 13 Return on Equity Ratio(Rs. In Crores)YearNet Profit After TaxesShare holders EquityReturn on Equity Ratio (in times)Ratio (In Percentages)

2000-011088.016486.270.1717

2001-02787.985897.680.1313

2002-031537.366678.850.2323

2003-041903.947742.810.2525

2004-051277.338440.850.1515

2005-06405.638735.740.055

4.RETURN ON TOTAL RATIO :

The return on total assets reveal the amount of profit generated by the application of the total assets in the company. This ratio depicts the efficiency of the company in using its assets the return on total assets of the firm.

Profit before Tax Return on total assets Ratio = --------------------------------------

Total AssetsAs seen from the table it can be interpreted that the ratio was the highest in the year 2003-04 when compared all the years but in the year 2001-02 the ratio is 0.081 times. It is slow comparative provision two years also. Since to 2000-01 to 2001-02 there was a decreasing trend after that HPCL shows tremendous improvementTable No. 14 Return on Total Assets Ratio(Rs. In Crores)YearProfit Before TaxTotal AssetsReturn on total assets ratio (in times)Ratio (In Percentages)

2000-011320.214974.120.0888.8

2001-021222.4815006.970.0818.1

2002-032411.7917346.690.13913.9

2003-042980.4318552.690.16116.1

2004-051640.618989.620.0868.6

2005-06285.1024738.900.0868.6

5.EARNING FOR SHARE :The ratio indicates the availability of total profits per share the following formula may for employed to determine Eps.

Net profits available to equity shareShare Holders Earning for Share = ------------------------------------------

Number of equity shares outstandingEarning share widely used technique of analysis the effect of change in the leverage on the net operating earnings available to equity share holders. It does not recognize the return on earnings. In the financial year 2000-01 to 2003-04 the earning per share increased 80% but in the years 2001-02 it is declaimed to 23.26 rupees but after that it shows significant improvement and in the years 2004-05 also it was declared.Table No. 15 : Earning for Share Ratio(Rs. In Crores)YearProfit available to equity shareNo. of Equity Shares Share holders Earning for shareRatio (In Percentages)

2000-011088.0133.8831.113111

2001-02787.9833.8823.262826

2002-031537.3633.8845.384538

2003-041903.9433.8856.185618

2004-051277.3333.8837.693769

2005-06405.6333.8911.961196

FINANCIAL RATIOS OF HINDUSTAN PETROLEUM CORPORATION2000-012001-022002-032003-042004-052005-06

I. Liquidity Ratios

* Current Ratio1.621.281.081.231.361.38

* Quick Ratio0.830.520.430.530.550.40

II. Leverage Ratios

* Debt Ratio0.550.540.200.220.260.76

* Proprietary Ratio0.430.390.380.420.440.35

* Asset Proprietary Ratio0.911.090.960.850.820.84

III. Activity Ratios

* Current Turnover Ratio5.97.47.26.06.86.7

* Total Asset Turnover Ratio3.153.023.033.043.412.99

* Net Working Capital Turn over Ratio15.5334.3281.3431.7325.7424.24

* Debtor Turnover Ratio83.7957.7361.0056.3261.6953.18

* Average Collection Period466666

IV. Profitability Ratios

* Gross Profit Ratio4.544.495.966.46

* Net Profit Ratio2.311.742.923.381.970.0005

* Return on Equity Ratio0.170.130.230.250.150.05

* Return on Total Assets0.0880.1390.1610.0860.011

* Earning Per Share23.2645.3856.1837.6911.96

Complete Financial Ratio Analvsis :

Financial Analysis is the process of identifying the Financial strengths and weakness of the firm by properly establishing relationships between the items of the Balance Sheet and Profit and Loss Account. The relationship between two accountancy figures expressed mathematically is known as a financial ratio (or simply as a ratio) Ratios helps to summarize large quantities of financial data and to evaluate the performance the easiest way to evaluate the performance of a firm is to compare its present ratios with the past ratios. When financial Ratios over a period of time are compared it is known as the time series (or trend) Analysis. It gives an individual of the direction of change and reflects whether the firms financial performances has improved deteriorated or remained constant over time.Several Ratios calculated from the accounting data can be grouped into various classes according to financial activity or function to be 'evaluated. Management is interested in evaluating every aspect of the firms performance. They have to protect the investors of all parties and see that the firm grows profitably.1.Liquidity Ratios measures firms ability to meet current obligations.2. Leverage Ratios shows the proportions of debt and equity in financing the firms assets.

3. Activity Ratios reflects the firm efficiency in utilizing its assets.

4.Profitability Ratios measures overall performance and effectiveness of the firm.Liquidity Ratios :

Ratios in the table shows that HPCL's liquidity is deteriorating a note of caution may be Sounded Liquidity Ratios can mailed since current assets and current liabilities can change quickly there utility becomes more doubtful for firms with oil sector. Leveraae RatiosRatios in the table indicates that HPCL leverage ratio are less. A low debt equity ratio implies a greater cliam of owner's than creditors from the point of view of creditors it represent a satisfactory situation since a high proportion of equity proves a larger margin of safety for them during the periods of low profits, the debt servicing will prove to be less burdensome for a company with low debt equity ratio however from the share holder point of view there is disadvantage during the periods of good economic activities of the firm employees a low amount of debt the higher the debt equity ratio the larger the share holders earnings when the cost of debt is less than the firm's overall rate of return on investment thus there is need to strike a proper balance between the use of debt and equity the most appropriate debt equity combination would involved trade off between return and risk.Activity Ratios :Activity Ratios are employed to evaluate the efficiency with which the firm manages and utilities its assets there ratios are called Turnover Ratios because they indicate the speed with which assets are being converted as turned over into sales activity ratios thus involve a relationship between sales and assets generally reflects that assets are managed* well several activity ratios can be calculate to judge the effectiveness of assets utilization the table shows five years activity ratios the current assets turnover ratios in higher side only and the variation in the five years is only 13%. In the total assets turnover ratios also is no major change. Net working capital and debt turnover ratios also shows firms strengths.

Profitabilitv Ratios :

The Profitability Ratios are calculated to measure the operating efficiency of the company generally two major types of profitability ratios are calculated profitability in relation to sales and profitability in relation to investment.The gross profit margin reflects the efficiency with which management reduced each unit of product a high gross profit margin ratios is a sign of good management the table shows the trend of the gross profit ratios net profit ratios returns on equity returns on total assets and earning per share EPS simply shows the profitability of the firms on a per share basis.

CHAPTER IV

SUMMARY & SUGGESTIONS

The origin of the oil industry in India can be traced back to the Last part of the 19th century when petroleum was discovered in Digboi in Northeast. After independence, industry - which Burmah Shell, Esso and Caltex as major player - was nationalized. Every activity exploration, development, production, and refining, marketing, distribution-was controlled by the various oil companies. Since India's economic liberalization programme started, however, the Indian oil and gas sector has gone through some has been totally freed from the shackles of the government with the dismantling of the administered pricing mechanism and oil companies being given the right to price their products at the retail outlets. The domestic oil industry is largely controlled by the government with the Ministry of Petroleum and Natural Gas at the helm and was being assisted by directorate general of hydrocarbon (DGH), Gas

Linkage Committee, Oil Industry Development Board (OIDB) and Oil Coordination Committee (OCC) till OCC was replaced by another regulatory board. The now board has been named as Petroleum Planning and Analysis Cell.

The Union Minister for Petroleum and Natural Gas, Mani Shankar Aiyer has expressed his intention to strengthen the public sector oil companies and enable them to compete better with their private counterparts, both domestic and foreign. A slew of measures are under consideration including a mega merger of the PSUs creating two vertically integrated oil behemoths. Other measure under review are restricting the existing player to their core competence and setting up a high-level regulator to coordination their activities, Among these, the move of merge oil PSUs stands out, since it would mean considerable realignment and restructuring of companies that could possible change the shape of the industry. But is the merger desirable? The Indian oil industry is unique in many ways. No other county in the world has as many state-owned oil companies completing with each other. One has to accept that the consequent competition, has proved beneficial for the growth and national level. The government's return oil investment from the oil majors been splendid with most of them handsome dividends. Forever, the government, particularly tire Ministry of Petroleum and Natural Gas under Mani Shanker Aiyer, (who is also the Minister for Panchayati Raj) sees for further gain; from the oil PSUs.

The merger purportedly aims at preparing oil companies for private competition from domestic and foreign player. However, there are no player to compete with as a of now. In th