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Management
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Fundamental Analysis of HPCL,INDIA
SUBMITTED BY
GAURAV
RR1902A14
10901365
MBA(LSB)
Bottom of Form
expansion of refining capacity has enabled the country to achieve a considerable degree of self-
sufficiency in petroleum products and has encouraged the creation of fertilizer, petrochemical,
and tertiary downstream industries.
3.) FDI’s role in industry
The government has taken several progressive steps to attract investment into the
industry. Among other measures, it is allowing 100% foreign direct investment (FDI) in
private companies and 26% in government-owned companies. 100% FDI is also possible
in exploration, gas pipelines, petroleum products, and marketing, thus effectively offering
investment opportunities in various avenues.
India’s energy industry will provide investment opportunities of around $150 billion over
the next five years. This will happen when FDI, s will investment in India.
4.) Revenues
The latest India Oil & Gas Report from BMI forecasts that the country will account for
11.23% of Asia Pacific regional oil demand by 2013, while providing 10.85% of supply. Asia
Pacific regional oil use of 21.40mn barrels per day (b/d) in 2001 reached 25.68mn b/d in 2007. It
should average 26.32mn b/d in 2008, and then rise to around 29.65mn b/d by 2013. In terms of
natural gas, in 2007 the region consumed 421bn cubic meters (bum), with demand of 595bcm
targeted for 2013. Production of 336bcm in 2007 should reach 483bcm in 2013, but implies net
imports rising from 85bcm per annum in 2007 to 111bcm in 2012. This is in spite of many Asian
gas producers being major exporters. India's share of gas consumption in 2007 was 9.55%, while
its share of production was 8.98%. By 2013, its share of gas consumption is forecast to be
10.22%, with the country accounting for 10.34% of supply.
The country sits well ahead of the Philippines and Pakistan, and just three points behind
Vietnam. The country is still second behind China in the league table in BMI's updated
Downstream Business Environment rating, reflecting its status as a high-growth energy market
with strongly positive population and demand trends, plus a low level of retail site intensity. It is
just ahead of Singapore, with scope to pull away from the more mature Asian energy economy.
5.) Import Duty
The government is considering to slash import duties on industrial fuels like furnace oil, low
sculpture heavy stock (LSHS), naphtha, high speed diesel (HSD) and liquefied natural
gas (LNG) from 10% to 1%, a move that would help cap domestic prices as they are linked
to
import parity levels, ICC said.
The council also recommended reducing basic customs duty on spare parts and components of
membrane cell plants in the color alkali industry from 10% to 5%.
The government must also fix inverted duty structures for products where the raw material
attracts a higher import tariff than the finished goods, it said.
While the basic import duty for propylene trimmer, tetramer and isobutylene is 10%, their
alkylated phenols derivatives attract a 7.5% duty.
This will help to decrease the market share and prices of the refinery products.
7). Inflation rate
The average inflation rate is expected to be around 5.63%.Due to low inflation rate the buying
power of consumer will increase. They will buy more products of this industry. The sale will
increase and the share value of share will also increase.
8). Interest rate
In September it is around 12%.Though there are positive expectations on inflation front,
companies don’t anticipate any increase in interest rate at this juncture. Almost 60% of all
respondents now pay annual interest rate around 12% for long term investment funds while
another one fourth are borrowing money at 16% despite reduction in lending rates in recent
months.
If the interest rate increases so the industry will take low funds for investor, due to high interest
rate, their profit will be low. But if there is low interest rate, the industry will demand of funds,
so that they can expand their business and earn more profits. This will increase the market value
of share.
9). Exchange rate
The rupee is currently at around Rs 47.5-48 per dollar.
In this time period industry’s import will cheap. And industry can buy raw materials in bulk.
This will increase the profit and value of share in stock market. But in this case if company sells
products through exports, company’s profit will be low due to less value of rupee against dollar,
which will decrease the profit and value of share.
10). Cash Reserve Ratio: Current CRR ratio is 5%
Affect on share position of company
Decrease CRR ratio has several implications including-
Increase the overall growth in
the company; this effectively means that money supply has been increased and company can get
easy loan to government. Apart from the fact that overall growth is impacted, companies take a
hit on account of lower interest costs. since some investors tend to leverage and invest in the
stock markets, because if company has start new project after get the loan to government then
profit will be also increase and share value will also be increase.
11). Statutory Liquidity Ratio
CURRENT Statutory Liquidity Ratio is 24%. The main objectives for the company in respect to
Statutory
Liquidity
Ratio
are
the
following:
Statutory Liquidity Ratio is maintained in order to control the expansion of Bank Credit. By
changing the level of Statutory Liquidity Ratio, Reserve bank of India can increase or decrease
bank credit expansion. If increase the bank rate then company can’t get the cheapest rate loan to
government if company can’t start the new project then the growth of the company is not
possible and this will effect on the profit on the company and share market position.
Industry Analysis
Industry life cycle:
Fundamental Analysis requires an examination of the market from a broader perspective. The
presumption behind fundamental analysis is that a thriving economy fosters industrial growth
which leads to development of companies.
There are two analyses:
1. Economic Analysis.
2. Industry Analysis.
Economic analysis
It implies the examination of GDP, government financing, government borrowing, consumer
durable goods market, non-durable goods and capital goods market, savings and investment
pattern, interest rates, inflation rates, tax structure, foreign direct investment and money supply.
Role of Oil and Natural Gas Industry in India GDP-
Highlights
India is the 6th largest consumer of petroleum .By the year 2010, India is expected to rank 4th in
terms of consumption of energy
The contribution of the Indian Oil and Natural Gas Industry is nearly US$ 13.58 billion
•
All of the oil refineries in India, apart from two are operated by the states
•
The total refinery output in the period 2005-06 was 130.11 million tonnes
•
The growth rate of the refinery output was increased by 2.1 % in the year 2005-06
•
The crude oil output at the end of 2006-07 was 33.98 million tonnes
•
The growth rate of the crude oil output was increased by 5.6% in the year 2006-07
•
The production of natural gas in the year 2006-07 was 31.55 billion cubic meters
•
Indian petroleum demand depends highly on import of oil and natural gas
•
Around 70% of the demands are fed by the imports of oil and natural gas
•
The security pertaining to energy has become one of the primary concerns of the Central
Government
•
Presently India is trying to grab a share of the oil and gas fields from Central Asia to
Myanmar and Africa
•
The area of interest for the Indian Oil and Natural Gas Industry is to search for petroleum in
both offshore and onshore blocks.
2.) Government expenditure
From a modest beginning with the capacity of 0.25 million tonnes per annum when planning
began, the Indian petroleum-refining industry has come of age with an annual capacity of 45.55
million tonnes at the end of the sixth Five-Year Plan. The rapid
expansion of refining capacity has enabled the country to achieve a considerable degree of self-
sufficiency in petroleum products and has encouraged the creation of fertilizer, petrochemical,
and tertiary downstream industries.
3.) FDI’s role in industry
The government has taken several progressive steps to attract investment into the
industry. Among other measures, it is allowing 100% foreign direct investment (FDI) in
private companies and 26% in government-owned companies. 100% FDI is also possible
in exploration, gas pipelines, petroleum products, and marketing, thus effectively offering
investment opportunities in various avenues.
India’s energy industry will provide investment opportunities of around $150 billion over
the next five years. This will happen when FDI, s will investment in India.
4.) Revenues
The latest India Oil & Gas Report from BMI forecasts that the country will account for
11.23% of Asia Pacific regional oil demand by 2013, while providing 10.85% of supply. Asia
Pacific regional oil use of 21.40mn barrels per day (b/d) in 2001 reached 25.68mn b/d in 2007. It
should average 26.32mn b/d in 2008, and then rise to around 29.65mn b/d by 2013. In terms of
natural gas, in 2007 the region consumed 421bn cubic meters (bum), with demand of 595bcm
targeted for 2013. Production of 336bcm in 2007 should reach 483bcm in 2013, but implies net
imports rising from 85bcm per annum in 2007 to 111bcm in 2012. This is in spite of many Asian
gas producers being major exporters. India's share of gas consumption in 2007 was 9.55%, while
its share of production was 8.98%. By 2013, its share of gas consumption is forecast to be
10.22%, with the country accounting for 10.34% of supply.
The country sits well ahead of the Philippines and Pakistan, and just three points behind
Vietnam. The country is still second behind China in the league table in BMI's updated
Downstream Business Environment rating, reflecting its status as a high-growth energy market
with strongly positive population and demand trends, plus a low level of retail site intensity. It is
just ahead of Singapore, with scope to pull away from the more mature Asian energy economy.
5.) Import Duty
The government is considering to slash import duties on industrial fuels like furnace oil, low
sculpture heavy stock (LSHS), naphtha, high speed diesel (HSD) and liquefied natural
gas (LNG) from 10% to 1%, a move that would help cap domestic prices as they are linked to
import parity levels, ICC said.
The council also recommended reducing basic customs duty on spare parts and components of
membrane cell plants in the color alkali industry from 10% to 5%.
The government must also fix inverted duty structures for products where the raw material
attracts a higher import tariff than the finished goods, it said.
While the basic import duty for propylene trimmer, tetramer and isobutylene is 10%, their
alkylated phenols derivatives attract a 7.5% duty.
This will help to decrease the market share and prices of the refinery products.
7). Inflation rate
The average inflation rate is expected to be around 5.63%.Due to low inflation rate the buying
power of consumer will increase. They will buy more products of this industry. The sale will
increase and the share value of share will also increase.
8). Interest rate
In September it is around 12%.Though there are positive expectations on inflation front,
companies don’t anticipate any increase in interest rate at this juncture. Almost 60% of all
respondents now pay annual interest rate around 12% for long term investment funds while
another one fourth are borrowing money at 16% despite reduction in lending rates in recent
months.
If the interest rate increases so the industry will take low funds for investor, due to high interest
rate, their profit will be low. But if there is low interest rate, the industry will demand of funds,
so that they can expand their business and earn more profits. This will increase the market value
of share.
9). Exchange rate
The rupee is currently at around Rs 47.5-48 per dollar.
In this time period industry’s import will cheap. And industry can buy raw materials in bulk.
This will increase the profit and value of share in stock market. But in this case if company sells
products through exports, company’s profit will be low due to less value of rupee against dollar,
which will decrease the profit and value of share.
10). Cash Reserve Ratio: Current CRR ratio is 5%
Affect on share position of company
Decrease CRR ratio has several implications including-
Increase the overall growth in the company; this effectively means that money supply has been
increased and company can get easy loan to government. Apart from the fact that overall growth
is impacted, companies take a hit on account of lower interest costs. since some investors tend to
leverage and invest in the stock markets, because if company has start new project after get the
loan to government then profit will be also increase and share value will also be increase.
11). Statutory Liquidity Ratio
Statutory Liquidity Ratio is 24%. The main objectives for the company in respect to
Statutory Liquidity Ratio are the following:
Statutory Liquidity Ratio is maintained in order to control the expansion of Bank Credit. By
changing the level of Statutory Liquidity Ratio, Reserve bank of India can increase or decrease
bank credit expansion. If increase the bank rate then company can’t get the cheapest rate loan to
government if company can’t start the new project then the growth of the company is not
possible and this will effect on the profit on the company and share market position.