The ICFAI University 2006-01

Indian Oil Corporation Limited “We must learn to think strategically and can no longer remain complacent and must also think ahead, act swiftly and decisively.” – Dr. Manmohan Singh, Prime Minister of India in 2005 1 Manmohan Singh while speaking at the Petrotech 2005 conference held at in January 2005, commented that the government was exploring the possibility of restructuring the oil PSUs to make them globally competitive. Petroleum Minister Mani Shankar Aiyyar said that competition and duplication in the oil sector has reached ‘destructive’ proportions. He observed that the public sector companies are busy competing among themselves in a market wherein private sector companies like Reliance and Essar are also operating. Analysts felt that radical changes in the petroleum sector in India were in the offing. Less than six months later in July 2005, Ltd. (IOC), India’s oil major, unveiled its restructuring plans. The company targeted a complete organizational revamp and looked at consolidating its business activities. IOC worked out plans to exit from four out of nine joint ventures. It also proposed to merge four subsidiaries – Bongaigaon Refinery and (74.46 percent), Chennai Petroleum Corporation (51.88 percent), IBP (100 percent), and Indian Oil Blending (100 percent) – with itself. While the merger of IBP is through; other proposals are still to materialize (2005). Among the JVs, IOC proposed to retain Avi-Oil, IOTL, IPPL, LIPL, and PLL. Among these, Petronet LNG, is the largest having a turnover of Rs.19.45 billion. For the FY 2003-04, the subsidiaries and joint ventures contributed a total revenue of Rs.235.86 billion with total assets estimated at Rs.92.27 billion. Correspondingly, the share of IOC in the assets of JVs was put at Rs.2.03 billion. On India’s economic front, the macroeconomic indicators project robust economic growth. The international price levels for crude oil and natural gas are key factors that could affect economic growth. The GDP growth was impressive at 7.09% in 2005 though it was higher at 8.61% during 2004. The FII investment in the capital and debt markets was more than US$8,280 million during 2004-05, which was also higher at US$10,918 million during the earlier year. At the end of 2005, the country’s forex reserves stood at US$135,571 million compared to US$107,448 million in 2004. The inflation rates remained moderate and a spurt in industrial activity was seen during the year. CRUDE OIL AND NATURAL GAS INDUSTRY BACKGROUND There was increased volatility in international oil prices in the backdrop of Hurricane Rita in the US Gulf region during the year 2005. Prices were weak during the first half of September 2005. There was a recovery during the third week of September but the closing price was much lower than the prevailing price at the end of the previous month. In London, the price slipped to US$ 60.33 per barrel on September 16 from a prevailing level of US$ 66.94 per barrel at the beginning of the month. The impact of Hurricane Rita was felt in the next trading session, and the price increased by 5.8 percent to reach US$ 63.8 per barrel. After gradually receding, the prices ended at US$ 61.84 per barrel at the end of the month. This price level was 7.6 percent lower than the earlier month end’s price. The price in the Dubai market fell to US$ 54.69 per barrel on September 13 from US$ 59.67 per barrel on September 1. By the end of September, prices recovered and closed at US$ 57.06 per barrel. Information regarding petro-product prices during 2004-05 is given in Exhibit 1.

1 Petrotech 2005 Conference, January 2005.

IOCL 2006-01

The world crude oil production increased during the month of August 2005. Ever since a substantial fall in June that year, the production rose by 4.3 lakh barrels per day to touch 84.85 million barrels per day (mbpd). The production of oil by the Organization of the Petroleum Exporting Countries (OPEC) also registered an increase. The production increased by 100,000 barrels per day to touch an output at 34.49 mbpd, of which Saudi Arabia pumped 9.28 mbpd of oil. Iraq’s output increased to reach 1.91 mbpd from 1.8 mbpd in May 2005. Mexico, member of the Organization for Economic Cooperation and Development (OECD) countries, registered an increase of 390,000 barrels per day and its monthly output was at 3.87 mbpd. Exhibit 1: International Petro-products Prices (USD/Tonne (CIF)

ATF HSD Oil LSHS Motor Gasolene Naphtha LPG Saudi Average Change Average Change Average Change Premium Change Average Change Change Contract Saudi London (%) London (%) London (%) London (%) London (%) (%) Arabia Dec. 2004 430 37.52 467 61.67 135 7.41 361 24.52 383 26.27 423 35.14 Jan. 2005 439 34.18 444 49.54 151 12.87 403 22.33 391 18.85 369 15.38 Feb. 2005 464 46.26 453 61.01 164 26.12 438 32.09 415 34.41 369 11.88 Mar. 2005 548 71.79 540 69.90 196 41.26 464 28.67 477 46.08 422 59.17 Apr. 2005 573 64.66 546 64.65 225 53.67 520 32.65 470 41.05 417 42.54 May. 2005 522 36.67 501 38.68 221 36.32 480 4.41 421 12.76 422 32.14 Jun. 2005 573 58.35 560 64.54 227 49.78 529 33.99 437 24.60 395 13.38 Jul. 2005 588 48.24 566 51.37 240 51.70 583 31.00 466 25.04 400 22.26 Aug. 2005 634 44.02 603 45 .10 257 64.48 635 46.60 528 25.99 404 18.36 Sept. 2005 670 45.37 631 46.95 273 76.05 700 62.39 571 36.09 438 14.41 Oct. 2005 656 25.69 628 25.05 262 56.18 594 24.79 547 16.96 517 28.93 Nov. 2005 563 17.35 537 18.49 244 83.53 510 18.05 479 11.44 547 16.63 Dec. 2005 536 27.71

Apr- Apr- Apr- Apr- Apr- Apr- Apr- Apr- Apr- Apr- Apr- Apr- Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov Dec Dec 2004-05 424 61.11 401 56.31 154 9.85 433 47.23 396 56.16 367 36.16 2005-06 597 40.73 571 42.36 244 58.17 569 31.45 490 23.69 453 23.34

Apr- Apr- Apr- Apr- Apr- Apr- Apr- Apr- Apr- Apr- Apr- Apr- Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar 2004-05 440 55.95 426 57.90 156 13.75 427 39.84 403 46.61 372 33.60 Source: Indian Industry: A Monthly Review. Center for Monitoring Indian Economy. By contrast, the domestic production of crude oil in India plummeted to 2.4 million tonnes, a reduction of 16.1 percent for the year. The catastrophe at ONGC’s BHN platform 2 caused a decline of 21 percent in crude oil production during the month of August 2005. For the same month during the earlier year, the production was higher at 1.77 million tonnes of crude. (OIL), at 280,000 tonnes of production registered a year-on-year increase of 3.7 percent. Reckoned on year-on-year basis, the production of crude oil during the first half of 2005-06 at 13.59 million tonnes, showed a decline of 4.7 percent. In the Cambay basin block, Gas Authority of India Ltd., (GAIL), which is India’s major crude and gas carrier holds 50 percent participating interest. Following the commencement of commercial production, GAIL shifted its focus on crude marketing business. The production from this block is expected to go up from 350 barrels per day to 1,500 barrels a day after it becomes fully operational. The expected earnings of revenues would be Rs.180 million per year. This amount is expected to increase four-fold subsequently. The decline in domestic production also coincided with a fall in India’s crude imports. According to Petroleum Planning & Analysis Cell (PPAC) the crude imports dropped by 6.7 percent to 31 million tonnes during April-July 2005. Imports worth Rs.485.90 billion (US$ 10,984 million), were however costlier by 29.7 percent compared to the earlier year. In this scenario of fall in crude output in September 2005, the Petroleum Ministry asked ONGC to bear the subsidy burden of Rs.28.30 billion. The subsidy burden for the company during the first half of FY 2005-06 stands to be Rs.57.06 billion as against a burden of Rs.41.04 billion for the

2 ONGC’s BHN platform is an offshore platform located about 160 kilometers off the Mumbai coast. Around 300 people work at this center which is involved in oil exploration.

2 IOCL 2006-01 entire year 2004-05. ONGC fears that growth in profits could be affected as a result of the dual impact of loss in production and higher subsidy outgo. Industry experts opine that this could also impact the financial performance of oil companies in India.

PRICING ISSUES The government announced the issue of oil bonds to offset subsidy losses incurred by oil marketing companies. The government’s share of the total burden is expected to be around 36 percent, while oil companies would shoulder nearly 52 percent of the burden of under recoveries. During the first week of September 2005, the retail prices of petrol and diesel increased by seven percent from the previous levels. The prices of domestic purpose LPG (Liquefied Petroleum Gas) and PDS (Public Distribution System) kerosene remained unchanged. Internationally, the prices of petro-products touched a new high in September, which however registered a marginal fall by the end of the month. The Petroleum Planning & Analysis Cell (PPAC) revealed that during April-July 2005, there was a decline of 2.6 percent in POL imports. The imports amounted to 34.58 million tonnes valued at Rs.557.13 billion. The value of imports increased by 37.1 percent though there was a decline in volumes.

DEREGULATION AND AFTER In April 1998, the petroleum sector in India was deregulated. As a result, all products with the exception of five: ATF, Gasoil, Gasoline, Kerosene and LPG, were decontrolled. Later, during April 2001 ATF was also decontrolled. This trend towards deregulation continued as Marketing and Pipelines sector was deregulated during April 2002. During this period, the demand-supply gap was plugged as can be seen from the Exhibit 2 given below. Subsequently, the pricing of such products was market-determined. The Oil Pool was dismantled; and the proposal to set up a Petroleum Regulatory Board was also mooted. With regard to subsidies on LPG & Kerosene, which were borne by the fiscal budget, it is being planned to phase out such subsidies by the year 2007. The advent of deregulation meant that a balance would have to be struck between protection of consumer interest and reasonable earnings for the industry. In the post-deregulation scenario, the production registered a CAGR of 12.5% p.a over the five-year period from 1998 to 2003 while the consumption grew at a CAGR of 3.4% p.a. During the Tenth Plan period (2002-03 to 2006-07) the demand is expected to grow at a CAGR of 3.7% p.a. Exhibit 2

120 109 104 104 100 100 99 100 97 91 83 80 68

60 MMTPA 40

20

0 FY1999 FY2000 FY2001 FY2002 FY2003

Consumption Production

Source: www.iocl.com SELLING OIL When the petroleum sector was deregulated, the government also made its decision clear to dismantle the Administered Price Mechanism (APM). There were also indications that the government would disinvest its stakes in public sector oil companies: IOC, Corporation Ltd., (HPCL) and Corporation Ltd., (BPCL).

3 IOCL 2006-01

The government sources indicated that this move was aimed at strengthening the sector to face competition from not just existing players, but international companies who could operate during the post opening-up era. In the changed context, IOC believed that ‘ownership’ was the means by which it could tighten its grip on the retail market. It converted a large number of its ‘leased’ outlets into ‘owned’ ones, to avoid competition from other companies. It “bought out” the retailers and paid a good price. The first step was taken in October 2001. IOC owned only 28 percent of the retail outlets and made an offer between Rs.25 million to Rs.35 million to the owners of retail outlets for taking such retail outlets on a 100-year lease. Seventy two percent of IOC’s retail outlets operated under Dealer-Owned and Dealer-Operated (DODO) system. IOC realized that with the freeing of government controls, the DODO retail outlets could fall prey to incentives, offered by other players competing with IOC. The threats to IOC was real considering the fact that it then controlled almost 70 percent of the retail market and 55 percent of its business came from its DODO retail outlets. The other two public sector oil majors, Bharat Petroleum and Hindustan Petroleum, owned and operated 58 percent and 47 percent respectively of the retail outlets, and the Indo Burma Petroleum Company (IBP) owned roughly 54 percent of its retail outlets. Facing competition from other players, IOC introduced a co-branded credit card, in association with Citibank. It ensured that the holders of these cards who got petrol or diesel on credit from select IOC retail outlets, earned points and then exchanged them, for free gifts later. It paid special attention to customer service and put in place a special cell for this purpose. Industry experts explained the competition in oil sector during the post open market era in simple terms stating that it was expected to be ‘more challenging and exciting’.

COMPANY BACKGROUND IOC has been listed as India’s No.1 Company in Fortune’s listing of the world’s 500 largest companies. It was ranked 189 for the year 2004. IOC is also the 19th largest petroleum company in the world. In the Asia-Pacific region, the company has been adjudged No.1 in petroleum trading. It is currently ranked 325th in the Forbes’ “Global 500” listing of the largest public companies. IOC operates the vital oil supply line across all states in India. Its vast distribution network enables the essential petroleum products to reach customers at the right place and at the right time. The company’s refineries and pipelines have consistently achieved more than 100% capacity utilization. The Beginning IOC made a beginning in 1959 as Indian Oil Company Ltd. In 1964, the Indian Oil Corporation Ltd. was formed after the merger of Indian Refineries Ltd. (Estd. 1958). Its market share for petroleum products is about 56%; its share in the national refining capacity is 42%. It shares 69% of the downstream pipeline throughput capacity. It was in the 1990s that IOC had entered into as many as nine JVs. These were, Avi-Oil India Ltd., Indian Oil Panipat Power Consortium Ltd., (IPCPL), Indian Oil Petronas Private Ltd., (IPPL), Indian Oil Tanking Ltd., (IOTL), Lubrizol India Private Ltd., (LIPL), Petronet CI Ltd., (PCIL), Petronet India Ltd., (PIL), Petronet LNG Ltd., and Petronet VK Ltd., (PVKL). IOC owns and operates 10 of India’s 18 refineries having a combined rated capacity of 54.20 Million Metric Tonnes Per Annum (MMTPA). It also owns and operates India’s largest network of cross-country crude oil and product pipelines spanning over 7,575 km.

Countrywide Network IOC maintains marketing infrastructure comprising 94 aviation-fuelling stations, 87 LPG bottling plants and 162 bulk storage terminals, installations and depots. They provide the required supplies to the 22,000 sales points spread across the country. IBP Co. Ltd., as a standalone marketing company has a nationwide network of more than 3,000 retail sales points.

4 IOCL 2006-01

IOC supplies Indane cooking gas to nearly 37.5 million households spread over 2,100 markets. IOC’s ISO-9002 certified Aviation Service, having a market share of 67%, meets the aviation fuel requirements. Its seven own refineries achieved a throughput of 37.66 million tones and it has transported 44.50 million tonnes of petroleum products and crude oil through the pipeline network. With an objective of maintaining its strategic edge in the market, IOC planned investments of Rs.244 billion during the Tenth Five-year Plan period (2002-07). The proposed investments would cover different projects meant for its network of 4,350 distributors, refining and pipeline capacity expansions, product quality upgradation, retail operations, linear integration and diversification projects. Customer Care IOC assures a number of ‘XTRA’ offerings to the customers visiting its petrol and diesel stations under the ‘XTRA’ retail outlet brand, which was introduced during 2003-04. It provides assurance to the customers regarding quality, quantity, efficient forecourt service, efficient housekeeping, choice of branded and regular fuels, electronic dispensing, cashless transactions, loyalty programs for both cash and credit customers, and other non-fuel gifts to customers. A customer loyalty program was launched jointly with JK Tyre which intended to provide value added services to their respective customer bases. The project was formally launched on 20th October 2004 with the signing of a Memorandum of Understanding (MoU) in New Delhi between M S Ramachandran, Chairman, IOC and Raghupati Singhania, Vice-Chairman and Managing Director, JK Industries Ltd. As per this plan, IOC provided two card-based offerings to its retail customers: Xtra Power and Xtra Rewards. As part of the rewards scheme, customers were offered logistics service, free personal accident insurance for the owner and the vehicle crew, and reward points linked to the fuel purchases. The scheme also envisaged reward points for customers for every purchase of JK tyres, tubes and flaps that could be redeemed for fuel besides other gifts. It was expected that the companies would leverage synergies in their areas of common interest from time to time. HR Initiatives IOC has established full-fledged training centers across the country. It gained reputation as an “academy” company seeking to build skills and competencies among its staff. The Indian Oil Institute of Petroleum Management (IIPM), Gurgaon, the Indian Oil Management Center for Learning, Mumbai, and the Indian Oil Management Academy, Haldia have gained reputation as world-class training and management centers. IOC introduced “Competency mapping.” 3. The company seeks to identify individual and organizational gaps, and to take steps for bridging such gaps through mentoring and training. The plans are to further upgrade leadership skills and create a leadership bench-strength. Pioneering R&D IOC’s R&D Center has been recognized as a world-class center. The center has been responsible for pioneering work in alternative fuels, pipeline transportation, lubricants formulation, and refinery processes. Indian Oil Technologies Ltd., which is a wholly owned subsidiary company, commercializes innovations and technologies of the Center. Presently, there are over 140 national and international patents to its credit. The R&D Center also acts as the nodal agency for ushering in Hydrogen fuel in India.

Expanding Horizons IOC is currently looking to transform itself from a pure domestic sectoral company to a vertically integrated, transnational energy behemoth. It is in the process of implementing a master plan that aims to transform it as a major player in petrochemicals. The plan envisages the integration of its core refining business with activities. The company has also planned huge investments for oil and gas projects in India and abroad.

3 Competency mapping identifies preferred behaviours and personal skills to distinguish outstanding performance from average performance.

5 IOCL 2006-01 Spreading Wings IOC is also strengthening its overseas marketing ventures. It is also exploring fresh opportunities in new energy markets in Asia and Africa. It has already established two wholly owned subsidiaries in Sri Lanka and Mauritius respectively. Its regional office at Dubai coordinates expansion of business in the Middle East. During the past two decades, IOC has been lending its expertise to several countries in both Asia and Africa in the areas of marketing, refining, research and development, transportation, and training. As a mark of its commitment to Health, Environment, Quality, and Safety, IOC received a number of national and international awards.

A JOINT VENTURE Indian Oil Tanking (IOT), was a company engaged in the storage and handling of petroleum products. It was established as a joint venture between IOC, IBP and Oil Tanking of Germany. While IOC and IBP held a share of 25 percent each in the company, the German partner held another 50 percent. The petroleum retailer IBP’s 25 percent stake in IOT, which was worth Rs.370 million was bought out by IOC in January 2002, at a cost of Rs.440 million. This was a sequel to the government’s move to disinvest a part of IBP. After IOC bought out the entire IBP stake, IOT became a 50-50 joint venture between IOC and Oil Tanking, Germany. Analysts quoting sources in SBI said that the book-value price for the IBP stake was Rs.275 million and the total share transfer price was put at Rs.440 million. The intention of the government was to retain a 50 percent stake in this company well before the intended privatization of the IBP. Significantly, the commercial arrangements between IBP and IOT were to remain unaltered even after transfer of its stake to IOC. After winning the bid for government stake in IBP, IOC integrated the dealer network of IBP into a specially designed Enterprise Resource Planning (ERP) software package. The operation codenamed ‘Manthan’ allocated customer codes to IBP dealers and integrated them into the package. Thus IOC-IBP benefited on a daily basis in assessing the stocks, ascertaining the funds position and pricing of issues. ‘Manthan’ also improved the monthly monitoring system at IBP. In a liberalized environment, ‘Manthan’ also enabled IOC to benchmark itself against the best in the world. This revamping undertaken by IOC was to enable the company to take full advantage of the dismantling of the APM and regulatory controls. Project consultant Price Waterhouse Coopers (PWC) described the project as the ‘most complex ever.’ FURTHER INITIATIVES In January 2003, IOC appointed McKinsey to conduct a ‘structure, process, people’ study. It sought advice on strategy and resource optimization across nine refineries – seven owned by IOC and rest two belonged to its subsidiaries. For obtaining benefits in making products of higher value, IOC also worked simultaneously on a homegrown “yield optimization” 4 exercise. Following its takeover by IOC, IBP reworked on its marketing initiative. It set-up a retail merchandising division in February 2003 and entered into partnerships for setting up convenience stores at its retail outlets. An IBP director summed up the objective when he said, “The retail-merchandising division would look at opportunities to convert the existing retail outlets into one-stop convenience stores, thereby making available consumer goods and services”. The company had even discussed with Amul and McDonalds and explored the possibilities of setting up their franchisee outlets within the fuel pump outlets. IOC also introduced its own branded petrol and diesel variants named: ‘Josh’ and ‘Shakti’. Looking beyond the traditional retail market, IBP tied-up with Sahara Airlines and Jet Airways to promote institutional sales. IBP also entered into tie-ups with both Andhra Pradesh and Kerala travel and tourism departments to set-up a chain of motels and retail outlets. Another agreement with Cummins Auto Services meant that IBP would establish 49 truck service centers and support services with an investment outlay of Rs.1.2 billion.

4 An exercise aimed at generating higher returns on capital employed.

6 IOCL 2006-01 EXPANSION PLANS IOC embarked on a massive Rs.5 billion expansion work in February 2003. As per these plans, its existing boilers, piping and layout were to be upgraded and new equipment installed. For completing this work, Thermax Babcock & Wilcox (TBW) bagged the prestigious order from IOC. The order was valued at Rs.220 million. TBW was not new to this type of job having successfully completed a similar boiler upgrade work at IOC, Guwahati. TBW was set-up as a joint venture between Thermax (India) and Babcock & Wilcox (B&W) (USA). Thermax possessed more than three decades of experience in boiler industry in India. B&W was a technology leader with more than 130 years standing. This joint venture, was established on equity partnership basis, and brought the world’s best industrial boiler technology to India. The increased requirement of working capital requirements were met with the raising of around Rs.5 billion from Bank of America for a nine-month period. The money was exclusively meant for refinery expansion and other related projects. IOC started looking to international banks for funding for its expansion activities. An official said, “The international banks were offering cheap rates”. The IOC director (marketing), N G Kannan unveiled the corporation’s Rs.24 billion capital outlay plan aimed at overhauling its marketing operations. As part of its ambitious plans, he disclosed that the company intended to set-up outlets, mostly along-side the new highways under the Golden Quadrilateral highway project. On the social front, with the intention of sensitizing truck drivers about AIDS, IOC entered into a tie-up with Bill Gates Foundation. The company’s investment plans provided for an amount of Rs.11 billion to be invested in Tamil Nadu spread over the two years ending in 2005. Among the projects identified for investment were – hydrant pipeline at the Chennai airport, the Chennai-Trichy-Madurai (CTM) pipeline, Liquefied Petroleum Gas (LPG) storage facility at Ennore, and retail initiatives and expansion of retail outlets. At the national level, the company undertook a major nationwide branding exercise. For this purpose, Bureau Veritas certified around 500 retail outlets for quality and quantity. In the LPG retail segment, the company designated some of its distributors as Star Distributors, assessed on their service delivery levels.

PERFORMANCE BONUS During 2002-03, IOC’s revenues moved up by 4%. Over a period of five years, the revenues of the company registered a CAGR of 14.6%. While the net income grew at a CAGR of 29.6%, the net profit registered for the year-ending 2003 increased by 112%. The sale of oil products and crude also showed a steady increase, which can be seen from the following Exhibit 3. (Also refer to Annexure II) Exhibit 3

1200 93 193 182 1000 124 800 61 600 1105 981 967

Rs./Billion 400 817 634 200

0 FY99 FY00 FY01 FY02 FY03

Sale of products (net a) Sale of crude

Source: www.iocl.com

7 IOCL 2006-01

Based on its performance during the year, IOC declared a 1:2 bonus issue to its shareholders. The IOC board also recommended the issue of one share for every two shares held by the shareholders. Mr. P Sugavanam, director (finance), IOC said that the move was aimed at “improving liquidity and rewarding the investor during a year when IOC booked handsome profits.” Prior to the announcement, Government of India held an 82.03 percent stake in IOC, Oil and Natural Gas Corporation (ONGC) held 9.11 percent, and the general public held 3.7 percent. After the bonus issue, the company’s equity capital increased from Rs.7.78 billion to Rs.11.68 billion. IBP ANNOUNCES DIVIDEND IBP Chairman M S Ramachandran presented a cheque for Rs.80.61 million to Mr. Ram Naik, the then Petroleum and Natural Gas Minister. This amount was the Indian government’s share of dividend for the financial year 2002-03. The company also declared the highest ever dividend of 140 percent. The Indian government’s holding was 26 percent of the paid-up share capital of the company and IOC, which held 53.58 percent of the company’s paid-up share capital, received an amount of Rs.166.14 million as its share of dividend. In FY 2002-03, IBP recorded its highest ever turnover of Rs.87.53 billion and earned Rs.1.40 billion as profit before tax and Rs.877.5 million as profit after tax. The company emerged as a debt-free company after having repaid all its loan liabilities during the earlier year. The ICSI National Award for Excellence in Corporate Governance was awarded to the company for the year 2002. The company’s position as a front-ranking ‘retailer with a difference’ was re-emphasized as it commissioned 523 new retail outlets in a single year ending 2002-03, thereby setting an all-time record. (Also refer to Annexure III). There was an air of uncertainty over disinvestments. Ram Naik emphasized that the government indeed had not taken a decision regarding IOC disinvestment. The Supreme Court meanwhile insisted that the Center should seek approval of the parliament before contemplating the sale of HPCL and BPCL. The then Disinvestment Minister Arun Shourie stated that the government was looking at the restructuring of IOC in such a manner that a few ‘strategic’ divisions could be merged with BPCL and HPCL while the remaining could be divided and sold to a strategic investor and to the public. Another Dividend For the financial year 2003-04, IOC paid Rs.4.79 billion as interim dividend to the Government of India against its 82 percent stake. Exhibit 4: Performance at a Glance (Rs. in billion) 2003-04 2002-03 2001-02 2000-01 1999-00 FINANCIAL Turnover (inclusive of Excise Duty) 1,30,203 1,19,884 1,14,868 1,17,371 94,141 Gross Profit* 12,013 10,863 7,533 5,860 5,971 Profit Before Interest Tax 10,144 9,202 6,141 4,636 3,976 Profit Before Tax 9,691 8,414 4,599 2,962 2,970 Profit After Tax 7,005 6,115 2,885 2,720 2,443 Dividend 2,453 2,258 857 740 584 Dividend Tax 314 240 0 75 64 Retained Earnings 4,238 3,617 2,028 1,905 1,795 Value Added 18,659 17,750 14,706 12,989 12,210 Contribution to Central Exchequer 22,589 20,676 16,561 16,118 15,138 Cumulative Dividend 8,448 5,995 3,737 2,880 2,140 * Profit before Depreciation, Interest Expenditure and Tax Source: www.iocl.com

8 IOCL 2006-01 MOVE TOWARDS CONSORTIUM Petronet LNG Ltd., (PLL), India’s first regassified liquid natural gas company is a consortium between BPCL, GAIL, ONGC and IOC. They hold 12.5 percent stake each. Gaz De France, the French gas major, the project consultant also holds a 10 percent stake. PLL successfully completed the construction, at Dahej in Gujarat, of a 2.5 million tonne regassified terminal project. Against this background, Exxon Mobil, a US based oil and gas firm, decided to pick-up a 10 percent equity stake in PLL. Against its plans to raise around Rs.10 billion, PLL offered 265 million shares in its IPO in February 2004. The company’s ‘Performance at a Glance’ that is given in Exhibit 4 indicates that the company could achieve higher sales during the year 2003-04. It was during April that Kannan, Director Marketing, said, “The company achieved sales of 46.23 MT during the year as compared to 45.35 MT during 2002-03 and just surpassed the level of 46.21 MT achieved in 2001-02.” For the year the company targeted an investment of Rs.30 billion, of which Rs.13.50 billion was for retail initiatives and Rs.2.58 billion was meant for augmenting its operations. It was also the time when IOC started looking for fresh opportunities in South East Asia and Africa; these included acquisition of British Petroleum in Malaysia and opening of ten retail outlets in Mauritius by September. Lanka IOC Ltd. was incorporated consequent to the MoU signed between the Indian and the Sri Lankan governments in 2002. Lanka IOC Ltd., – a wholly owned subsidiary of IOC, acquired 100 filling stations of Ceylon Petroleum Corporation subsequently in 2003, and also obtained a one-third stake in the oil storage facilities at a cost of $75 million. The company thus turned into a full-fledged player in Sri Lanka’s downstream petroleum segment. This company brought about a new refuelling experience for the Sri Lankan motorists. Swanky oil bunks, latest oil dispensers, attached convenience stores and Automatic Teller Machines (ATM) – all in one place was a new offer for the island’s vehicle users. According to Nageswaran, the Managing Director, Lanka IOC drew up plans for further investments upto $100 million. For investors, the company would offer shares in the book-building process. The company with an equity base of $40 million would come out with a premium public issue of 1.33 million shares targeted at raising around Sri Lankan Rupees (SLR) 2.3 billion. The shares would be listed on the Colombo Stock Exchange. Within a short period, Lanka IOC achieved a market share of about 23 percent in the diesel, about 30 percent in the petrol, and 38 percent in the lubricant markets. The company targets to achieve 50 percent market share by January 2007. It also has future plans of getting into the Liquefied Petroleum Gas (LPG) and aviation fuel businesses. A MERGER IOC had already acquired the government’s 33.58 percent stake in IBP in 2002 and bought another 20 percent subsequently through an open offer. The remaining 26 percent of government’s share in IBP was sold through a public offer in March 2004. IOC’s share in IBP stood at 53.58 percent share; the institutional investors held 12.21 percent and the public’s share was 34.21 percent. IOC planned to merge its subsidiary, IBP Ltd., with itself and also decided to invest about $2 billion to set-up a new exploration company. Following this move, the IOC board gave an “in- principle” approval in April 2004 to these proposals. The boards of directors of IOC and IBP set the swap ratio for the merger at 1.25:1. Effectively, IBP shareholder would get 125 IOC shares for every 100 held by him. The IOC Chairman and Managing Director M S Ramachandran contended that the swap ratio was “quite generous” though institutional shareholders expected to get between 135 and 150 IOC shares against 100 IBP shares. He said that various factors were taken into consideration and also added that the company took extra care to be fair to shareholders. The IOC board also approved the payment of an interim dividend of 45 percent, at an outgo of Rs.5.26 billion. Consequent to the merger the benefits of tax savings to the company stood at about Rs.450 million a year. Additional benefits in the form of increased market capitalization and a more effective utilization of cash flow also materialized.

9 IOCL 2006-01

Post-merger, IOC’s paid-up capital increased to Rs.11.96 billion from a level of Rs.11.68 billion. The 11.87 million IBP shares held by IOC were transferred to a trust, and IOC retained the IBP brand.

NEW HEIGHTS IOC emerged as a much bigger company in 2004-05 and became the first Indian company to exceed a turnover of Rs.1500 billion. It crossed the landmark of 50 million tonnes in product sales. A significant milestone was reached as it became the first Indian company to cross the 10,000 mark in the number of petrol stations after commissioning 1,112 outlets in 2004-05. The company also pioneered “ kisan sewa kendras ” and commissioned 22 such kendras during the year. Its overall share among PSUs stood at 56.1%, which was up by 0.33% over the previous year. During the year, the company undertook capital investment to the tune of Rs.64.60 billion. The cost of borrowing fell to 4.36% from an earlier high of 5.10%. The financial highlights given in Exhibit 5 below supplies key information for the above period. (Also refer to Annexure I and Annexure IV)

Exhibit 5: Financial Highlights (Rs. in billion)

Parameter 2003-04 2004-05 Growth%

Turnover 130,203 150,677 15.72

PAT 7,005 4,891 (–)30.17

EPS 59.97 41.88 (–)30.17

D/E Ratio 0.53:1 0.67:1 –

EVA 4,383 2,103 (–)50.02 Source: www.iocl.com

Major Projects Commissioned The LAB plant with 120 TMTPA capacity was commissioned at Gujarat Refinery. It is the largest single train Kerosene-to-LAB (Linear Alkyl Benzene) plant in the world. The plant produces environment-friendly, biodegradable detergent alkylates , which also meets latest and most stringent quality standards. The product is supplied to all major detergent brands in the country. Customer feedback indicates that the quality of LAB produced at the plant is the best in India. At Mathura Refinery, the DHDT/HGU (Diesel Hydrotreatment Unit/Horseshoe-Gallup Unit) and associated facilities were made available. The Panipat-Rewari product pipeline also became operational. The petrochemicals PX/PTA (PetroXtractor/Purified Terephthalic Acid) Plant at Panipat Refinery was commissioned in October 2005. The plant has a capacity of 550 TMTPA (Thousand Metric Ton per Annum) and was set-up at a cost of Rs.51.04 billion. Certain major projects were in the stage of contemplation. The Naphtha Cracker plant at Panipat Refinery with a capacity of 800 TMTPA ethyelene to be built at a cost of Rs.63 billion would be commissioned during mid-2008. The Paradeep Petrochemical Complex with a capacity of 1000 TMTPA ethyelene is estimated to cost Rs.80 billion for which preliminary feasibility study has already been carried out. Subsidiaries and Joint Ventures From Exhibit 6 and 7 it can be seen that turnover and profits from the Subsidiaries and Joint Ventures improved in 2004-05 as compared to the previous year 2003-04.

10 IOCL 2006-01

Exhibit 6 2003-04 2004-05 Turnover 16271 (Rs. Crore) 13456

10535 9430

4992 3204

725 1218 BRPL CPCL IBP Lanka IOC Source: www.iocl.com Exhibit 7

Profit (Rs. Crore) 2003-04 2004-05

597 600 478 500 400 400 304 300 215 200 103 59 100 29 0 BRPL CPCL IBP Lanka IOC Source: www.iocl.com Gas Businesses The year 2004-05 was the first year for the company in gas business. It marketed its full share of 2.54 MMSCMD of R-LNG from the Dahej plant. For marketing a further 5.26 MMSCMD during the year, IOC tied-up with consumers on HBJ pipeline. The company has also initiated steps to import gas from Iran. In this regard, ‘term sheet’ has been finalized for importing 5 MMTPA of LNG, with an option to increase the quantity to 7.5 MMTPA. Initial supplies are expected to commence from 2009. The company is also in the process of setting up an LNG import terminal at Ennore in association with Chennai Petroleum Corporation Ltd. It has also signed an MoU with GAIL for distribution of gas to Agra, Lucknow and other cities phase-wise. Diversification The consortium company of ONGC Videsh, Oil India and IOC has successfully bagged the Farsi Exploration block 5 in Iran. With regard to Gas, the Dahej Terminal of Petronet LNG has been commissioned. The move to lay an Indo-Bangladesh Gas Pipeline is still waiting for a nod from the Government of Bangladesh. On the Petrochemicals front, the company plans PX-PTA plant at Panipat with PX-360 TMT and PTA-550 TMT capacity. Abroad, the company has already entered into retail business in Sri Lanka, and the supplies are carried out through Lanka IOC. In Mauritius, steps have been taken for establishing building infrastructure and for entering into downstream business. Analysts feel that these and many other initiatives were taken up after Petrotech 2005 conference held in January 2005 when Prime Minister Manmohan Singh summed up saying, “The Indian oil and gas PSUs should think big, think creatively and think boldly” analysts opine that IOC’s initiatives reflect the changed response of a company to meet the ever-changing and complex business scenario.

5 Two oil discovery wells exist here and estimates put hydrocarbon reserves here to be in excess of 500 million barrels.

11 IOCL 2006-01

ANNEXURE I Balance Sheet

(Rs. in Million)

0503-(12) 0403-(12) 0303-(12) 0203-(12) 0103-(12)

Sources of Funds Owner’s Fund Equity Share Capital 11,680.10 11,680.10 7,786.70 7,786.74 7,786.72 Share Application Money 0.00 0.00 0.00 0.00 0.00 Preference Share Capital 0.00 0.00 0.00 0.00 0.00 Reserves & Surplus 248,163.50 218,794.00 181,493.20 145,323.55 151,922.99 Loan Funds Secured Loans 24,912.30 31,752.10 47,011.30 46,169.55 47,132.96 Unsecured Loans 148,290.10 90,033.50 97,939.60 144,530.29 159,224.58 Total 433,046.00 352,259.70 334,230.80 343,810.13 366,067.25 Uses of Funds Fixed Assets Gross Block 398,692.60 363,861.60 342,038.80 297,406.11 271,444.60 Less: Revaluation Reserve 0.00 0.00 0.00 0.00 0.00 Less: Accumulated Depreciation 164,884.70 143,395.50 125,845.60 109,608.19 96,343.07 Net Block 233,807.90 220,466.10 216,193.20 187,797.92 175,101.53 Capital Work-in-progress 87,194.70 52,613.00 35,984.20 51,901.28 45,735.58 Investments 55,549.30 55,954.30 53,090.40 96,670.11 34,114.27 Net Current Assets Current Assets, Loans & Advances 374,326.40 310,583.30 289,574.40 202,574.77 257,172.55 Less: Current Liabilities & Provisions 318,163.20 288,089.90 261,600.60 196,581.14 147,722.92 Total Net Current Assets 56,163.20 22,493.40 27,973.80 5,993.63 109,449.63 Miscellaneous expenses not written 330.90 732.90 989.20 1,447.19 1,666.24 Total 433,046.00 352,259.70 334,230.80 343,810.13 366,067.25 Note: Book Value of Unquoted Investments 2,927.40 5,273.80 3,397.40 3,090.16 2,831.12 Market Value of Quoted Investments 179,952.90 155,028.50 58,514.90 51,089.58 23,544.53 Contingent liabilities 125,060.70 149,552.30 116,341.40 100,103.88 101,426.61 Number of Equity shares outstanding 1,168,012,200.00 1,168,012,200.00 778,674,800.00 778,674,800.00 778,674,800.00 Source: www.indiainfoline.com

12 IOCL 2006-01

ANNEXURE II Profit and Loss Account (Rs. in Million) 0503-(12) 0403-(12) 0303-(12) 0203-(12) 0103-(12) Income: Operating Income 1,392,143.20 1,168,885.40 1,090,499.60 1,014,580.72 1,065,202.68 Expenses Material Consumed 1,215,803.70 978,466.70 909,443.50 869,566.50 939,916.92 Manufacturing 12,527.90 8,980.80 7,871.20 7,120.76 7,424.21 Expenses Personnel Expenses 18,291.00 15,371.80 16,961.50 14,989.38 18,564.71 Selling Expenses 58,522.00 50,320.20 47,021.40 44,923.95 44,666.18 Administrative 12,869.20 12,177.20 12,860.10 10,386.61 9,612.52 Expenses Expenses 0.00 0.00 0.00 0.00 0.00 Capitalized Cost of Sales 1,318,013.80 1,065,316.70 994,157.70 946,987.18 1,020,184.54 Operating Profit 74,129.40 103,568.70 96,341.90 67,593.53 45,018.14 Other Recurring 11,213.10 9,572.30 11,891.80 10,472.81 10,928.34 Income Adjusted PBDIT 85,342.50 113,141.00 108,233.70 78,066.35 55,946.48 Financial Expenses 6,041.70 4,708.60 7,912.80 15,714.19 16,962.23 Depreciation 20,728.00 18,737.90 16,562.80 13,795.65 12,186.70 Other Write-offs 0.00 0.00 0.00 0.00 0.00 Adjusted PBT 58,572.80 89,694.50 83,758.10 48,556.51 26,797.55 Tax Charges 10,638.00 26,464.00 22,991.10 17,147.42 2,422.81 Adjusted PAT 47,934.80 63,230.50 60,767.00 31,409.09 24,374.74 Non-recurring Items 764.50 5,374.40 –4,060.30 –2,530.53 –524.94 Other Non-cash 214.50 1,443.30 4,442.20 –31.96 3,353.54 Adjustments Reported Net Profit 48,913.80 70,048.20 61,148.90 28,846.61 27,203.33 Earnings Before 48,913.80 70,048.20 61,148.90 28,846.65 27,203.41 Appropriation Equity Dividend 16,936.20 24,528.30 22,581.60 8,565.42 7,397.41 Preference Dividend 0.00 0.00 0.00 0.00 0.00 Retained Earnings 29,604.70 42,377.20 36,172.90 20,281.22 19,051.46 Source: www.indiainfoline.com

13 IOCL 2006-01

ANNEXURE III Cash Flow Statement

(Rs. in Million) 0503-(12) 0403-(12) 0303-(12) 0203-(12) 0103-(12)

Profit Before Tax 59,551.80 96,908.40 84,140.00 45,994.00 29,626.10

Depreciation 21,833.90 18,689.70 16,617.60 13,923.50 12,239.30 Lease and Rental Charges 0.00 0.00 0.00 0.00 0.00

Lease Equalization 0.00 0.00 0.00 0.00 0.00

P and L in Forex 0.00 0.00 0.00 0.00 0.00

Gain on Forex Transaction 0.00 0.00 0.00 0.00 0.00

P and L on Sale of Assets 144.60 246.40 10.40 54.70 131.70

P and L on Sale of Investments 420.00 82.30 472.20 2,000.00 –32.40

Profit Adj. on Sale of Undertaking 0.00 0.00 0.00 0.00 0.00

Interest Income 0.00 0.00 –2,129.30 –20.40 –90.10 Interest Paid Net 5,831.30 4,422.80 7,624.70 0.00 0.00

Interest Net 0.00 0.00 0.00 15,444.20 16,695.80

Dividend Received 0.00 0.00 0.00 0.00 0.00

Dividend Net –6,867.60 –5,466.50 –4,973.80 –2,069.50 –1,163.50

Investments 0.00 0.00 0.00 0.00 0.00

Misc. Income 0.00 0.00 0.00 0.00 0.00

Amortization of Expenses –7.50 –7.50 –9.10 –197.50 –1,666.20

Assets Written Off 0.00 0.00 0.00 0.00 0.00

Misc. Expenses 0.00 0.00 0.00 0.00 0.00 Payment towards VRS 550.80 521.00 468.10 416.60 0.00

Provision and WO Net 0.00 0.00 0.00 0.00 0.00

Provision for Gratuity 0.00 0.00 0.00 0.00 0.00

Provision for Diminution in Investments 0.00 0.00 -2,000.00 0.00 0.00

Provisions for Bad Debts NPA –20.30 426.00 1,349.00 315.70 276.50

Trade and Other Receivables –21,474.10 4,069.40 –16,558.90 58,313.40 –46,758.40

Trade Bills Purchased 0.00 0.00 0.00 0.00 0.00

Inventories –45,528.40 –9,460.90 –35,614.40 –2,878.30 9,456.00 Trade Payables 36,634.10 2,642.00 13,702.60 12,945.20 –644.70

Tax Provision 0.00 0.00 0.00 0.00 0.00

Direct Taxes Paid –7,716.00 –21,831.00 –16,057.40 –7,716.00 –5,285.30

Advance Tax Paid 0.00 0.00 0.00 0.00 0.00

Loan and Advances 0.00 0.00 0.00 0.00 0.00

Transfer from Reserve 0.00 0.00 0.00 0.00 0.00

Other Operating Activity 450.30 –264.70 –10.10 –7.30 –7.00

Prior Year Adjustments 0.00 0.00 0.00 0.00 0.00

Provisions Written Back 0.00 0.00 0.00 0.00 –0.10 Prior Year Taxation 0.00 0.00 0.00 0.00 0.00

Balances Written Back 0.00 0.00 0.00 0.00 0.00

Other Assets 0.00 0.00 0.00 0.00 0.00

Other Liabilities 0.00 0.00 0.00 0.00 0.00

14 IOCL 2006-01

0503-(12) 0403-(12) 0303-(12) 0203-(12) 0103-(12)

Change in Deposits 0.00 0.00 0.00 0.00 0.00

Change in Borrowing 0.00 0.00 0.00 0.00 0.00

Discount Exp. on Loans Wrt.Off 0.00 0.00 0.00 0.00 0.00 Increase/decrease in Advances 0.00 0.00 0.00 0.00 0.00

Increase/decrease in Investments 0.00 0.00 0.00 0.00 0.00

Net Stock on Hire 0.00 0.00 0.00 0.00 0.00

Leased Assets Net of Sale 0.00 0.00 0.00 0.00 0.00

Excess Depreciation Written back 0.00 0.00 0.00 0.00 0.00

Premium on Lease of Land 0.00 0.00 0.00 0.00 0.00

Extra Ordinary Items 0.00 0.00 0.00 0.00 0.00

Net CashFlow-Operating Activity 43,802.90 90,977.40 47,031.60 136,518.30 12,777.70

Purchase of Fixed Assets –8,492.60 –4,312.70 –4,205.30 –6,244.30 1,645.80 Sale of Fixed Assets 733.10 1,215.50 666.90 535.10 –14,433.70

Capital WIP –61,440.70 –36,627.80 –22,795.10 –26,704.20 0.00

Capital Subsidy Recd 0.00 0.00 0.00 0.00 0.00

Purchase of Investments 0.00 0.00 0.00 0.00 0.00

Sale of Investments 0.00 0.00 52,292.80 292.00 3,924.60

Acquisition of Companies 0.00 0.00 0.00 0.00 0.00

Sale of Undertaking Extra Ord. Item 0.00 0.00 0.00 0.00 0.00

Interest Received 0.00 0.00 2,129.30 20.40 90.10 Dividend Received Invest Activity 6,867.60 5,466.50 4,973.80 2,069.50 1,163.50

Investment Income 0.00 0.00 0.00 0.00 0.00

Inter Corporate Deposits 0.00 0.00 0.00 0.00 0.00

Investment in Subsidiaries 0.00 0.00 0.00 0.00 0.00

Loan to Subsidiaries 0.00 0.00 0.00 0.00 0.00

Investment in Group Cos 0.00 0.00 0.00 0.00 0.00

Issue of Shares on Acq. of Cos 0.00 0.00 0.00 0.00 0.00

Cancellation of Invest. in Cos Acq 0.00 0.00 0.00 0.00 0.00

Certificate of Deposit in Bank 0.00 0.00 0.00 0.00 0.00 Movement in Loans 0.00 0.00 0.00 0.00 0.00

Others from Invest. Activity –1,270.30 –2,194.20 –6,911.60 –64,524.20 –42,953.00

Movement in Working Capital 0.00 0.00 0.00 0.00 0.00

Amortization of Expenses Invest Activity 0.00 0.00 0.00 0.00 0.00

Taxes Paid 0.00 0.00 0.00 0.00 0.00

Expenses Capitalized 0.00 0.00 0.00 0.00 0.00

Extraordinary Items 0.00 0.00 0.00 0.00 0.00

Purchase of Fixed Assets Leased out 0.00 0.00 0.00 0.00 0.00 Net Inc./Dec. in Current Asset 0.00 0.00 0.00 0.00 0.00

Net Inc./Dec. in Advances 0.00 0.00 0.00 0.00 0.00

Net Inc/Dec in Current Liab. 0.00 0.00 0.00 0.00 0.00

Net Cash Used in Investing Activity –63,602.90 –36,452.70 26,150.80 –94,555.70 –50,562.70

Proceeds from Issue of Eq. Capital 0.00 0.00 0.00 0.10 0.30

Proceeds from Issue of Pref. Capital 0.00 0.00 0.00 0.00 0.00

15 IOCL 2006-01

0503-(12) 0403-(12) 0303-(12) 0203-(12) 0103-(12)

Proceed from Issue of Cap. Incl. Sh. Prem. 0.00 0.00 0.10 0.00 0.00

Redemption of Capital 0.00 0.00 0.00 0.00 0.00

Proceed from Issue of Deb 0.00 0.00 0.00 0.00 0.00 Proceed from bank Borrowings 0.00 0.00 0.00 0.00 0.00

Proceed from other long-term borrowing –2,027.60 –3,087.10 1,492.80 9,016.00 9,079.70

Proceed from short-term borrowing 53,444.40 –20,078.20 –47,241.70 –24,673.70 50,103.40

Proceed from Deposits 0.00 0.00 0.00 0.00 0.00

Repayment of Borrowings 0.00 0.00 0.00 0.00 0.00

Share Application 0.00 0.00 0.00 0.00 0.00

Loan from Corporate Body 0.00 0.00 0.00 0.00 0.00

Dividend Paid –27,067.90 –27,674.40 –12,441.40 –8,145.70 –3,562.80

Interest Paid –7,066.70 –6,164.90 –12,164.50 –19,243.20 –17,130.50 Financial Charges 0.00 0.00 0.00 0.00 0.00

Cash Credit Advances 0.00 0.00 0.00 0.00 0.00

Cash Cap Investment Subsidy 0.00 0.00 5.70 0.00 17.50

Others from Fin Activity 0.30 0.00 0.00 0.00 0.00

Foreign Exchange Gains Losses 0.00 0.00 0.00 0.00 0.00

Share Premium 0.00 0.00 0.00 0.00 0.00

Misc. Exp. Written Off 0.00 0.00 0.00 0.00 0.00

Sale of Investments 0.00 0.00 0.00 0.00 0.00 Reserves 0.00 0.00 0.00 0.00 0.00

Current Liabilities 0.00 0.00 0.00 0.00 0.00

Loans Disbursed 0.00 0.00 0.00 0.00 0.00

Inventories Fin Activity 0.00 0.00 0.00 0.00 0.00

Extraordinary Items FinActivity 0.00 0.00 0.00 0.00 0.00

Deferred Exp. Against Borrowing 0.00 0.00 0.00 0.00 0.00

Share Application Refund 0.00 0.00 0.00 0.00 0.00

On Redemption of Debenture 0.00 0.00 0.00 0.00 0.00

Of Other long-term borrowing 0.00 0.00 0.00 0.00 0.00 Of Short-term borrowing 0.00 0.00 0.00 0.00 0.00

Of Fin Lease Liability 0.00 0.00 0.00 0.00 0.00

Shelter Assistance Reserve 0.00 0.00 0.00 0.00 0.00

Repayment of Short-term Borrowing 0.00 0.00 0.00 0.00 0.00

Repayment of Long-term Borrowing 0.00 0.00 0.00 0.00 0.00

NetCash Used in Fin. Activity 17,282.50 –57,004.60 –70,349.00 –43,046.50 38,507.60

Foreign Exchange Gains Losses NetFinActivity 0.00 0.00 0.00 0.00 0.00

Net Inc. /Dec. in Cash and Equivalent –2,517.50 –2,479.90 2,833.40 –1,083.90 722.60 Cash and Equivalent Begin of Year 6,980.70 9,460.60 6,627.20 7,711.00 6,988.40

Cash and Equivalent End of Year 4,463.20 6,980.70 9,460.60 6,627.10 7,711.00 Source: www.indiainfoline.com

16 IOCL 2006-01

ANNEXURE IV Ratio Analysis (Rs. in Million) 0503-(12) 0403-(12) 0303-(12) 0203-(12) 0103-(12) Per Share Ratios Adjusted EPS (Rs.) 41.04 54.14 78.04 40.34 31.30 Adjusted Cash EPS (Rs.) 58.79 70.18 99.31 58.05 46.95 Reported EPS (Rs.) 41.88 59.97 78.53 37.05 34.94 Reported Cash EPS (Rs.) 59.62 76.01 99.80 54.76 50.59 Dividend Per Share 14.50 21.00 29.00 11.00 9.50 Operating Profit Per Share (Rs.) 63.47 88.67 123.73 86.81 57.81 Book Value (Excl Rev Res) Per Share (Rs.) 222.18 196.69 241.81 194.77 202.96 Book Value (Incl Rev Res) Per Share (Rs.) 222.18 196.69 241.81 194.77 202.96 Net Operating Income Per Share (Rs.) 1,191.89 1,000.75 1,400.46 1,302.96 1,367.97 Free Reserves Per Share (Rs.) 207.99 177.57 218.73 171.51 186.01 Profitability Ratios Operating Margin (%) 5.32 8.86 8.83 6.66 4.22 Gross Profit Margin (%) 3.83 7.25 7.31 5.30 3.08 Net Profit Margin (%) 3.48 5.94 5.54 2.81 2.52 Adjusted Cash Margin (%) 4.89 6.95 7.01 4.40 3.39 Adjusted Return on Net Worth (%) 18.47 27.52 32.27 20.70 15.42 Reported Return on Net Worth (%) 18.84 30.49 32.47 19.02 17.21 Return on long-term Funds (%) 19.62 31.27 34.75 28.42 19.56 Leverage Ratios Long-term Debt/Equity 0.27 0.31 0.39 0.47 0.55 Total Debt/Equity 0.66 0.52 0.76 1.25 1.29 Owners fund as % of total Source 60.00 65.42 56.63 44.53 43.62 Fixed Assets Turnover Ratio 3.50 3.22 3.19 3.41 3.93 Liquidity Ratios Current Ratio 1.18 1.08 1.11 1.03 1.74 Current Ratio (Inc. ST Loans) 0.84 0.86 0.79 0.59 0.79 Quick Ratio 0.55 0.55 0.56 0.48 1.05 Inventory Turnover Ratio 8.21 9.38 9.35 11.56 12.18 Payout Ratios Dividend payout Ratio (Net Profit) 39.47 39.50 40.84 29.69 29.96 Dividend payout Ratio (Cash Profit) 27.72 31.16 32.13 20.08 20.69 Earning Retention Ratio 59.72 56.24 58.90 72.73 66.56 Cash Earnings Retention Ratio 71.88 66.25 67.71 81.06 77.71 Coverage Ratios Adjusted Cash Flow Time Total Debt 2.52 1.49 1.87 4.22 5.64 Financial Charges Coverage Ratio 14.13 24.03 13.68 4.97 3.30 Financial Charges Coverage Ratio (Post Tax) 12.53 19.86 10.82 3.71 3.32 Component Ratios Material Cost Component(% earnings) 88.52 84.33 85.60 85.35 87.80 Selling Cost Component 4.20 4.30 4.31 4.42 4.19 Exports as percent of Total Sales 2.55 3.11 2.40 2.04 0.47 Import Comp. in Raw Mat. Consumed 75.68 75.93 72.63 75.60 77.43 Long-term assets/Total Assets 0.50 0.51 0.51 0.62 0.49 Bonus Component in Equity Capital (%) 91.29 91.29 86.93 86.93 86.93 Source: www.indiainfoline.com

17 IOCL 2006-01 References 1. IOC Annual Reports 2003, 2004, 2005. 2. www.iocl.com 3. www.indiainfoline.com 4. www.domain.com

18