Chapter 1

Introduction

The traditional financial statements comprising the balance sheet and the profit
and loss account is that they do not give all the information related to the financial
operations of a firm. Nevertheless, they provide some extremely useful information to the
extent that the balance sheet mirrors the financial position on a particular date in terms of
the structure of assets, liabilities and owners’ equity, and so on and the profit and loss
account shows the results of operations during the year. Thus, the financial statements
provide a summarized view of the financial position and operations of a firm. Therefore,
much can be learnt about a firm from a careful examination of its financial statements as
invaluable documents / performance reports. The analysis of financial statements is, thus,
an important aid to financial analysis.

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

between component parts of financial statements to obtain a better understanding of the
firm’s position and performance. The first task of the financial analyst is to select the
information relevant to the decision under consideration from the total information
contained in the financial statements. The second step is to arrange the information in a
way to highlight significant relationships. The final step is interpretation and drawing of
inferences and conclusions. In brief, financial analysis is the process of selection and
evaluation.

MEANING AND RATIONALE

Ratio analysis is a widely-used tool of financial analysis. It can be used to
compare the risk and return relationships of firms of different sizes. It is defined as the
systematic use of ratios to interpret the financial statements so that the strengths and
weaknesses of a firm as well as its historical performance and current financial condition
can be determined. The term ration refers to the numerical or quantitative relationship
between two items/variables.

1
 What the ratios do is that they reveal the relationship in a more meaningful way
so as to enable equity investors, management and lenders make better investment and
credit decisions.

The rationale of ratio analysis lies in the fact that it makes related information
comparable. A single figure by itself has no meaning but when expressed in terms of a
related figure, it yields significant inferences.

BASIS OF COMPARISON
Ratios reflect the relationship between variables. They enable to draw conclusions
regarding financial operations. The use of ratios, as a tool of financial analysis, involves
their comparison, for a single ratio, like absolute figures, fails to reveal the true position.
Comparison with related facts is, therefore, the basis of ratio analysis. Four types of
comparisons are involved: (i) trend ratios, (ii) inter firm comparison, (iii) comparison of
items comparisons within a single year’s financial statement of a firm, and (iv)
comparison with standards or plans.

Trend ratios involve a comparison of the ratios of a firm over time, that is,
present ratios are compared with past ratios for the same firm. The comparison of the
profitability of a firm, say, year 1 through 5 is an illustration of a trend ratio. Trend ratios
indicate the direction of change in the performance-improvement, deterioration or
constancy-over the years.

The inter firm comparison involving comparison of the ratios of a firm with
those of others in the same line of business or for the industry as a whole reflects its
performance in relation to its competitors.

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

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

2
TYPES OF RATIOS
Ratios can be classified into six broad groups:
i) Liquidity ratios
ii) Capital structure / leverage ratios
iii) Profitability ratios
iv) Activity / Efficiency ratios
v) Integrated analysis of ratios and
vi) Growth ratios.

ACQUISITION / TAKEOVERS
Takeover implies acquisition of controlling interest in a company by another
company. It does not lead to the dissolution of the company whose shares are being/have
been acquired. It simply means a change of controlling inter3est in a company through
the acquisition of its shares by another group. Takeovers can assume three forms: (i)
negotiated/friendly, (ii) open market/hostile and (iii) bail out. The first type of takeover is
organized by the incumbent management with a view to parting with the control of
management to another group, through negotiation. The terms and conditions of the
takeover are mutually settled by both the groups. Hostile takeovers are also referred to as
raid on the company. In order to takeover the management of, or acquire controlling
interest in, the target company, a person/group of persons acquire shares from the open
market/financial institutions/mutual funds/willing shareholders at a price higher than the
prevailing market price. Such takeovers are hostile to the existing management. When a
profit earning company takes over a financially sick company to bail it out, it is known as
bail out takeover. Normally, such takeovers are in pursuance of a scheme of
rehabilitation approved by public financial institutions/scheduled banks. The takeover
bids, in respect of purchase price, track record of the acquirer and his financial position,
are evaluated by a leading financial institution. Corporate takeovers in the country are
governed by the listing agreement with stock exchanges and the SEBI Substantial
Acquisition of Shares and Takeover (SEBI Code) Code. The main elements of the
regulatory framework for takeovers are briefly described below.

3
Listing Agreement: The takeover of companies listed on the stock exchanges is
regulated by Clause 40-A and 40-B of the listing agreement. While Clause 40-A deals
with conditions for continued listing, Clause 40-B contains the requirements to be met
when a takeover offer is made.

Conditions for continued Listing: The company agrees that the following would also be
the conditions for continued listing:
(a) When a person acquires or agrees to acquire 5 percent or more of the voting rights
of any securities, the acquirer and the company should comply with the relevant
provisions of the SEBI Takeover Code.
(b) When any person acquires/agrees to acquire any securities exceeding 15 percent
of the voting rights in a company or if any person who holds securities carrying,
in aggregate, less than 15 percent of the voting rights and seeks to acquire
securities exceeding 15 percent of the voting rights of the company, he should
comply with the relevant provisions of the SEBI Takeover Code.

Takeover Offer: The company also agrees that it is a condition for continuous listing
that whenever the takeover offer is made or there is any change in the control of the
management of the company, the person who secures the control and the company whose
shares have been acquired would comply with the relevant provisions of the SEBI
Takeover Code.

The SEBI Substantial Acquisition of Shares and Takeover Code (SEBI Takeover
Code): A takeover bid is generally understood to imply the acquisition of shares carrying
voting rights in a company, in a direct or indirect manner, with a view to gaining control
over the management of the company. Such takeovers could take place through a process
of friendly negotiation or in a hostile manner, in which the existing management resists
the change in control. Both the substantial acquisition of a shares and change in the
control of a listed company are covered by takeover bids. The main elements of the SEBI
Code are: (i) disclosure of shareholding and control in a listed company, (ii) substantial

4
acquisition of shares / voting rights/control, (iii) bail out takeovers and (iv)
investigation/action by the SEBI.

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

financially weak company, not being a sick industrial company, in pursuance to a scheme
of rehabilitation approved by a public financial institution or a scheduled bank (lead
institution). A financially weak company means a company that has at the end of the
previous financial year accumulated losses, which have resulted in the erosion of more
than 50 percent but less than 100 percent of its net worth (the sum total of the paid-up
capital and free reserves) at the beginning of the previous financial year.

HOSTILE TAKEOVER
Strategies: The acquirer company can use any of the following techniques aimed at
taking over the target company.
Street Sweep: This technique requires that the acquirer should accumulate large amounts
of stock in a company before making an open offer. The advantage is that the target firm
is left with no choice but to give in.
Bear Hug: In this case, the acquirer puts pressure on the management of the target
company by threatening to make an open offer. The board capitulates straightway and
agrees to a settlement with the acquirer for change of control.
Strategic Alliance: This strategy involves disarming the opposition by offering a
partnership rather than a buyout. The acquirer should assert control from within and
takeover the target company.
Band Power: This implies entering into an alliance with powerful brands to displace the
partner’s brands and, as a result, buy out the weakened company.
Defensive strategies: The target company can also use one of the following strategies to
defend itself against the attack mounted by the acquiring company in its bid for open
market takeover.
Poison Pill: This strategy involves issue of low price preferential shares to existing share
holders to enlarge the capital base. This would make hostile takeover too expensive.

5
Poison Put: In this case, the target company can issue bonds that encourage holders to
cash in at high prices. The resultant cash drainage would make the target unattractive.
Greenmail: In this strategy, the target company should repurchase the shares cornered by
the raider. The profits made by the raider are after all akin to blackmail and this would
keep the raider at a distance from the target.
Pac-man Defense; this strategy aims at the target company making a counter bid for the
raider’s company. This would force the raider to defend himself and consequently call off
his raid.
White Knight: In order to repel the move of the raider, the target company can make an
appeal to a friendly company to buy the whole, or part, of the company. The
understanding is that the friendly buyer promises not to dislodge the management of the
target company.
White Squire: This strategy is essentially the same as White Knight and involves sell out
of shares to a company that is not interested in the takeover. As a consequence, the
management of the target company retains its control over the company.

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

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

6
Chapter 2

Design of the project

Objectives

1. To ascertain the main reasons for incurring loss by the company prior to takeover
by ONGC.
2. To study the impact on the financials of the company post-takeover.
3. To ascertain the long term benefits for the company due to takeover.
4. To find out the current financial position of MRPL.

Research methodology.

The research methodology used in here is analysis of secondary data such as the
annual reports and published data from the company website. The main objective of this
study is to find out the impact on the financials of MRPL by ONGC stake holding from
March 2003. For the study, the balance sheet of the company for the past 3 years i.e.,
from 2003 to 2005 is being used and the data collected from the study is mainly from the
annual reports and also company details provided by the guide.

Limitations
1. The fortune of MRPL is tied with the volatility international prices of crude and
products.
2. Domestic sale contribute to the major part of the revenue of MRPL. This state of
economy directly influences the turnover and profitability of the company.
3. Customs and excise duty regime on the petroleum products and crude oil exert
significant influence on the margins of the company.
4. The financial data analysis done as a part of the study is based on different
financial ratios. Thus the inferences from the analysis are subject to all the
limitations of a typical ratio analysis exercise.

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

Data and tools of analysis.

1. The Ratio Analysis has been used.
2. To compare between present performances with past performance Comparative
Financial Statement from 2003 to 2005 is used.

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

8
Chapter 3

Industry profile
Introduction
Oil, gas, hydroelectricity, nuclear power and coal are the constituents of
conventionally used primary energy. Wind and Solar are the examples of non-
conventional sources.
Driven by a boom in the automobiles sector, demand in the Indian oil sector has been
growing consistently. There is a huge potential for demand growth in India because of
higher rate consumption compared to the World average and increasing share of oil and
gas in primary energy consumption. The oil and gas sector gained importance on account
of its multiple and cost-effective application compared to coal, hydroelectricity. Oil
prices have a significant impact on the economy.

IMPORTANCE OF OIL AND GAS IN THE ECONOMY

The oil and gas sector spares and equal importance worldwide. If contributes to
foreign exchange reserves through exports, for countries, like Russia where nearly half
the currency earnings corns prove crude oil exports oil has varied applications in different
segments of the economy. Natural gas is used for lighting and cooling purposes in urban
areas and for transportation. The sector also its use in manufacturing plastics, clothes,
fertilizers, ropes etc.
Gas became important since the oil price stocks, which led to supply descriptions,
inflation, output loss and reversion.
Crude oil and refined petroleum products account for about 30% of India’s total imports.

The Indian oil sector is under the purview of the Ministry of Petroleum and
Natural Gas (MoP&NG). The oil and gas sector has 3 sub sectors: Oil and Gas
Exploration and Production (E&P), Oil Refining and Marketing of refined products
(R&M) and Distribution of Natural Gas.

9
 The Indian Petroleum Sector.

Upstream Sector Downstream Sector

Oil & Gas Exploration

Refining & Natural Gas
Marketing Distribution

ONGC, OIL, RIL.

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

3.1 Diagram showing Indian Petroleum Sector

Oil Exploration and Production (Upstream Sector)

Oil and gas is expected to experience a sustained growth in demand, which is
primarily a function of economic growth. As per the MoP & NG around 2/3 of oil
exploration area in India is either not or inadequately explored. There is a potential for
locating additional reserves.
With deregulation, the upstream NOCs are likely to see an increase in the
profitability and hence the additional resources can be employed in E&P activities. The
domestic upstream companies are now improving recovery from existing fields,
improving reserve accretion by bidding for domestic fields and acquiring equity in oil
assets abroad, integrating into downstream areas and maintaining this will lead to revenue
growth and will help them to diversify their risk portfolio. While ONGC is a leading
upstream player, IOC is dominant in downstream project.
In India there is a great potential for locating additional reserves. This is more
valid today after the gas discovery by Reliance.

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Oil Refinery and Marketing of Refined Products (Downstream Sector)
With full control of petroleum sector, price at retail end would vary in accordance
with the international trends. However, since petroleum products are for mass
consumption, socio-political reasons may prevent frequent changes in the prices of
product. This may prevent a high growth in marketing margins.
Another impact of dismantling the oil pool account would be that the liquidity
position of the oil company should be better because of improved certainty in cash
inflows.
In view of uncertainty, oil companies have initiated a number of measures to give
competitiveness in a deregulated market. Some of these are strengthening
import/marketing infrastructure, enhancing scale of operation, undertaking environmental
measures, entering into domestic/overseas alliance and setting up hedging mechanism to
mitigate its exposure to price volatility and undertaking business restructuring to ensure
operational efficiency.

The majority of India’s oil reserves are located in fields offshore Bombay and
onshore in Assam. The offshore Bombay High regional field account for about 2/3 of
India’s oil production. India contains natural gas reserves of 25 trillion cubic feet (Tcf).
About 70% of these reserves are located in associated and non-associated fields in the
offshore Bombay High region as well as in the offshore and onshore regions of Gujarat.
Indian analysts estimated that by 2010, the country will need eight coastal LNG receiving
terminals. At least 2 LNG terminal sites are currently under study.

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

demand, with the balance coming from imports. Imports will either be through
international pipelines or via liquefied natural gas (LNG) shipments from countries like
Iran, Bangladesh, Indonesia and Myanmar.

11
ONGC

 ONGC is Asia’s best Oil and Gas Company, as per a recent survey conducted by
US based magazine ‘Global Finance’.
 Holds largest share (57.2%) of hydrocarbon acreages in India.
 Every 6th LPG cylinder comes from ONGC.
 About 1/10 of Indian refining capacity.
 Created a record of sorts by turning MRPL around from being a stretcher case for
referral to BIFR to among the BSE top 30, with in a year.
 Owns 23% of Mangalore-Hasan-Bangalore Product Pipeline (MHBPL)
connecting MRPL to the Karnataka inter-land.
 The market capitalization of ONGC group constitutes 8% of the market
capitalization of BSE.

12
 COMPANY PROFILE

Vision, Mission and quality Policy:

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

wants to be known for in future.

“Vision” Statement of the “MRPL” :

Is “to be a world class Refining and Petrochemicals Company, with a strong
emphasis on productivity, customer satisfaction, safety, Health and Environment
Management, Corporate Social responsibility and care of employees”.

Mission:
Mission reflects the essential purpose of the organisation, concerning particularly
why it is existence, the nature of the business it is in and the customers it seeks to serve
and satisfy.

Mission of the Company is as follows:

 Sustain leadersip in energy conservation efficiency, productivity and Innovation.

 Capitalise on emerging opportunities in the domestic and International Market.
 Strive to meet customers’ requirements to their satisfaction.
 Maintain global standards in health, safety and Environmental norms with a
strong commitment towards community welfare.
 Continuing focus on employee welfare and employee relations
 Imbibe highest standards of business ethics and values.

Quality Policy:
Commitment towards.

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  Satisfied internal customers, external customers, business associates and the
society through excellence in quality of products and processes.
 Continual Improvmeent in products, process, services and quality management
syste.
 Satisfied, motivated and committed employees.
 Safe working conditions and ecofriendly environment.
 Retail outlet with ATM and other facilities is opened near the site to reach
consumers in supplying Petrol and Diesl.
 The supply of raw materials for local Industrial units like Mangalore Chemical
Factory, BASF Chemicals etc.
 Marketing of products to various corporate units arround India.

Ownership Pattern:
It is a Public Sector Comopany. The Major state is owned by Owner. The
ownership Pattern is given below:
TABLE -1
1. Oil and Natural Gas Commissions 71.62
2. Hindustan Petroleum Corporation Ltd. 16.95
3. Resident Individuals 8.54
4. Non Resident Individuals 0.62
5. Domestic Company’s 0.71
6. GIC and subsideries 0.83
7. Banks and financial Institutions 0.20
8. Non Domestic Comopany 0.48
9. Mutual Funds 0.05

HISTORY
The idea of MRPL was generated in 1987 when HPCL was looking for a partner
to start refinery in South India, it was also a dream project of Aditya Vikram Birla which
was known as Petro Gold.

14
 A tripartile agreement was signed between the Govt. of India, HPCL and Indian
Rayon Limited during 1987. It was incorporated on 7th March 1988 after a memorandum
of understanding executed to the President of India.

A detailed project report was prepared by Lummus Crest and Engineers India
Limited (EIL) which was submitted to the Govt. for approval. Work for project was
started in 1992. It was designed and managed by international consultant if repute like
Toyo Engineers Corporation of Japan, Mitsui and Company of Japan, Mitsubishi
Corporation of japan, Engineers India Limited and many other reputed companies.

The technology for the project was given by companies like Universal Oil Product
Company of USA, ABB Lummus of Holland, KTI Holland, Porner of Austria which are
potented.

The 1st phase was commissioned in 1996 with a refining capacity of 3.96 MMT to
increase the capacity to 9.09 MMT the second phase was commissioned during 1999.
The cost of project was around Rs. 2700 crore for the I phase and Rs. 3690 crore for the
II phase.

MRPL was initially set up during June 1991 as a joint sector company promoted
by Indian Rayon and Industries Ltd. and its associates (forming part of Aditya Birla
Group) and Hindustan Petroleum Corporation Ltd., a public sector company. This has a
distinction of being a first joint sector refinery in India and also the fifth oil refinery in
South India.

The unit was initially set up with a refining capacity of 3 million metric tons per
annum during March, 1996. The refinery is designed to process 30-40 degree API crude
to produce various essential petroleum products namely, LPG (Cooking Gas), Naphtha,
lead-free Motor spirit (Petrol), Kerosene, Aviation Turbine Fuel (ATF), Diesel, Fuel Oil,
Bitumen and Sulphur. The plant is located at Kuthethoor (distance of 22 kms from

15
Mangalore) in the outskirts of Mangalore thus being accessible to coastline (16 kms from
site).

To augment the capacity, the unit commissioned the second phase of operations
during 1999 consequent to which the capacity has increased to 9.69 million metric tons
per annum. The unit has well-established infrastructure including state-of-art Laboratory
for efficient measurement of product quality.

The products are sold through HPCL, who has retail outlet network. However,
recently MRPL has started the process of marketing some of the products like Sulphur,
Bitumen, Furnace oil, Naphtha, Reformat – to Non-HPCL customers also.

From 31/03/ 2003, Oil & Natural Gas Corporation Limited – ONGC has taken
over management control of MRPL and now MRPL is a subsidiary company of ONGC.

The manufacturing process and the interrelationships are captured in the flow
chart provided in next page. The products are manufactured in strict compliance to IS
standards.

The total plant consists of following manufacturing facilities, which were

designed, installed by International consultants of repute under the project management
consultation by Toyo Engineering Corporation.

Sl. Unit
Consultants / Technology
No.
Phase-1 Phase-2
1. EIL EIL
Crude & Vacuum Distillation Unit
2. Soaker Visbreaker Shell/ABB Lummus, Shell/ABB Lummus,
Holland Holland.
3. Hydro cracker Unit UOP, USA UOP, USA

16
4. CCR Plat forming Unit UOP, USA UOP, USA
5. Merox UOP, USA UOP, USA
6. Hydrogen KTI, Holland KTI, Holland
7. Bitumen EIL / Porner, Austria Not Applicable
8. Power Plant L&T/ ABB Boilers DLF/ABB Boilers
9. Sulphur Recovery Unit KTI, Italy KTI, Italy
10. Reformat Splitter Unit Toyo Engineering India Ltd. Common for both Phase-1
& Phase-2
11. Gas oil Hydro Desulphurization Japan Energy Corporation/ Common for both Phase-1
Unit Toyo Engg. Corporation & Phase-2

3.2 Table showing different companies who had undertaken the work of completing
Phase-1 & Phase-2.

MANUFACTURING FACILITIES
Crude & Vacuum Distillation Unit:
The Atmospheric & Vacuum Distillation Units and Naphtha Splitter Unit
designed by EIL are heat – integrated to achieve high energy efficiency, thereby reducing
fuel oil consumption and in turn reducing air emissions.

Hydro cracker Unit

The Hydro cracker Unit, second in India and first in southern part of India
produces high quality sulphur – free diesel Kerosene and ATF. The plant is designed for
100% conversion of heavy, low value gas oils to lighter and valuable products.

Soaker Visbreaker
Shell Soaker Visbreaker technology, under the license of ABB Lummus of
Holland has been adopted to upgrade heavy vacuum residue to naphtha and gas oil. This
is the first unit in India to have vacuum flash column, producing vacuum gas oil which is
used for supplementing the feed stock to hydro cracker unit.

17
Plat forming Unit
A state-of-the-art unit, the Continuous Catalytic Regeneration type Plat forming
Unit (CCR) produces lead-free, high octane motor spirit (Petrol). Hydrogen produced as
a by-product, is used in the hydrocrack unit.

Merox (Technology: UOP, USA):

LPG and Kerosene Merox Units convert mercaptans to disulphide.

Hydrogen
The Hydrogen Plant designed by M/s. KTI – Holland produces Hydrogen by
Steam Reforming of Naphtha. Hydrogen purity of 99.9% is achieved through Pressure
Swing Adsorption (PSA) Unit, the technology for which is given by UOP.

Bitumen
This Unit employs the highly efficient Biturox process given by M/s. Porner of
Austria to produce paving grade asphalt.

Power Plant
Keeping in view the power situation in the district, MRPL has installed a 112.5
MW power plant to meet its entire power requirement, through five turbo generators of
22.5 MW each. There are seven boilers of 140 MT/Hr. capacities each.

Sulphur Recovery Unit

The unit was licensed by KTI Italy and produces 99.9% purity sulphur using the
most modern and sophisticated process of Selection process. There are three sulphur units
to meet the produce, the above said grade sulphur with a capacity of 100 tonnes per day
for each of unit.

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Reformer Splitter Unit
In order to meet the stringent specifications of benzene content in motor gasoline,
reformer splitter unit is installed. The unit employs simple distillation process to remove
the benzene from the motor gasoline to the specified levels.

Gas oil Hydro desulphuriser Unit

This plant is designed to process high sulphur diesel stream from CDU-1 and
CDU-2 to meet the sulphur specification of diesel (0.25% sulphur) as stipulated by the
Govt. of India.

OTHER SUPPORT FACILITIES

• Two Oil Jetties to receive crude oil and despatch petroleum products by ocean
tankers.
• Total of 79 Nos. of storage tanks including 4 Nos. of LPG Horton Spheres.
• Raw Water line, 43 KM long from river Nethravathi. A weir has been constructed
across the river.
• Well-equipped laboratory with sophisticated analytical instruments.
• Blast-proof Centralised Control Room.
• State-of-the-art Distributed Digital Control System for entire refinery operation.
• Telecommunication facilities between the Port and the Refinery.

Product Profile of MRPL

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

secondary processing facilities:

1. Liquefied Petroleum Gas (LPG): Specification for LPG is IS 4576- 1999. The
Stock of the LPG as on 14th August, 2007 was 79.7 Metric tones (M.T.) The darling
of housewives for it’s cleanliness and effective use.

19
2. Naphtha: The specification for Naphtha is fertilizer grade. The stock of the naphtha
as on 14th Aug, 2007, was 904 M.T. this is used in Fertilizer and Petrochemical
industries.
3. Motor Spirit: generally known as petrol, it is the fuel for two wheelers and cars
whose consumption has gone up by leaps and bounds in the past few years. MRPL is
the only company to produce unleaded petrol from day 1 of production. The stock of
the M.S. as on 14th, Aug 2007 was 2771 MT.
4. Kerosene: still the poor man’s electricity in remote places, apart from being used as
a fuel.
5. Aviation Turbine Fuel (ATF): this particular product has to undergo stringent
laboratory tests before being dispatched. It is used as fuel in domestic aircrafts and
defence aircrafts. The specification for ATF is IS 1571-2001 (Domestic) stock was
2835 MT.
6. High Speed Diesel (HSD): this is used in all heavy vehicles, trucks, tankers, railways
etc. MRPL has achieved less than 0.25% of sulphur levels in diesel as prescribed by
the Ministry of Petroleum. MRPL has achieved less than 0.25% of Sulphur levels in
Diesel as prescribed by the Ministry of Petroleum. The stock of Deisel was 14387
MT.
7. Fuel Oil: this is basically used in furnaces and boilers. This product is basically and
in furnaces and boilers. Stock was 6171 MT.
8. Bitumen: MRPL produces different grades of Bitumen for use in laying roads,
highways and airport runways. There are 2 grades of Bitumen. It is used in laying
roads, highways and airport airways. The stock of Bitumen as on 14th was 258 MT.
9. Sulphur: this is directly dispatched from the sulphur recovery unit by trucks.
Before the products are dispatched, they are subject to blending, sampling, testing and
certification to meet the specifications. These products (except sulphur and bitumen) are
sold to M/S HPCL, who as per the agreement, are the sole distributors. Sulphur, bitumen
and naphtha are directly marketed by MRPL. It is used in fertilizers. Stock was 159
MT.

Safety:

20
• “Safety First” – is our motto.
• Lectures & Seminars on Industrial safety for MRPL staff, contractors and other
industries are regularly conducted.
• MRPL is the convenor of the Mangalore Chapter of National Safety Council.
• One of the best equipped live fire-fighting ground is used for training all staff.
• Safety and house-keeping committees regularly review the plant safety.
• Mutual aid scheme with neighbouring industries already in place.
• Mock fire drill & on-site emergency plan

Occupational Health Centre

The occupational health centre is manned round the clock by qualified male nurses. In
case of emergency in the refinery the patient will be brought to the OHC for first aid and
after they will be referred to the hospital for further treatment. Medical officers of MRPL
hospitals are also available at OHC at the time specified. OHC is also equipped with an
ambulance.

Training – A tool of HRD:

• Continuous In-house & external training programs organised for employees based on
their training need identified.
• Fire training.
• To bring about safe working practices and avoid all unsafe practices, employees are
given safety training at the time of induction.
• First Aid Training certified by St. Johns Ambulance is a routine feature.
• Regular lectures by vendors & licensors.
• Training simulators for all process units have been installed and are used for training
operators and supervisors.
• Vocational training for college students.

21
Committed to Environment in Every Aspect of Refining:
• Measures taken for the protection of environment at the design stage itself.
• The Process units designed to achieve higher overall thermal efficiency of the
refinery thereby reducing fuel consumption and emissions.
• Tall stacks resulting in reduced ground level concentration of sulphur dioxide (SO2).
• On-line SOX & NOX analysers in stacks.
• Low sulphur fuel oil is used in furnaces.
• Amine Treating Unit scrubs hydrogen sulphide (H2S) from fuel gas. The Sour Water
Stripper Unit strips the hydrogen sulphide off the process waste water. The stripped
sour water is recycled back to Crude Unit.
• Highly efficient Sulphur Recovery Unit (99% Recovery), licensed by M/s. KTI,
Italy, recovers elemental Sulphur from hydrogen sulphide, thus reducing SO2 emission
further. Presently, MRPL is the only refinery where more than 99% recovery of
Sulphur is achieved.

ECO-FRIENDLY MEASURES

Waste Water Treatment

The waste water treatment plant installed treats refinery waste water containing
sulphide, phenol, ammonia, oil etc. so as to get treated water, meeting the limits of
Karnataka State Pollution Control Board (KSPCB). The treatment consists of oil
separation, chemical treatment, biological treatment and filtration. The treated waste
water is discharged into the sea at a distance of 900 m. and at a depth of 6.5 m. The
location of discharge point was selected by National Institute of Oceanography after
carrying out detailed study on the effect of this water on marine life. The quality of
treated waste water and the marine environment around the discharge point is being
monitored by an independent agency all round the year.

In actual practice, the treated waste water quality surpasses KSPCB limits. In
order to conserve water, MRPL is recycling about 70% of treated waste water to cooling

22
tower. MRPL is one of the few refineries in the world which reuses treated waste water
continuously.
MRPL has developed in-house and implemented a process for treating the
effluent with Hydrogen Peroxide, which gives excellent results.

MRPL’s commitment to the protection of the ecological system does not end at
the Design and Operation Stage. The refinery constantly monitors the quality of treated
waste water and air emissions. A well-equipped Mobile Air Monitoring Van has been
employed in and around the refinery for this purpose.

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

Green Belt
MRPL has also developed a Green Belt around the entire refinery. The plant
species have been specially selected to blend with the local flora. Some of the species are
expected to act as bio-indicators. Till date more than 118000 saplings have been planted.
The tree density and plant species are as per NEERI’s recommendation.

Rehabilitation of project-affected families

About 500 families have been displaced by the MRPL project. In order that they
continue to live with the same community, a self-contained rehabilitation colony has been
built with about 500 housing sites.

The colony has been provided with facilities such as roads, water supply,
electricity, sewerage etc.

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

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

Social Commitments:

23
 As an organisation committed to the discharge of its social responsibilities, we
have created a Community Development Department to undertake various developmental
activities based on the needs of the neighbouring communities.

The Community Development Department has focussed on health, sanitation,

medical and educational activities in nearby villages. Besides infrastructural needs such
as roads, crematoriums, play-grounds, bus-shelters etc. are built in the villages.

Apart from the above, four project-affected villages viz. Bala, Kalavar, Permude
and Kuthethur have been adopted for long term development under the Community
Development Programmes. Under an integrated village development programme of
Government of Karnataka, called “Swasthi Grama Yojana” the Company is sharing 40%
of the total developmental cost in the above four villages. The activities taken up by the
Company include providing drinking water, community halls, roads, additional class
rooms in schools etc.

The Company also is running a school under the CBSE scheme. About 65% of
the 940 students are from the neighbouring villages. A hospital is being equipped with
various facilities, and is thrown open to public at very nominal charges.

LOCATION
MRPL is located in the South West coastal District of Dakshina Kannada, which
is in Karnataka State. It is 22 kms for commercial city of Mangalore. It is located on a
beautiful hilly site, which is surrounded by lush green environment. It has 2 plateaus.
The upper plateau is 60 to 75 meters above sea level and lower plateau 6 to 14 meters
above sea level. It is above 370 kms from Bangalore.

Mangalore
NMPT Suratkal
NH17
6 kms 8 kms

8 kms

24
MRPL
 3.3 Diagram showing location of the company
Nearest place Destination Distance
1. Airport Bajpe 12 kms
2. Sea port New Mangalore Port 16 kms
3. Railway station Thokur 06 kms
4. Industrial estate Bykampady 14 kms
5. Town Surathkal 06 kms
3.4 Table showing nearness of the company from other facilities

REASONS FOR SETTING UP IN MANGALORE

- Proximity to seaport
- Most the growing needs of South India.
- It is well connected by road, rail, air and waterways.
- Bulkiness of raw materials
- These materials highways NH17, NH48 and NH13 connect Mangalore
respectively.
- Ideal climate conditions for setting a refinery.
- Availability of good infrastructure and service facilities.
- Nearness to other associated companies like MCF, KIOCL, BASF, HPCL,
IOCL AND BPCL which use some of the products and provide mutual aid.
- Availability of good quality work force in Mangalore, who are well
educated.
- Nearness to industrial estate.
- Availability of good transformation facility for transporting products.
NEW MANGALORE PORT TRUST (NMPT)
New Mangalore port Trust is another major advantage and it is very useful to
MRPL. New Mangalore Port is all weather port, which spread in an area of 2352 acres

25
including water area of 338 acres. In a month near about 25 to 30 ships of crude oil
arrive at fast for MRPL.

On a port there are three main jetties out of that ‘virtual jetty’ is used for
petroleum products. MRPL has laid crude and product line to the port for transporting
the products from the ship to the port and vice versa.
MRPL has given Rs.200 million to the port in the form of long term loans and
adjusted towards the port charges. Port has constructed oil Jetty which has capacity of
65,000 to 12,000 DWT. It has also commissioned Virtual Jetty costing Rs.140 million
for handling the increased traffic of petroleum products.

Advantages of NMPT to MRPL:

- Congestion free port on the west coast of India.
- Hassle free single window clearance and documentation system and online
data acquisition from the port.
- Competitive and attractive port charges.
- It is a high tech port in handling liquid cargo.
- Largest LPG handling port in India.
- It has six automatic loading and unloading facilities.
- It can birth fully laden ships of 245 meters length.
- It is a deepest inner harbor, which provides 14 meter drafts for huge oil
tankers.

26
History of MRPL:

1993: The Company has already tied up the entire Foreign Exchange requirements of
the project. The Company has tied up process technologies with internationality reputed
technology suppliers.

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

1996: The Company has already tied-up the debt (both foreign exchange and rupee)
required for the expansion of capacity.

1997: MRPL commissioned its three million tones refinery towards the end of 1995-
1996 and it has been operating at more that 100 per cent capacity.

1998: The Company has entered into an agreement with the National Securities
Depository Limited (NSDL) to facilitate investors to hold the Shares in the electronic
form.

1999: The Company had issued 376947036 FCDs of Rs.19.26 each to the Promoter
Companies for raising part Funds required for the expansion project which were
converted into 376947036 equity shares of Rs.10/- each at a premium of Rs.9.26 per
equity share. MRPL is signing a crude-sourcing deal with the Chevron-Texaco combine.

27
2000: The Company a Joint venture between the AV Birla group and Hindustan
Petroleum is set to register losses of around Rs.300 crores for the 1999-2000 financial
years. The Company has enhanced its refining capacity to 12 million tones through a
cost-effective process of debottlenecking some units. The Company is expanding its
refining capacity from the existing 3 to 9 million tones per annum.

2001: Refineries and Petrochemicals Ltd (MRPL) has reported a net loss of Rs.185.04
Crore for the year ended March 31, 2001.
2002: Mangalore Refinery & Petrochemicals Ltd has informed that IDBI has appointed
their nominee Shri G M Ramamurthy on the Boar of the Company. The board of
directors of Oil and Natural Gas Corporation (ONGC) has approved the acquisition of the
Adithya Birla group’s state in the joint venture Mangalore Refinery and Petrochemicals
Ltd (MRPL.)

2003: Mangalore Refinery and Petrochemical Ltd. Have informed BSE that ONGC has
acquired its 37.38% equity stake. Shri. M.C. Bhargodia, Shri B.N. Puranmalka, Shri P.
Ramakrishnan, Shri Ravi Kastia have resigned as directors of the Company. ONGC and
MRPL have signed a Memorandum of Understanding for the supply of crude oil.
Becomes the third largest refinery in India.

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

2005: MRPL signs pact with Saudi, Iran firms for crude supply. MRPL forges alliance
with Ashok Leyland for retail outlets. The Centre for High Technology (CHT) selects
Mangalore Refinery and Petrochemicals Ltd (MRPL) for Jawaharlal Nehru centenary
awards for energy performance of refineries for 2003-04.

2006: Mangalore Refinery forges alliance with Abu Dhabi firm. MRPL inks agreement
with Mauritius Company. Mangalore Refinery & Petrochemicals Ltd (MRPL) has

28
 informed that ICRA Ltd. has assigned an Issuer Rating of “IR AAA” (pronounced as “IR
Triple A”) to the Company.

2007: Mangalore Refinery & Petrochemicals Ltd (MRPL) has appointed Shri. V P Joy
as Director of the Company, January 16, 2007. Mangalore Refinery & Petrochemicals
Ltd. (MRPL) has appointed Shri. V K Dewangan, Deputy Secretary (E-I), Ministry of
Petroleum & Natural Gas as Director of the Company, March 05,2007.

ORGANISATION CHART

BOD

Chairman

Managing Director

Director President Associate Associate G.M. Projects President

(Finance) Operations President President Marketing
Refinery Business

AVP
Finance

AVP AVP SR MGR GM VP GM AVP TS

HR MATERIALS
IS INT MAINT OPER.

IS

DG DG SR MGR GM GM DGM DGM

M M SECURITY MEC INS ELECT. PLAN
M

DGMF & GM DGM DM GM GM RSM

S CPP CDU HCU HYD OMS
M
29
DGM LAB DGM DGM PP DGM DGM
ENGG PE & E E&S
Financial Performance

Financial performance of MRPL from 2002-2006

(Rs. in millions)
Particulars Year Year Year Year Year
ended ended ended ended ended
31-3-02 31-3-03 31-3-04 31-3-05 31-3-06
Turnover 53539.1 85807.7 126122.2 206925.5 282428.6
PBDIT 2878.3 4026.1 13572.2 20991.63 11908.9
Interest and finance charges 6722.9 5670.7 3734.2 2296.19 1877.7
Gross profit/(loss) after 3844.6 (1644.6) 9838.1 18695.44 10031.2
interest but before
depreciation and tax
Depreciation and 3944.5 4048.4 4093.0 4086.7 3805.4
amortization
Provision for earlier years - 834.6 - - -
claims
Deferred tax credit (2864.6) (2409.7) 1150.6 5124.74 2151.1
Profit/(Loss) after tax (4924.8) (4118.1) 4594.1 8797.58 3716.1

3.5 Table showing financial performance of MRPL from 2002-2006

30
STRUCTURE OF FINANCE DEPARTMENT AT MRPL
VP
(Finance & Co. Sec)

A.V.P. (Finance)

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

Mumbai

Manager Manager Manager Manager Manager Manager

Dy. Manager / Dy. Manager / Non-mgt. staffs

Non-mgt. staffs
Executives Executives

Non-mgt. staffs Non-mgt. staffs

Non-mgt. staffs Non-mgt. staffs

3.6 Diagrm showing structure of financial department of MRPL,Mangalore

FUNCTIONS OF MANGALORE CENTRAL ACCOUNTS

- Maintenance of production records
- Sale billing and obtaining certification of HPCL
- Crude oil receipt and customs clearance accounting.
- Maintenance of indirect for records
• Central excise records
• Customs records
• Sales tax records
- Centralized payroll function and all payment related to personnel.
- Preparation of monthly management information system

31
 • Monthly financials
• Monthly production report
• Monthly target
• Daily profitability
- Insurance claim lodgment and settlement
- Processing all payments for supplies and works and service
- Export and direct marketing billing and realization
- Maintenance of fixed asset register.

Operational as well as financial performance of the company has reached

new hights of excellence during the year 2004-2005.
- Highest ever capacity utilization of 122% best among all refineries in
India.
- Lowest-even fuel and loss of 6.53% best among all refineries of similar
complexity in India.
- First refinery in India to produce MS (Petrol) and HSD (Diesel) to Euro
III specification.
- Lowest-energy consumption among all infineries with similar complexity
in India-recognized by the Centre for High Technology, Ministry of Petroleum and
Natural Gass, Govt. of India.
- Efficient turn around of all primary and secondary units of 3.69 million
metric ton (MMT) p.a (phase I) train in record time of 19 days.
- Highest ever turnover of Rs. 206925 million, Highest ever export
realization of Rs. 61913 million.
- Lowest ever interest and finance cost of Rs. 2296 million debt – equity
ratio improved to almost 1:1.
- Highest ever not profit of Rs. 8797 million accumulated losses of Rs.
11845 million (when ONGC took over MRPL) wiped out.
- Maiden divided of 10% proposed and recognition for outstanding
achievement in safety management.

32
SOME OF THE KEY ACHIEVEMENTS OF MRPL DURING THE RECENT
YEARS ARE
• MRPL was awarded ISO 9001 certification during the year 2001 and ISO 14001
certification during the year 2002.
• MRPL leads all public sector refineries in capacity utilization and energy
efficiency according to the evaluation done by Center for High Technology
(CHT), Ministry of Petroleum and Natural Gas.
• It is the first refinery in India to produce petrol (Motor spirit) and diesel (High
Speed Diesel) conforming to EURO III specifications.
• MRPL has signed a term contract on April 9, 2005 with Ceylon Petroleum
Corporation for expert of approximately 3,20,000 MT of refined products (Motor
spirit, High speed Diesel and Aviation Turbine Fuel) against a line of credit of
USD 150 million extruded by EXIM Bank under Govt. to Govt. frame work.
Shipping arrangements leave already been lined up through Trans chart (Ministry
of Shipping, Govt. of India).
• This company has bagged the first prize in Jawaharlal Nehru Centenary Awards
for Energy Conservation (ENCOM) for 2003-2004.
• MRPL has joined hands with Ashok Leyland – renowned manufacturer of heavy
vehicle-chassis to form a Joint Venture Company (JVC) for setting up Retail
Outlets for distributing Petroleum products and servicing facilities for trucks. The
company has been authorized by the Ministry of Petroleum and Natural Gas to set
up 500 retail outlets (ROS) in the country. These ROS will be set up at locations
along various National and State Highways.
• MRPL has processed 38 different types of Crude, sourced from West Africa,
Saudi Arabia, Kuwait, Iraq, Sudan, Qatar, Abu Dhabi, Yemen, Kazakhstan,
China, Vietnam, Malaysia, Indonesia, Brunei and India (Mumbai High).

33
RECENT EVENTS

- With in a year of bring taken over by ONGC, MRPL has registered a net
profit of Rs.459 crores.
- Net profit Rs.459 crore against net loss of Rs.412 crore in the financial
year 02-03.
- Operating profit Rs.1357 crores, up 237% from Rs.403 crore in the year
2002-03.
- Refinery crude runs 10.5 MMT, up 39% from 7.25 MMT in the year
2002-03.
- Turnover Rs.12612 crore, up 47% from 8581 crore in the year 2002-03.
- Export sales Rs.4478 crore, up 134% from 1913 crores.
- Shell ties up with MRPL for petrol products.
- MRPL repays Rs.2380 crores under debt restructuring package.
- Equity shares of MRPL a subsidiary of state showed ONGC; enter ‘A’
group of scripts at Bombay stock exchange from March 1, 2004.
- ICRA has assigned an A1+ (+1 one plus) rating, indicating highest safety,
in the short term to Rs.300 crores commercial paper / short term debt program of
MRPL. ICRA was also upgraded the long term resting of the company from LBBB
to LA< indicating adequate safety.
- MRPL, a subsidiary of ONGC, has prepaid the entire facilities and ‘B’ of
Rupee Term Lenders under Debt Restructuring Package (DRR) aggregating to
Rs.2380 crore today. MRPL has also given notice to Facility ‘C’ Lenders to prepay
the existing outstanding of facility ‘C’ amounting to Rs.257 crore on 19th January,
2004. MRPL had an option under DRR to prepay these loans facilities without any
prepayment premium.
- ONGC has granted long term loan of up to Rs.2600 crore to its subsidiary
MRPL (current holdings at 71.63%) at Bank Rate (presently 6%pa). The
refinancing of these loans facilities will result into saving of approximately Rs.82
crores p.a. for MRPL, as the facilities under DRR were at average interest rate of
9.15% p.a.
- The operating performance of MRPL has been fast improving after
ONGC’s entry into MRPL in March 2003. In the first 3 quarters of the current

34
 financial year itself MRPL has achieved crude processing rate at the annual rated
capacity for the Refinery. The refinery has actually processed 929.3 TMT Crude in
December 2003 (the highest so far) which represents annualized capacity of 11.15
MMT, against the rated capacity of 9.69 MMT.
PRE-ACQUISITION PERIOD

MRPL a project costing around Rs.6000 crores was initially set up on June 1991
as a joint venture company by HPCL a public sector company and Indian Rayon and
Industries Ltd. and its associate companies. Aditya Birla Group which had 37.5% of
share in MRPL which comprised of Grasim Industries (18.92), Hindalco Industries
(12.05), Indian Rayon and Industries (5.16) and Indo Gulf Corporation (1.27) and HPCL
with 37.5% giving only 25% to others which include domestic and non-domestic
companies, banks and financial institutions. Even though the company was set up in
1991 the production of the same started only in the year 1996 with refining capacity of
3.69 MMT p.a. MRPL is the first joint venture refinery and the fifth oil refinery in
Southern India and has a refinery capacity in of 9.69 million metric tones p.a.

PRE ACQUISITION CAPITAL STRUCTURE

25%

37.50%

A.V. Birla group

HPCL
Others

37.50%

3.7 Pie chart showing pre-acquisition capital structure of MRPL

35
 The pre-acquisition period of MRPL has undergone a lot of problems, continuous
loss for the 3 financial years from 1999-2000 to 2001-2002, for working capital
management and managerial aspects compelled MRPL to it look into the financial policy
of the company and come up with a solution. The company was facing severe
underutilization of capacity.
MRPL was facing severe cash flow problems by virtue of partner. Company
HPCL changing the settlement cycle for payment from 3 days to 20 days. The change has
impacted the refinery, which currently owes Indian Oil about Rs.450 crore for crude oil.
The two partners have never been able to sort out their differences and the slack demand
for petrol-products has added to the problems. MRPL has been straddled with surplus
petrol-products and had to export furnace oil at a loss. MRPL was denied duly free
imports of capital requirement and 100% of their crude oil requirements are imported.
They does not have an extensive export market. As a result their foreign exchange
outflows were much higher than their inflows. Currently the company is making
payment through letter of credit for supplies from Chevron. As a result of which they are
losing out on account of heavy foreign exchange fluctuations.

Aditya Birla group has sought to exit from MRPL, which has an asset base of
7000 crore, as it was posting huge losses in absence of marketing margins and raising
debt. MRPL which posted a loss of Rs.299 crore in 1999-2000, has recorded a loss of
Rs. 220 crore in the first 9 months of 2000-01. With debt equity ratio of 6:1. MRPL’s
total barrowings stood at Rs.5408 crore, of which short term borrowings were Rs.40/-
crores and the long-term loans from he banks were to the tune of Rs.1933 crore. The
financial institutions have a total exposure of Rs.1875 crore in the joint venture.

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

requirement of fresh capital, MRPL co-partner A.V. Birla group decided to exit the of the
tripartite MoU dated 26-6-87, “If India Rayon decides to sell its stake the first sight of
purchase should be given to HPCL and if it is not interested then the Indian Rayon stake
shall sell the joint venture company shares on the floor of the stock exchange or to a third
party that may be mutually agreed by HPCL and IRIL”.

36
 The investment committee constituted by both HPCL and Birla group is of the
view that the new management would have to modify the existing configuration of the
refinery to achieve value addition. According to initial estimates, it would require fresh
investments to the tune of Rs.1000 crore to improve the throughout of the refinery.
Another important consideration that the proposed improvement of MRPL is it would be
absolutely essential that ownership and operation of the Mangalore Bangalore Pipeline is
vested with HPCL.

The Government will have to help and intervene in the financial restructuring of
MRPL. It has to be made financially viable and steps would have to be initiated to
reduce the debt liability. Since the exist of the A.V. Birla group would not result in a
fresh infusion of capital into MRPL, the viable option for MRPL may be to convert it to a
subsidiary of HPCL. HPCL, having first right of referral was offered the stake at Rs.14-
Rs. 16/ share and sought governments help in procuring soft loans and equity infusion by
Oil Industrial Development Board.

HINDRANCES IN ACQUISITION OF MRPL

- Indian Oil had plans to fully to buy the stake of loss making unit MRPL but it was
strongly discouraged by two outside directors known as navratna directors on the
Indian Oil board to buy the Aditya Birla groups 27% stake in MRPL staking that
there is no justification in buying into the loss-marking refinery, specially with
international refining margins at all time lows.
- A.V. Birla group had initiated to sell the stake in MRPL with HPCL. Indian Oil
and Reliance for stake sale but could not close the deal because of ‘irresponsible’
price quotes. HPCL has evaluated MRPL’s share at Rs.1.60 while the A.V. Birla
Group had fixed the price range from Rs.14-17 per share.
- The feasibility of a margin option with HPCL was considered difficult in view of
the fact that the Central Government’s equity in HPCL is the threshold of 51.01
percent. The company would require an intervention by the Centre to seek
concessions and deferred payments facilities in the debt repayment.

POST ACQUSITION CAPITAL STRUCTURE

37
MRPL SHARE PRICE FROM 2000-2006

MRPL SHARE PRICES FROM 2000-2006

60
MRPL SHARE PRICES

50
40

30

20

10

0
31.03.00 31.03.01 31.03.02 31.03.03 31.03.04 31.03.05 31.03.06
YEARS

3.9 Chart showing MRPL share prices from 2000-2006

The MRPL stock shot up 5.44% to a high at Rs.13.15 in the year 2000. The stock
prices were up due to reports that Oil and Natural Gas Corporation (ONGC) is keen on
acquiring the 37.5% stake held by the Aditya Birla Group in MRPL. A total number of
1029485 shares were traded during the day of announce of ONGC acquiring MRPL. The
graph above shows a hike in the MRPL share price from the year 2000 to 2005. Share
price has been constant till 31-03-03 before the acquisition but the increased to new

38
levels after the acquisition by ONGC to Rs.54.6 in the financial years 2004 and a slight
dip in the share price in the year 2005. The sudden increase in the price levels is due to
the ONGC acquisition and writing off all the debts and losses, which MRPL has
acquired, in the due course of time. The debt equity ratio which was 6:1 has been
reduced to 1.02:1 and net profit increased to a new level of Rs.8797.58 million.

The company has earned net profit of 4594.15 million for the year 2003-04 as
against net loss of Rs.4118.06 million in the previous year. This achieving the turn
around in the very first year itself after becoming the subsidiary of ONGC. The company
is no longer a sick company as its accumulated losses have gone down below 50% of the
net worth as on 31st March 2004. The company has entered the elite club of top 30
companies by Market Capitalization at the Stock Exchange, Mumbai (BSE) on 17th Aug.
2003.
MARKET CAPITALIZATION

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

7th January 2004. Equity shares of the company are now treated under ‘A’ category at
BSE effective 1st March 2004.

The speed, the quality and the impact of MRPL’s turnaround are unprecedented in
India corporate history. The refinery has achieved 100% capacity utilization for the first
time and has been consistently operating well above the rated capacity. Against a loss of
Rs.4118.06 million in the previous year. MRPL registered net profit after tax of Rs.
4594.15 million in 2003-04. Of equal significance is the fact that the company which
was about to file bankruptcy under a crushing high cost were in the very recent fast is
now repaying even low interest loans extended by the parent company ONGC.

DEBT RESTRUCTURING PACKAGE

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

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

39
SALIENT FEATURES OF THE DRP

a) Rupee loans of Rs.600 crores were paid on 31-03-2003 out of equity of Rs.600
crore infused by ONGC.
b) Rupee term lenders and deferred payment Guarantee (DPG) lenders have
converted Rs.358.20 crore of their loans into equity. Rs.9.19 crores into 0.01%
non-cumulative redeemable preference shares and Rs.147.83 crore into secured
zero coupon debentures. Preference shares and CD are repayable into annual
installments at the end of 9th and 10th years from 1-7-02.
c) The interest rate of Rupee Term Borrowing has been reduced from average of
13.61% pa. to 9.15% p.a. payable in a skipped up manner to match the interest
payments with the projected cash flows.
d) DPG lenders have sanctioned term loans of Rs.1700 crore to meet the repayment
obligations towards principal and interest on foreign currency borrowing in the
future.
e) Debt equity ratio has come down from 9.77 to 3.45:1 on implementation of DRP.
Average DSCR post-DRP has been set at 1.57.
f) The term loans are repayable in 8 years after a moratorium of 4 years from 1-7-
02.
g) MRPL can repay the rupee term loans at any time without any repayment
premium.

BENEFIT TO ONGC BY THE ACQUISITION OF MRPL

- MRPL has accumulated losses of Rs.2800 crore over the part three years, which
can be set off against ONGC’s taxes thereby reducing its tax liability by 2000 crore.
ONGC with profits of over Rs.5100 crore, is one of the largest corporate tax payers in
India.
- ONGC’s strategy for the future, which envisages the company to be a vertically
integrated oil-major involved in every aspect of the value chain from oil exploration
and production to petrochemicals.
- The acquisition will mark the entry of ONGC, an oil exploration and product
company, into the down stream business of refining and marketing of petroleum
products.

40
 - It would enjoy the benefits of integration enabling it to employ competitive
pricing strategies in the marketing of the future.
- ONGC’s plans to acquire MRPL comes after it received the rights to market
petrol and diesel and hence benefiting the company by entering into the refinery
sector and opening retail outlets in South India.

BENEFIT OF MRPL

- The value of the MRPL script shot up in the last two years from Rs.7 to Rs.50 in
the stock market.
- The company has achieved a remarkable financial performance, earning a net
profit of Rs.8797.58 million up 91.50% from Rs.4594.15 million. The entire
accumulated losses of Rs.11845.05 million as on 31st March 2003, when ONGC
acquired management control of MRPL, have been wiped out in just two years.
- The parent company, ONGC has sanctioned a long term unsecured loan of
Rs.16,000 million at bank rate presently 6% p.a. during January 2004 to enable the
company to repay its rupee loans amounting to Rs.26,730 million carrying average
interest at 9.15% p.a. The company has already prepaid Rs.9000 million out of
Rs.24000 million loans actually availed from ONGC.
- MRPL has been marked as the 12th most valuable public sector company by
Business Today based on the financial results of 2003-04.
- At the same time of take over of MRPL by ONGC the debt equity ratio was
reduced to 3.45% under the DRP. This has now improved to a healthy 1.04% as on
31st March 2005.
- Based on the improved credit profile the company has been able to successful
raise unsecured short term working capital facilities of US$540 million at very
competitive LIBOR related interest rate during the year.

41
 - The company exported products (Motor spirit, Naphtha, Reformat, HSD, ATF,
FO, LSHS) worth Rs.61913 million during the year (up to 38% from Rs.44,775
million).

PRESENT SHAREHODING PATTERN OF MRPL

11%

17%
ONGC
HPCL
Others

72%

3.10 Pie chart showing present share holding pattern of MRPL

ONGC, which bought Aditya Birla Group’s stake in the loss making MRPL, has
hiked its stake in the company to 72% as on 11-07-2003 by exercising the call option for
MRPL shares held by various banks and financial institutions. ONGC hold the maximum
of 72% in MRPL making it the subsidiary of ONGC group and HPCL with 17%. The

42
others with 11%, which include Domestic and non-domestic companies, Resident and
Non-resident individuals, GIC and subsidiaries, Banks and Financial institutions and
Mutual funds.

MILESTONES ACHIEVED AFTER ACQUISITION

- Highest ever capacity utilization of 122% best among all refineries in India.
- Lowest ever fuel and loss of 6.53% best among all refineries of similar
complexity in India.
- First refinery in India to produce MS (petrol) HSD (Diesel) to Euro III
specifications.
- Lowest energy consumption among all refineries with similar complexity in India
–recognized by the centre for high technology, Ministry of Petroleum and Natural
Gas, Govt. of India.
- Efficient turn around of all primary and secondary units of 3.69 MMTPA (phase)
train in record time of 19 days.
- Highest ever turnover of Rs.206925 million and debt equity ratio improved to
almost 1:1.
- Highest ever net profit of Rs.8797 million- accumulated loss of Rs.11845 million
(when ONGC took over MRPL) was wiped out.
- Maiden dividend of 10% proposed.
- Recognition for outstanding achievement in safety management.

2ND QUARTER RESULT OF MAPL

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

- Turnover Rs.7244 crore (of 57% from Rs.4619 crores.
- Exports Rs.2019 crore (up to 27% from Rs.1587 crore)
- Throughout 3.11 MMT (up 11% from 2.79 MMT).
- Net profit Rs.116 crore (down 2% from Rs.169 crore)

MARKETING

43
The oil marketing PSUs – Indian Oil Corporation, Bharath Petroleum Corporation and
Hindustan Petroleum Corporation is marketing the entire 9.69 MTPA produce of petrol-
products from the refinery of ONGC’s subsidiary MRPL through its retail outlets.
Various initiates taken in the area of direct marketing have started showing results and
the company has secured entry into the HSD business of some very large consumers.
The Direct marketing sales have achieved almost 266% growth during the 2nd Quarter.
(Rs.187 crore against Rs.51 crore)

Chapter 4

Data Analysis
USE OF FINANCIAL RATIOS

To evaluate the financial performance of a company, the financial analyst needs certain
yard stick. The yard stick frequently used is a ratio of index relating to pieces of financial
data to each other.

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

Financial as well as operational performance of the Company reached new
heights of exvcellence during the year under review:
(1) MRPL has got highest - ever capacity utilization of 129% which is also the
highest among Indian refineries.
(2) Highest ever refinery Crude Thruput at 12.54 MMT
(3) Lowest specific Energy consumption at 63.8 MBTU/BBL.

Dividend:
The Board of the Company has decided to recommend higher divided of 8%
which will absorb Rs.140.23 crore excluding Rs.23.84 Crore as tax on Divident. Despite
substantial Imrpoved financial performance, the board has decided only a Marginal hike
in Divident payout keeping in view the large requirement of funds for the on going
refinery upgradation and explansion project, Involving capital expenditure of
approximate of Rs.8000 Crore.

RATION ANALYSIS:

44
 Ratio Analysis is a powerful tool of financial Analysis. A ratio is definded as
“The indicated quotient of 2 Mathematical exopression and as the relaionship between 2
or more things”

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

most widely used tool of financial analysis. Some Important financial ration’s on
the financial health and working of the Company are as follows:

1. CURRENT RATIO:

Current Asset
Current Liability

Year Current assets Current Liabilities Current Ratio

(In Million) (In Crores)
2003-04
2004-05 36849.15 26417.56 1.39
2005-06 37687.54 24568.47 1.53
2006-07 44618.43 31315.24 1.42

The ratio indicates the companys commitment to meet its short term
liabilities. An Ideal current ratio is 2. The ratio is considered as a safe margin of
the solvency. But in above situation MRPL’s financial stability is good since the
current assets exceed the current liabilities.

2. DEBT EQUITY RATION:

Long Term Debt

Shareholder equity

The debt equity ratio is determined to ascertain the Soundness of the long-term
financial policies of the company. At the time of take over of MRPL by OWGC,
the Debt equity ratio was reduced to 3.45:1, and is the 2005 it was Improvided to
1.06:1. In 2006 further Improved 0.87:1 and In the year 2007 the long term equity
ratio is 0.76:1.

45
 Year Long term debt Share Holder equity Debt equity Ratio
(In Crores) (In Crores)
2004-05 34665.33 17618.00 1.06
2005-06 33072.72 17618.04 0.87
2006-07 21056.87 27567.96 0.76

3. EARNINGS PER SHARE:

Net Profit available to equity holders
No. of ordinary shares outstanding.

Years EPS
2005 5.02
2006 2.12
2007 3.00

Earning per share for the year 2007 is 3.00 and for the year 2006 is 2.12
and 2005 is 5.02. But it shows that the earnings by equity share is increased from
2.12 to 3.00 is the last year.

4. RETURN ON ASSET:
PAT X 100 Pat
Total Asset Profit after Tax

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

Year Profit after Tax Total Asset Return on asset

(In Millions) (In Crores) Ratio
2004-05 8797.58 82762.44 10.63
2005-06 3716.15 83011.38 4.48
2006-07 5255.23 88555.83 5.93

Bibilography:

 MRPL, 19th Annual Report.

4.1 Chart showing the current Ratios from 2003 to 2006.

46
 The current ratio shows the ability of the firm to meet its current obligations. In
the year 03-04 the company has the highest ratio of 1.56 compared to 02-03 and 04-05,
which is only 1.39 as the current ratio. In the year 2003-04 the all current assets
(inventories, sundry debtors, cash and bank balance, loans and advances) were higher
compared to other financial years. A company having current aserts composed of
principally of cash and current receivables is generally regarded as more liquid than a
firm which current assets consists primarily of inventories. In the financial year 2005-
2006 the current ratio has gone up to 1.53% due to increase in inventory and cash
holdings.

QUICK RATIO

NET PROFIT RATIO

47
 Net Profit Ratio

4.75
4.03
6
4 1.48
Percentage
-5.11
2
0
-2
-4
-6
2002 - 2003 2003 - 2004 2004 - 2005 2005-2006
Years

4.4 Chart showing net profit ratio.

The net profit margin gives the relative efficiency of the firm after taking into
account all the expenses and income taxes but not extraordinary charges. In the financial
year 2002-03 being a net loss shows a ratio negative ratio of -5.11 but the ratio shows an
increasing trend and increases during the year due to the increase in profits and a
considerable increasing in the sales after 2002-03. In the financial year 2004-05 net profit
was high i.e., 4.75. But in the financial year 2005-06 it came down to 1.48% due to the
high operating cost.

TURNOVER

48
Turnover of MRPL from 2003 to 2006.

Turnover
282428.64
300,000.00
250,000.00 206925.5

200,000.00
Millions 126122.24
150,000.00
85,807.77
100,000.00
50,000.00
0.00
2002-2003 2003-2004 2004-2005 2005-2006

Year

4.5 Chart showing turnover of MRPL from 2003-2006.

The turnover of MRPL has increased tremendously from 2003 to 2006. There has
been a 64% increase in the turnover from the year 2004-2005. The turnover of MRPL
shows an increasing trend. Here the turnover is inclusive of the excise duty for all the
financial year from 2003-06.

EARNING PER SHARE

49
Earning per share of MRPL for the last four years

EPS

5.02
6 3.62
2.12
4 -5.15
2
Rupees

0
-2
-4
-6
2002-03 2003-04 2004-05 2005-06
Year

4.6 Chart showing EPS

EPS measures the profit available to the equity shareholders on a per share basis,
that is, the amount they can get on every share held. It shows the profitability of the
company and amount of earnings attributable to each equity share.
The earning per share of the company has gone up to 5.02% in the financial year
2004-05 compared to the last two years. In the financial year 2004-05 the profit has gone
up to 8798.58 million after tax compared to 4594.15 million during the financial year
2003-04. There has been considerable increase in the profit after tax due to which the
earning per share of the company has gone up in the year 2004-05. But in the current
financial year 2005-06 PAT has come down and also the earning per share.

DEBT EQUITY RATIO

50
 Debt equity ratio

3.8
4
3.5 2.36
3
Perc

2.5
enta
ges
2 1.06
1.5 0.87
1
0.5
0
2002 - 2003 2003 - 2004 2004 - 2005 2005-2006
Years

4.7 Chart showing the debt equity ratio

The debt equity ratio shows the credit worthiness and financial risk of the firm.
The debt equity ratio of MRPL shows a decreasing trend. In the financial year 2002-03
the company had high debt equity ratio by borrowing from banks and other financial
institutions and debt constituted the major part in financing the operations of the
company but later on in the next financial years the role of debt was reduced considerably
by ONGC and paying of most the debt by MRPL with the help of ONGC and inducting
more money by grants and subsideries from Government and presently the company is
having a debt equity ratio of 0.87:1.

SUNDRY DEBTORS TO SALES

51
 Sundry debtors to sales

7.12
8
7 5.43
4.69
6 4.16
Percentages 5
4
3
2
1
0
2002 - 2003 2003 - 2004 2004 - 2005 2005-2006
Years

4.8 Chart showing sundry debtors to sales

Percentage sundry debts to sales were highest in the year 2004 because sundey
debtors considered good has gone up to Rs.8093.31 million and only Rs.19.75 million
was considered doubtful and the lowest in the year 2003 with 4.16%. In the financial year
2005 it has been reduced to 5.43% because of increase in the doubtful debts going up to
449.19 million. And further decreased to 4.69% in the financial year 2005-2006. In the
financial year 2005-2006 Rs.11530.20 million worth sundry debtor considered good and
Rs.181.12 million worth sundry debtors considered doubtful. Overall it indicates the
effectiveness of credit policy pursued by the company.

CAPACITY UTILIZATION

52
 Capacity Utilization

122 125
140
104
120
100 75
80
Percentages
60
40
20
0
2002-03 2003-04 2004-05 2005-06

Years

Chart showing capacity utilization

The above chart shows the capacity utilization by the company. Over the years it has
been increased considerably. During the financial year 2005-06 it has gone up to 125%.

Chapter 5

53
BALANCE SHEET AS AT 31ST MARCH, 2007

PARTICULARS As at As at At at
31.03.2007 31.03.2006 31.03.2005
(Rs. In (Rs. In (Rs. In
Millions Millions Millions

I. SOURCES OF FUNDS
SHAREHOLDERS’ FUNDS
Share Capital 17,618.04 17,618.04 17,618.00
Reserves and Surplus 9,949.92 6,335.35 4,018.33
LOAN FUNDS
Secured Loans 4,378.23 5,797.13 8,934.37
Unsecured Loans 19,304.84 27,275.59 25,730.96
DEFERED TAX LIABILITY 5,989.56 1,371.34 -
(NET)
TOTAL 57,240.59 58,397.45 56,301.66

II. APPLICATION OF FUNDS

FIXED ASSETS
Gross Block 73,041.31 67,793.61 67,401.91
Less: Depreciation 30,363.80 26,834.85 23,353.45
Net block 42,677.51 40,958.76 44,048.46
Capital work-in-progress 987.09 4,092.30 779.77
43,664.60 45,051.06 44,828.23
INVESTEMENTS 272.80 272.78 -
CURRENT ASSETS, LOANS
AND ADVANCES
Inventories 24,982.71 18,907.71 19,116.17
Sundry Debtors 11,948.66 11,530.20 9,607.98
Cash and Bank Balances 1,328.97 51.86 91.63
Other Current Assets 18.38 3,783.00 3,781.64
Loans and Advances 6,339.71 3,415.47 4,252.73
44,618.43 37,687.54 36,849.15
Less: CURRENT LIABILITIES
AND PROVISIONS

54
 Current liabilities 29,499.96 22,789.19 23,671.33
Provisions 1,815.28 1,824.74 2,789.45
31,315.24 24,613.93 26,460.78
Net Current Assets 13,303.19 13,073.61 10,388.37
TOTAL 57,240.59 58,397.45 56,301.66

PARTICULARS 2007 2006 2005

Rs. In Rs. In Rs. In
Millions Millions Millions
INCOME
Income On Operations
Sale of Products (Gross) 323,768.75 282,428.64 206,925.50
Less: Excise Duty
Sale of Products (Net)
Other Income
Increase/ (Decrease) in stocks

EXPENDITURE
Raw Materials consumed
Operating & Other Expenses

PROFIT BEFORE INTEREST,

DPRECIATION & TAX
Interest and Finance Charges
Depreciation/ Amortization
Miscellaneous Expenditure written off

PROFIT BEFORE TAX

Provision for Wealth Tax
Provision for Income Tax:
• Current Tax
• Fringe Benefit Tax
• Prior Years’ tax adjustment
• Deferred Tax

55
 FINDINGS
- The company was facing severe underutilization of capacity and severe cash flow
problems by virtue of partner.
- In the financial year 2002-03 the company had high debt equity ratio of 3.8 by
borrowing from banks and other financial institutions and debt constituted the
major part in financing the operations of the company.

56
- The net profit ratio shows an increasing trend from the year 2003 to 2005. The
net ratio which was -5.11 in the year 2003 rose to 4.75 in the year 2005 and shows
the efficiency of the firm.
- The earning per share of the firm has increased from 2003 to 2005. In the year
2002-03, the ratio shows a negative of -5.15 as due to loss company has incurred
in the same period. The next 2 financial plans shows an increase resulting in
improvement in the earning power of the firm, this increase is due to the increase
in the turnover and increase in the profits and the year 2005 it is 5.02.
- The capacity utilization has increased from 56.52% in the financial year 2001-02
to highest ever-capacity utilization of 122% best among all refineries in India
during the financial year 2004-05.
- There is an increase in Raw-materials stock by 121% over previous year during
financial year 2004-05 and closing stock is 12 days requirement.
- Share price has been constant till 31/3/2003 before the acquisition but increased to
new levels after the acquisition by ONGC.
- MRPL earned a net profit 371.6 crore (down from Rs.800 crore) after making
provisions for financing and interest charges of Rs.188 crore (Rs.230 crore),
depreciation of Rs.350 crore (Rs.378 crore) and deferred tax / current tax liability
of Rs.251 crore (Rs.81 crore).
- The debt was reduced considerably by ONGC and presently the company is
having a debt equity ratio of 0.87:1.
- In the year 2005-06 EPS has come down to 2.12 as the profit after tax has come
down.
- In the financial year 2005-06 the net profit ratio has come down to 1.48%.
- Reduction in net profit is mainly due to:
(i) Discount on products (MS, HSD, Kerosene (PDS) and LPG
(Domestic), advised by PSU OMCs (IOC/BPC/HPC)
(ii) Reduced product off take (43% against 55%) by the OMCs in
domestic market having higher margins.
(iii) Reduction in refining margins in line with global trend.
- During the financial year2005-2006 the operational performance of the company
has reached new heights of excellence:

57
 - Highest ever capacity utilization of 125% which is also the highest among
all refineries in India.
- Highest ever turnover of Rs. 28243 crore and highest ever export earning
of Rs. 11917 crore.
- Debt equity ration improved to 0.87:1.

SUGGESTIONS AND RECOMMENDATIONS

- Presently most of the refining products are used in the domestic market and
constitute a major part. Steps should be undertaken to export more of refined
products to international markets and getting maximum revenue out of the report.

58
 - Actions have to be taken to increase the refinery capacity from the present 9.69
MMT p.a. to 15 MMT p.a. Therefore the company has to provide with additional
capacity and value addition.
- Price earning ratio of the company has gone down from the financial year 2005-
06 due to decrease in the market price and increase in he earning per share. An
investor while looking to invest price – earning capacity of the firm is one major
factor the investor looks into before investing and the company has to improve its
share price.
- To avoid new loans from financial institution and banks for the next couple of
years till the company achieves consistency and clearing of all its commitments
and it also avoid the debt burden in the long run.

Chapter 6

CONCLUSION
MRPL was initially set up as a joint sector company promoted by Indian Rayon
and Industries Ltd. and its associates (forming part of Aditya Birla Group) and

59
Hindustan Petroleum Corporation Ltd., a public sector company. Later company started
incurring huge losses due to low capacity utilization, high cost of debt, increase in
operating expenses etc. In the year 2003 ONGC came to the aid of loss making
company. After ONGC took over MRPL, it started earning profit. Operational as well
as financial performance of the company has reached new hights of excellence during
the year 2004-2005, such as highest ever capacity utilization of 122% best among all
refineries in India, first refinery in India to produce MS (Petrol) and HSD (Diesel) to
Euro III specification, highest ever turnover of Rs. 206925 million, highest ever export
realization of Rs. 61913 million, lowest ever interest and finance cost of Rs. 2296
million debt – equity ratio improved to almost 1:1, highest ever not profit of Rs. 8797
million and accumulated losses of Rs. 11845 million (when ONGC took over MRPL)
wiped out.
But during the financial year 2005-06 there is a slight decrease in the net profit
and ERS of the company. But the has growth plans such as, implementation of the
ISOM project for up gradation of facilities to produce Motor Sprit (petrol) of
Euro III/IV quality and Mixed Xylene Project for producing value added Mixed Xylene
and MRPL/ONGC Board have approved the Refinery Up gradation Project, which will
enhance refining capacity to 15MMTPA (at present 9.69MMTPA).

BIBLOGRAPHY

60