Professional Documents
Culture Documents
ON
EVALUATION OF CASH MANAGEMENT AT INDIAN OIL
CORPORATION ALONG WITH A FINANCIAL STATEMENT
ANALYSIS
Project Report submitted towards partial Fulfillment of
Master of Business Administration
2013-2015
DIRECTORATE OF DISTANCE
EDUCATION
SUBMITTED TO:
SUBMITTED BY:
MR. AMIT KUMAR GUPTA
( FACULTY GUIDE)
JAYSHREE ADWANI
MBA 2nd Year
ROLL NO. 1302000124
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DECLARATION
I, Jayshree Adwani, hereby declare that this research project report entitled:
Date:
JAYSHREE ADWANI
ROLL NO. 1302000124
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EDUCATION
Certificate
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ACKNOWLEDGEMENT
JAYSHREE ADWANI
ROLL NO. 1302000124
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Table of contents
S No.
Topics
Page No.
Declaration
Acknowledgement
Executive Summary
Objectives
24
Research Methodology
25
Financial Analysis
8-23
26-40
41-53
B. E- Collection
54-59
60-69
10
Conclusion
11
Suggestion
71
12
Reference
72
13
Annexure
73-80
70
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Executive Summary
This project seeks to evaluate the Cash Management at Indian Oil Corporation along
with a financial statement analysis in understanding the profitability, liquidity &
efficiency of the firm.
The company uses system called Cash Management Product (CMP) to get information
related to its cash information. This system performs the required function of
speeding up the cash receipts and payments as well as provides for greater
accountability which enables the management at the top to take efficient decisions in
regards of the liquidity available.
State Bank of India (SBI) is one of the main bankers of Indian Oil and provides various
facilities. IOC is one of the main customers of SBI. HDFC is also among the bankers to
Indian Oil and its customers. Though most of IOCs customers cater to the services of
SBI, there are a few who prefer to carry out their transactions from HDFC bank.
Hence Indian Oil Corporation has appointed HDFC as their second banker which also
helps them during contingencies.
Indian Oil has around 500 locations around India which serve as an outlet for the
finished products. Payments are made to these locations on a day to day basis. This
project provides an understanding to the facilities provided by SBI to Indian Oil at
various locations.
During the year 2007, Indian Oil started the concept of Electronic Collections (e
Collections) facility with a view of speeding up the payment procedures for the
purchasing party wherein the delivery of the product can be taken within 15 30
minutes whereas in the case of physical payment, the delivery would take place only
after clearing of the particular instrument.
And lastly, a financial statement analysis of the firm so as to identify its financial
strengths and weaknesses based on a ratio analysis model.
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Beginning of
Petroleum
Refining in India
Digboi became the birth place of
Indis oil industry
In 1890s, crude oil distillated at Margherita, 16 km away from Digboi, in cast
iron pans, called Stills
Digboi Refinery of Assam Oil Company (AOC) commissioned
location in 1901 with 500 bbl/day capacity
at its present
AOC nationalized and its Refining and Marketing functions merged with IOC in
October, 1981
Digboi refinery is one of the oldest refinery in the world that is still working.
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Retail
Market
share
IOCL
group
46.2
BPCL
18.6
HPCL
16.5
OTHERS
2.2
Market size
India has total reserves of 775 million metric tons (MMT) of crude oil and 1074
billion cubic meters (BCM) of natural gas accordingly as on April 1, 2010, as per
the basic statistics released by ministry of petroleum and natural gas.
Petroleum exports during 2009-10 were US$ 26.2 billion. In the eighth round of
NELP, 1.62 Sq Km area will be covered comprising 70 Blocks. Out of 70 Blocks,
36 Blocks have been awarded under NELP VIII, according to economic survey
2010-11.
Today there are about total 18 Refineries in the country comprising 17 in the
Public sector, one in Private Sector. There are 17 public sector refineries
located at Guwahati, Barauni, Haldia, Mathura, Digboi, Koyali, Panipat,
Vishakapatnam, Chennai, Nagapatinam, Kochi, Bongaigoan, Numaligarh,
Mangalore, Tatipaka and two other refineries in Mumbai. The Private Sector
SIKKIM MANIPAL UNIVERSITY
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Differentiation
Indian oil is pioneer in launching state -of- the art petrol stations with digital
dispensers, modern canopies, standardized signage and effective lighting system
way back in the mid-1990s. The new retail-branding template introduced by indian oil
set in motion a revolution in the petroleum retail business in the country. Following
are the evidence of differentiation by IOCL.
Indian Oils XTRA care E branded full service petrol stations is a result of a
series of processed in retail design, product and service up gradation ,
capability training, automation, Loyalty Programs, retail site management
techniques, all bench marked to global Standards. Today Xtra Care Petrol
stations are synonymous in India with world class Petroleum retailing.
IOCL has formed a promotional alliance with Kisan Seva Kendras for Promotion
in Rural areas. IOCL presents sport scholarship awards to nurture talented
young sport persons across all the streams.
Indian Oil has also setup the Indian Oil Foundation (IOF) as a non Profit Trust to
Protect, Preserve and promote national Heritage Monuments. IOCL provide
Merit-Cum-Means Scholarship to bright student selected on Merit-Cum-
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Means Basis. For each academic year, 450 Scholarship covering the first year
students of 10+/ITI, Engineering, MBBS and MBA.
Technology
In todays dynamic business environment, innovation through a sustained
process of research and development (R&D) is the only cutting edge tool for
organizations to thrive. Indian oil has, till date, invested close to Rs. 1000 crore
in setting up world-class facilities at its R&D center and it plan to invest about
Rs. 500 crore during the period of 2007-12 to maintain its leadership in
downstream R&D in the hydrocarbon sector. This is the reason, thats why IOCL
have the Indias first experimental H-CNG (Hydrogen-Compressed natural Gas)
dispensing units at the R&D centre campus at Faridabad and has been in the
forefront of technology development for Bio-Diesel production from various
edible and non-edible oil and its application in vehicles. Pioneering studies by
Indian oils R&D centre established that Bio-diesel produced from Jatropha
seeds were at par with the produced from vegetable oils.
Competition Analysis
Product Differentiation
Indian oil is pioneer in launching state -of- the art petrol stations with digital
dispensers, modern canopies, standardized signage and effective lighting system
way back in the mid-1990s. the new retail-branding template introduced by indian
oil set in motion a revolution in the petroleum retail business in the country.
Following are the evidence of differentiation by IOCL.
Xtra Care
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Indian Oils XTRA care E branded full service petrol stations is a result of a series
of processed in retail design, product and service up gradation , capability
training, automation, Loyalty Programs, retail site management techniques, all
bench marked to global Standards. Today Xtra Care Petrol stations are
synonymous in India with world class Petroleum retailing. While the industry
standard is to take samples on quarterly basis, Indian Oil has moved several steps
ahead by introducing fortnightly random sampling with specific importance given
to RON (Research Octane Number) sampling which is truly the definitive test for
quality and quantity. The surveillance audits by BV are being done on a more
comprehensive basis. The Scale and Spread of Xtra care pumps is also an Industry
record. Another vital differentiator in the Indian Oil Xtra Care is the importance
given to the frontline customer attendants. They are trained at three levels of
competencies customer service, Personal Hygiene/grooming and customer
complaint redressers. Xtra Care Dealers also undergo extensive training on Retail
Sale Business Management.
IOCL has much opportunity ion the present market conditions. This is because the
petroleum products are become a need for everyone and still contains a lot of scope
for customization. The various opportunities are listed below
Since the company has the maximum number of outlets and also the maximum
no. of refineries in India, it can very easily go for extension at any point of time,
and can introduce any new products, which will get from its huge market
network.
The company can make the buying process easier for the customers, by
implying many more schemes in the range of XTRAPOWER AND
XTRAREWARDS.
The company can think over the issue to build its own pipelines, so that it will
be an independent players and it will also support its aviation fuel supply.
Company has a great scope in E&P. It is already involves in E&P but only in a
very Limited Scale.
Industry/products/market Analysis
Product
1. SERVO
SIKKIM MANIPAL UNIVERSITY
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With over 42% market share and 450 grades, the SERVO range of lubricants
is used in almost every application covering automotive, industrial and
marine sectors.
2. INDANE LPG GAS
Indian oil Indane LPG Gas is used in 40 Million homes as cooking fuel and
commands over 48% market share in India.
3. INDIAN OIL AVIATION SERVICE
Indian oil aviation service has a market share of 65% with a network of 95
Aviation Fuel station meets complete Aviation fuel requirements of the
Defense Services.
4. AUTO GAS
It has been introduced in Hyderabad, Bangalore and Mumbai markets.
5. PREMIUM FULES
XtraPremium is the only petrol in India with 91 Octane.
XtraMile, High Speed Diesel with world-class additives has taken a
leadership.
6. XTRA POWER
It facilitates cashless purchase of fuel & lubes for designated retail of Indian
oil.
7. swagat HIGHWAY FLAGSHIP RETAIL OUTLET
Non-fuel offers through Best-in-class alliance on exclusive basis wherever
possible.
8. XTRA CARE
Its a series of plans in retail design, product and service up gradation,
capability training, loyalty programme, retail site management technique all
benchmark to global standards.
Price
As per the Government regulations, all the players in downstream petroleum sector
have to maintain same prices, in fact Subsidize the mail commodities like Motor
Spirit, High Speed diesel, Kerosene and LPG. For the subsidized products government
allots Oil bonds to PSUs in order to partially compensate for the under-recoveries
SIKKIM MANIPAL UNIVERSITY
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and to some extent upstream Oil Companies (ONGC, Oil). In This way IOCL has
overall cost leadership vis--vis private players.
SWOT ANALYSIS
Strength
1. Indias higest ranked Fortune 500 Company and a market leader with 50%
share of production products.
2. IOCL controls 10 refineries by virtue of which it has total share of round 34% of
Indias overall refining capacity.
3. There are more than 35600 sales point all over India which is 55%.
4. Strong brand name for its products for example SERVO which covers 42%
market shares.
5. Excellent credibility and international cooperate image for raising funds.
Weakness
1. The functioning of IOCL is influenced by Government policy as govt. have 82%
stake of the company. So, there is always a risk of its proposal being rejected
as there is uncertain political environment prevailing in the country.
2. The advertisement strategy is not effective.
Opportunities
1. Distribution of alternative products through existing retail network can be
chalked out.
2. With gas emerging as an alternative fuel due to twin benefits of pollution
and better economics.
3. Enhancement of distribution network must be made especially in the
deficit regions.
4. Improvements of customer management service at the retail end
Threats
1. Increase in number of players, specialization in lube market.
2. Introduction of CNG in some metro cities can reduce the demand of
petrol and diesel in the near future.
SIKKIM MANIPAL UNIVERSITY
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MERGER
Indian Refineries Ltd.
1958
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COMPANY OVERVIEW
INDIAN OIL CORPORATION LTD
IOC (Indian Oil Corporation) was formed in 1964 as the result of merger of Indian Oil
Company Ltd. (Estd. 1959) and Indian Refineries Ltd. (Estd. 1958).
Indian Oil Corporation Ltd. is currently India's largest company by sales with a
turnover of Rs. 408924.03 Crore, and profit of Rs. 4225.98 Crore for fiscal 2012.
Indian Oil Corporation Ltd. is the highest ranked Indian company in the prestigious
Fortune Global 500. It is ranked at 83 rd position in 2010. It is also the 20th largest
petroleum company in the world.
Indian Oil and its subsidiaries today accounts for 49% petroleum products market
share in India.
Indian Oil group has sold 59.29mn tonnes of Petroleum including 1.74mn tonnes of
natural gas in the domestic market and exported 3.33mn tonnes in the yr 2011-12.
IOCL GROUP
IOCL Group consists of Indian Oil Corporation Ltd. and the following subsidiaries:
VISION OF IOCL
A major diversified, transnational, integrated energy company, with
national leadership and a strong environment conscience, playing a
national role in oil security & public distribution.
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MISSION OF IOCL
IOCL has the following mission:
To cultivate high standards of business ethics and Total Quality Management for
a strong corporate identity and brand equity.
To help enrich the quality of life of the community and preserve ecological
balance and heritage through a strong environment conscience.
VALUES OF IOCL
Values exist in all organizations and are an integral part of any it. Indian Oil nurtures
a set of core values:
CARE
INNOVATION
PASSION
TRUST
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To serve the national interests in oil and related sectors in accordance and
consistent with Government policies.
To minimize fuel consumption and hydrocarbon loss in refineries and stock loss
in marketing operations to effect energy conservation.
To avail of all viable opportunities, both national and global, arising out of the
Government of Indias policy of liberalization and reforms.
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IOCL
Indian Oil Corporation Limited (Indian Oil) owns and operates a network of crude oil
and petroleum product pipeline in India. It has two divisions: Refineries Division and
Marketing Division. The Refineries Division is focused on managing the public sector
refineries and the Marketing Division is focused on distribution not only the entire
production of public sector refineries but also the deficit products imported. It is
organized in two segments: sale of petroleum products, and other businesses, which
comprises sale of imported crude oil, sale of gas, petrochemicals, explosives and
cryogenics, wind mill power generation and oil and gas exploration activities jointly
undertaken in the form of unincorporated joint ventures. The Digboi Refinery of
Assam Oil Division processed 0.623 million metric tons (MMT) of crude oil during the
year. The Division sold about 1.067 MMT of products. IBP Division comprises the
explosives and cryogenics business.
SIKKIM MANIPAL UNIVERSITY
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ORGANIZATIONAL STRUCTURE
The whole of Indian Oil Corporation (IOC) works under Corporate Office located at
New Delhi. It follows hierarchical structure where the decision flows from top to
bottom and the data flows from bottom to top. Under the corporate office there are 5
divisions namely- Pipelines, Refineries, R&D, Marketing & Assam oil division. The
Marketing division located at Mumbai co-ordinates with the regional offices i.e. North,
South, East & West Region office, the other Divisional Offices & SBI for decisions
regarding investments. The Regional offices co-ordinates with respective state office
that in turn co ordinates with respective location offices.
Corporate
Office
New Delhi
R&D
Pipeline
s
Division
Noi
Division
Marketi
ng
Division
Refinerie
s Division
New Delhi
NR
ER
WR
SR
New
Delhi
Kolkata
Mumbai
Chennai
Assam
Oil
Division
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OBJECTIVES
To study and analyze all the details of Cash Management Product (CMP) facility
provided by SBI.
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RESEARCH METHODOLOGY
The study conducted is investigative in nature that is to say it probes into the cash &
banking department at Indian Oil figuring out its major functions with the help of
secondary sources of data available from the department itself.
The major parameters of the methodology include:
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Ratio Analysis
The ratios analysis is the most powerful tool of financial statement analysis. Ratios
simply mean one number expressed in terms of another. A ratio is a statistical
yardstick by means of which relationship between two or various figures can be
compared or measured. Ratios can be found out by dividing one number by another
number. Ratios show how one number is related to another.
Profitability Ratios:
Profitability ratios measure the results of business operations or overall performance
and effectiveness of the firm. Some of the most popular profitability ratios are as
under:
Operating ratio
Expense ratio
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Liquidity Ratios:
Liquidity ratios measure the short term solvency of financial position of a firm. These
ratios are calculated to comment upon the short term paying capacity of a concern or
the firm's ability to meet its current obligations. Following are the most important
liquidity ratios.
Current ratio
Liquid / Acid test / Quick ratio
Activity Ratios:
Activity ratios are calculated to measure the efficiency with which the resources of a
firm have been employed. These ratios are also called turnover ratios because they
indicate the speed with which assets are being turned over into sales. Following are
the most important activity ratios:
Debt-to-equity ratio
Proprietary or Equity ratio
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BPCL
HPCL
2012
2011
2010
3.45
2.71
4.76
0.93
2.32
2.89
1.19
1.14
1.2
The gross profit margin has fallen marginally from last year due to the rise
in the cost of expenditure incurred.
2012
2011
2010
IOCL
1.02
2.22
3.74
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BPCL
0.39
1.01
1.26
0.50
1.14
1.20
HPCL
The Net profit margin has fallen considerably due to the fall in gross profit
margin and fulfillment of other obligations by IOCL.
Return on Equity:
Measures the income earned on the shareholder's investment in the business.
Net Earnings
Shareholders Equity
Ratio
IOCL
BPCL
HPCL
2012
2011
2010
10.17
13.45
20.22
10.49
13.24
11.00
12.26
11.74
11.25
A business that has a high return on equity is more likely to be one that is
capable of generating cash internally. For the most part, the higher a
company's return on equity compared to its industry, the better. The
Industrial ROE is placed at 5%. Indian Oil is performing at below the
industrial trends, which means that in order to generate higher wealth,
they need to generate higher ROE.
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Ratio
IOCL
BPCL
HPCL
2012
2011
2010
12.83
10.32
15.83
9.03
9.84
11.11
6.37
7.93
9.20
The ROCE is higher than the rate of borrowings by the company so this
does not pose any serious threat to the shareholders earnings.
2012
2011
2010
1.25
0.80
0.76
0.74
0.72
0.72
0.79
0.77
0.74
The ideal current ratio for any firm is 2:1. Indian Oil carries a big risk of not
having enough cash reserves for meeting its short term obligations.
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2012
2011
2010
0.71
0.51
0.45
0.59
0.51
0.68
0.14
0.44
0.43
The ideal Quick ratio for any firm is 1:1. Indian Oil fails to achieve that
target by a huge margin.
Before moving forward with the concept of Activity and leverage ratios, it
is vital to understand the concept of debt management at Indian oil.
Debt Management at Indian Oil Corporation:
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OBJECTIVES:
Indian Oil Corporation uses innovatively designed loan structure which would help
them manage their working capital requirement in the most efficient manner. The
loans are linked MIBOR, pre-payment options, interest resets, CBLO, Cross-currency
swapping.
Post deregulation of the oil sector foreign currency risk is to be borne by IOC.
Interest differential between Cash credit facility and other working capital loans
have increased considerably.
Endeavor to minimize utilization of CC limit while also avoid surplus balances.
Maximize utilization of FE loans in view of appreciating rupee and low interest
rates.
Accurate cash flow projections for optimum utilization of funds.
DOMESTIC
Short term
Cash credit/overdraft
MIBOR, T-Bill
linked
loans
SIKKIM MANIPAL UNIVERSITY
OVERSEAS
Short term
Buyers credit
Suppliers credit
Revolving lines of credit
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FCNR (B)
Long term
Term Loans - Bilateral
Syndicated Term Loan
Bonds
Export credit backed financing
Long term Notes in Overseas
Market (USPP)
LIBOR stabilized at low levels, having followed southward trend till March 12.
Having decreased the rates gradually, Fed maintaining status-quo of late.
High inflation & large capital market outflows causing the rupee to depreciate
against US$
The main objective of Indian Oils debt management module is the minimization of
the debt cost. For this purpose the follow certain strategies which help them
achieving this target:
Long Term rupee borrowings to be a judicious mix of fixed, floating & semifixed.
Tapping domestic and international market for maintaining optimum proportion
of FE & rupee loans as well as fixed/floating interest rates taking advantage of
interest and exchange rate movements.
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2012
2011
2010
6.86
7.56
8.37
10.35
10.76
11.09
8.52
8.68
9.13
This figure indicates a high rate of inventory turnover. Indian Oils Sales are
booming.
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Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of
debt collection of a firm. In simple words it indicates the number of times average
debtors (receivable) are turned over during a year.
Credit Sales
Average Debtors
Ratio
IOCL
BPCL
HPCL
2012
2011
2010
42.58
45.15
45.91
53.39
56.63
58.81
51.81
52.33
45.87
This figure shows how rapidly IOCL collects its receivables. Since IOCL deals
with thousands of big customers both within and outside the country, the
days of receivables collections are different. Such a high ratio is indicative
of shorter time lag between credit sales & cash collection.
2012
2011
2010
3.61
3.78
4.98
5.16
4.75
5.98
4.53
4.29
6.22
Analysis
High trend is maintained by the BPCL and HPCL during the initial
year but eventually it decreases towards the end.
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IOCL has the lowest fixed asset turnover ratio which shows
inefficiency.
2012
2011
2010
1.24
0.95
0.88
1.69
1.35
1.70
2.87
1.99
1.84
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A ratio used to determine how easily a company can pay interest on outstanding
debt. The interest coverage ratio is calculated by dividing a company's earnings
before interest and taxes (EBIT) of one period by the company's interest expenses of
the same period.
EBIT
Interest
Ratio
IOCL
BPCL
HPCL
2012
2011
2010
2.62
5.23
9.03
1.71
1.76
1.53
3.17
2.95
2.02
Looking at this figure form the point of view of lenders of IOCL, the larger
the coverage, the greater is the ability of the firm to handle fixed charge
liabilities and more assured is the payment of interest to them. However,
too high a ratio may imply unused debt capacity. In contrast, a low ratio is
a danger signal that the firm is using excessive debt and does not have the
ability to offer assured payment of interest to the lenders. On making a
comparison with the industrial average figure of 2.65, IOCLs interest
coverage ratio seems to foot the bill exactly.
2012
2011
2010
16.29
30.67
42.10
36.27
42.78
42.53
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HPCL
26.92
45.45
38.43
Analysis
IOC has lowest amount of EPS during the mentioned year except in 2010, might
be due to the reason that it has up going market shares prices as it is
concerned.
So IOCL in 2012 has not able to attain much good response from investors in
term of return.
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To optimize interest rate risks and costs following parameters are applied to
each FC loan separately
Floating rates: minimum 25% of outstanding loans
Fixed rates: minimum 25% of outstanding loans
Balance amount: fixed/floating depending on views
Long term rupee borrowings to be a judicious mix of fixed, floating & semi-fixed
Policy to be constantly reviewed by Indian Oils consultants.
Selective hedging of long term foreign currency loans in addition to short term
To increase hedging of total foreign currency loans exposure in case of sharp
appreciation of rupee with the approval of Director(F)
To hedge through forwards & options
Hedging considering overall cost of loan including forward/option premium
within cost of rupee loan
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THE PROJECT
CASH MANAGEMENT & BANKING SYSTEM
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the various credit facilities and the other banking needs of the corporation. CAG of
SBI operates with network of branches called "CAG Branches" in all the Metro Cities.
The co-ordination between SBI and IOC is done from the HO-Marketing Mumbai.
The Credit Facilities provided by SBI to Indian Oil can be summarized as follows:
effect in a single
involves a lot of
accounts IOC has
own advantages
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For effective forecasting, managers at Indian oil require credible information from
multiple sources. The sources of information for daily updation of accruals and
refinement of projections can be given as follows:
570 collection centers with SBI in 250 locations most of the centers have CMP
(Cash Management Product) facility.
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460 total withdrawal account with SBI about 150 special withdrawal account
with the facility of
transferring the balance at the end of the day to the
centralized cash credit account with SBI, Mumbai.
30 collection centers in North India. All the centers have CMP (Cash
Management Product) facility
1 withdrawal Account in Delhi
The major problem or bottleneck faced by the cash management department is the
huge variance between the budgeted receivables and the actual accruals. The prime
reasons why variances occur are:
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Keeping the above considerations in mind, SBI, Indian oils primary banker,
introduced a module known as CASH MANAGEMENT PRODUCT or CMP. CMP is a
facility provided by SBI, whereby the collections and withdrawals from the branches
all over India are transferred via electronic mode to the Cash Credit Account in
Mumbai.
The CMP facility can be divided into two Main Modules:
The Credit Module of CMP: This Module deals with the Collection
Proceeds.
The Debit Module of CMP: This Module deals with the Withdrawals.
Under CMP, no new account is opened. On receipt of the request for a new account
for a particular location, the HO Finance gets a separate client code allotted to the
location through CMP Cell Mumbai. Such Client code is unique for each location.
The CMP Charges are divided into 3 broad categories:
0.01 / 100 for all the Metros i.e. A Class City
0.05 / 100 for all the B Class Cities (that includes mainly Capital Cities)
0.12 / 100 for all the C Class Cities (this includes all the other locations not included
in the above 2 categories)
The CMP Module provides convenience to the Company in the sense that all the
decentralized information flows to the company in a centralized manner through very
fast modes and accordingly the company can have precise information of where the
funds are and how to utilize them more efficiently.
Collection Account
Special Current (Withdrawal) Account
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COLLECTION ACCOUNT:
This account is opened at all the branches / locations/ depots etc. or at any place
from where IOC collects its money from customers or other parties.
Important Terms:
DCR (Daily Collection Report): IOC has a completely different system of
depositing their cheques into bank. Instead of filling in bank slip book they make
their own DCR and deposit it into bank where respective SBI person will check all
entries and then credit the amount in the accounts of IOC at his/her respective
branch.
DDP Limit (DD Purchase): A facility provided by SBI from all the branches (where
IOC has their Collection Account) in which they purchase all outstation cheques and
gives immediate credit, to IOC against these. It has to be fixed for every location
depending upon the outstation cheques collection requirement of the Company. Once
the DDP limit is granted to a location, the overall cash credit limit is reduced to that
extent by the SBI. Therefore it is necessary for the location to ensure that the DDP
limit is not fixed too high so as to remain unutilized, at the same time it should be
sufficient to meet the outstation cheques requirements for 15 days.
Day Zero / One / Two Centers: Depending upon the clearing house arrangement
for local banking instrument these centers are identified, in which credit and transfer
of funds is given to IOC on same day in Day Zero center, on next day in Day One
center and on second day of deposit in Day Two center provided by instruments are
deposited with CMP into the branch before cut-off time.
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If it has been 60 days to deposit an instrument and then it got dishonored, SBI
cannot debit the amount without prior intimation; even in case of Loss in
transit same is applicable.
There should not be a balance of more than Rs. 1,000 in a branch at the time of
day closing; it should be transferred to regional office.
The overdue interest for delayed realization of outstation instruments
recovered from the Corporation should not be more than 47 days. Such
overdue interest should be at SBI's Prime Lending Rate at that period. Overdue
interest is applicable only in respect of outstation instruments drawn by the
Corporation drawn on a Bank other than SBI and the Branch on which it is
drawn is situated at a place where the SBI does not have a Branch.
Features:
Important:
There is a fixed monthly limit for this account and it should not exceed, if so,
duly approval from Regional Head should be taken.
No deposit of any instrument is permitted in this account.
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Only computerized cheque books printed by IOC should be used with "Accountpayee only" printed on.
On every day basis a bank reconciliation statement is taken and a report on
same is submitted to region on a fixed interval basis.
Features:
Page 53
Features:
Various payments to only one authority can be made via this facility.
For payments to different authorities from one branch only there should be
approval for this from IOC as well as SBI and then a new facility for new
authority payment is made.
Finance In-charge of the Region has the power to increase or decrease the limit
of facility.
Important:
For the payment of Excise duty, only three LA's in a month can be issued not
more than that.
For the payment of others e.g. Customs / Port Trust etc. no such restriction is
imposed.
On 12th of every month a bank reconciliation statement is taken and a report
on it is submitted to Region.
LA facility can be opened in only such branches, which is authorized to collect
Central Excise/ Customs revenue.
If in that center the authorized revenue-collecting bank is other than SBI, then
the SBI branch from where the transfer of funds to the other bank is possible in
the quickest time is chosen.
Important: -
Page 54
Any other payment accept from RCN is not permitted under this facility by the
bank.
Locations need to have pre-printed cheque books with the name of Railway.
Authority to which payment is made.
SBI cannot charge any charges for accepting IOC's cheques presented by the
Railway's banker.
If it is paid by account of RCC, separate cheque book should be given to each
location, and at the time of issuing new cheque book all cross checks for old
one should be done.
Features:
In this account, pooling of Debits and Credits from various accounts other than
the Current (Imprest) Account operated by the locations is effected.
Debit entries to the RCC Account is from the following three accounts:
For
For
For
For
Collection (01)
Withdrawal (02)
LA debits (04)
RCN debits (05)
Net balances pooled in the RCC accounts have to be transferred daily to the main
Cash Credit Account at Mumbai. A separate code number (19) identifies this transfer
amount. No Balance is retained in this account.
Daily transfer of funds to the cash credit account should be communicated to the HO
marketing division on a daily basis.
SIKKIM MANIPAL UNIVERSITY
Page 55
Transfer of funds from all other accounts like the Collection Account, Special
Current (Withdrawal) Account etc. except the Current Imprest Account are to
the Cash Credit Account.
Apart from Transfer entries all payments handled by HO like purchase of foreign
currencies, repayment of loan availed, and etc. is directly debited to the Cash
Credit account.
Loans availed for Working Capital purpose and other major receipts handled by
HO are mostly credited to Cash Credit Account directly.
Interest payable to the bank are based on daily "Value Dated" balances in the
CC Account and is calculated every quarter by applying the prevalent PrimeLending rate and interest amount is debited to Cash Credit Account.
The bank balance of Cash Credit Account is monitored on daily basis to ensure
that the over draft balances do not exceed the sanctioned limit and also no
surplus balances are kept idle. This is done with the help of daily Cash Flow
Forecast Statement that is explained below:
Important:
Only the Board of Directors can open a Cash Credit Account upon passing a
resolution to that effect.
Since the fund-based limit is against hypothecation of Stock-in-Trade, Debtors
etc. a quarterly report of debtors outstanding, stock of raw material, finished
goods held etc are to be submitted to the bank by HO Marketing Division.
Page 56
SUMMARY
BANKING FUNCTIONS OF INDIAN OIL CORPORATION
LIMITED
Collection
(85-90%
CMP)
Withdrawals
Current Imprest
Account
Letter of
Authority
(Pre Funded)
Railway
Credit
Note
Page 57
ELECTRONIC COLLECTIONS
Internet banking or banking via the Internet can be considered a remarkable
development in the banking sector. The ability to carry out banking transactions
through the Internet has empowered customers to execute their financial
transactions within the comfort of their homes. Besides this, the benefits of Internet
banking are not limited to a particular group of people, as it benefits both bankers
and customers alike.
Thanks to the information technology and the upgrades in our banking sector and
thanks to Reserve bank of India (RBI) for introducing the paperless work called
electronic funds transfer (EFT) mechanism.
Conventional banking has always been slow and time consuming, so much so that
sometimes you need to wait several hours to process a simple transaction like
clearing a check. But, Internet banking has tremendously reduced the time required
to process banking transactions, thereby making banking faster and convenient. For
both the banker (SBI) and the corporate (IOCL), this system is cost-effective, as it has
considerably reduced the administrative costs and paperwork related to the
transactions. Besides, banks can also cater to the needs of thousands of customers
at the same time. All these factors have significantly increased the profit margins by
lowering their operating costs.
With the Internet banking facility, multinationals like IOCL, can bank on the
opportunities like:
With Internet banking becoming a necessity in todays business world, Indian Oil
along with the help of its bankers has been able to introduce the concept of ECOLLECTIONS within its working environment so as to reap all the benefits coming
out of it.
Page 58
e Collection Models
E Collection uses the internet banking facility by adapting to the latest technology in
use. Some of the important concepts coming under it are:
Page 59
NEFT transactions are mostly avoided at Indian Oil. They have their preference more
towards Internet banking and Real Time Gross Settlement.
Here we outline the major advantages that RTGS has over Core Banking facilities:
DD / Pay Order / Other Instruments
RTGS
Immediate Arrangement
Decentralized Control
Centralized Control
Cost to IOCL
Instrument Collection
DCR Generation & Checking
Depositing at Branch
Follow Up
No such cost
Page 60
The RTGS solution at Indian Oil has been implemented by its primary banker i.e. SBI.
The main parameters behind choosing SBI as their RTGS vendor are:
A Username is created for making payments in his own ID on day to day basis.
Access rights as AUTHORIZER are assigned to the User.
The role is submitted to the bank branch for approval and follow up is done.
IOCL-RTGS is mapped as supplier.
Liaison with IOCL state office for approval.
Page 61
Once the account is operational, the user is authorized to make payments to IOCL in
the following fashion:
Customer provides following details during remittance at his bank branch.
The remitting bank branch of customer processes the transaction and transmits to
RBI which in turn processes the transaction on real time basis and sends it to the
Beneficiary Bank i.e. SBI.
SBI on Receipt of Incoming RTGS affords credit to IOCL RTGs A/c reading the first 11
digits and simultaneously generates MIS using 12 th digit as product code description
and 13-18th digit as SAP Code of remitting customer.
MIS is sent through E-mail by SBI CMP section which is uploaded in SAP for crediting
customers account under respective CCA.
The client who has made the payment can take his delivery as soon as possible as
and when the details appear in SAP.
Custom
ers
Bank
Options
Charges
Timings
State
Internet Banking
No Charges
24 x 7 hours
Page 62
0.1 % of Transaction
Core Banking
Amount
Custom
ers
Bank
State
Bank of
India
Associa
tes
Banks
Any
Bank
RTGS transfer
in IOCL 18 digit
A/c no with BNP
Paribas
Options
Online RTGS
RTGS in 18 digit
A/c no.
Charges
Timings
9am 4.30 pm
[Mon-Fri]
9am 12.30 am
[Sat]
Page 63
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Page 74
CONCLUSION
1) Keep an eye on the leading indicators for IOCL and be aware of changing
economic conditions. Prepare cash flow projections for the next year. This will
help IOC to see what changes need to be made and when. If such-and-such
happened and IOC predicted cash flow dropped x%, what could IOC do?
2) Managing IOCs customers' credit is an important part of cash flow management.
Weed out unprofitable customers, those that cost more to maintain than they
add to the bottom line. Flag those who have a history of slow payment.
Remember that you do not have to extend credit to anyone. If a customer has
a history of slow payment, changing the credit terms or even eliminating credit
entirely may be necessary.
3) First, invoice promptly. Putting off invoicing gives the customer the impression that
you don't care how long it takes to get your money. Second, take measures to
encourage prompt payment, such as clearly stating payment due dates and
sending overdue notices. Use Invoices That Encourage Action gives more
suggestions. Use collection services when necessary. Getting the money if you
can is always better for your cash flow than a bad debt.
4) On the other side of the coin, check on the credit terms that IOCs small business's
suppliers allow. Most suppliers allow thirty days to pay but IOC may be able to
get them to extend that term to sixty or even ninety days, allowing IOC to keep
the money in cash flow pipeline longer.
The outflow part of cash flow is never a problem; money will always run out
of your business easily. Keeping the money coming in on a regular,
sustained basis is the tricky part of cash flow management.
Page 75
SUGGESTIONS
For Cash Management
Indian Oil needs to make sure that they have a clear view of the true cash position at
any point of time. Since they deal with multiple banks, it may get difficult to know the
true cash standings. For this purpose they need to have better internal controls so
that the flow of information among all the departments is smooth.
They need to have better visibility of the cash standings so that they can effectively
disburse their surpluses and deal with negative cash balances. An obvious place to
start is to sweep any surpluses into deposit accounts or investing in short-term
money markets. Where loans exist or accounts are overdrawn, cash can be more
productively used to offset these, thus minimizing interest payments.
Since IOC has large cross border trade so there should be parallel convergence in
international trade towards open account, electronic payment and the automation of
information flows. It should adopt the latest solutions to digitize paper wherever it
persists. This will reduce the time of the transaction and will enhance the safety and
authenticity.
For e-Collection
Page 76
Page 77
BIBLIOGRAPHY
WEBLIOGRAPHY
http://www.iocl.com/aboutus.aspx
http://www.iocl.com/products.aspx
http://www.iocl.com/services.aspx
www.moneycontrol.com
www.yahoofinance.com
http://www.iocl.com/MediaCenter/News.aspx?NewsID=2802
Indian oil news
www.hpcl.com
www.bpcl.com
Page 78
ANNEXTURE:
BALANCE SHEET FOR THE YEAR ENDED 31ST MARCH
Particulars
(Amount in
Crore)
2012
2011
2010
2427.95
2427.95
2427.95
57945.35
55147.21
50034.38
60373.30
57147.26
52462.33
0.06
1943.74
1993.03
1832.97
18310.40
17342.53
19343.17
5970.20
7028.82
5417.00
409.84
414.49
30129.29
300.73
223.63
24991.17
25009.47
54889.46
56304.49
37706.51
b) Trade Payable
32253.18
29313.19
20699.89
28859.24
26272.92
14465.85
15102.04
6731.56
10407.71
132518.95
100024.18
45573.45
219827.22
184601.18 154758.21
Current Liabilities
Total
ASSETS
SIKKIM MANIPAL UNIVERSITY
Page 79
Tangible Assets
63600.69
61582.55
44938.39
ii)
Intangible Assets
960.82
1048.03
497.24
iii)
Dismantled Capital
Assets
19.41
27.25
41.78
iv)
15172.38
10546.52
21938.37
v)
277.26
319.65
829.40
80030.56
73524.00
68245.18
3813.09
3643.39
3493.05
0.64
0.62
0.10
9960.66
5117.88
20.44
5.84
18.49
93825.39
82291.73
71756.82
24.39
23.49
22.42
a) Current Investments
13774.83
15003.53
17936.73
b) Inventories
63851.04
54906.02
41076.51
c) Trade Receivables
11551.80
7684.62
5606.15
821.95
1537.83
1598.43
33659.55
21632.33
15253.28
2318.27
1522.34
1507.87
125977.44
102286.67
82978.97
219827.22
184601.89 154758.21
Goodwill on Consolidation
Current Assets
Total
Page 80
(Amount in Crore)
Particulars
2012
2011
2010
Income
Revenue from Operations (Gross)
Less: Excise Duty
438023.76
29099.73
408924.03
3187.13
Total Revenue
340657.97 259379.20
30860.95
26050.02
309797.02 233329.18
3447.69
24250.02
412111.16
313244.71 257579.20
207631.98
150041.71 141751.50
Purchase of Stock-in-Trade
157250.81
127653.99 100720.61
Expenditure
Change in Inventory
(3470.95)
(5613.77)
(5386.86)
5300.09
6734.24
Financial cost
5894.65
2985.70
1726.16
5156.48
4793.14
3481.00
152.78
139.48
74.16
5309.26
4932.62
3555.16
22762.43
16325.36
77.86
Other Expenses
Total Expenses
Profit before Prior Period,
Exceptional Items and Taxes
400678.27
303059.85 242444.44
11432.69
10184.86
15134.76
270.25
(70.88)
86.16
11703.14
10113.98
15048.60
Exceptional Items
(7707.82)
3995.32
10113.98
15048.60
Page 81
Tax Expenses:
Current Tax
790.36
1715.56
4652.97
(1.03)
(1298.42)
52.09
1.13
(1059.28)
1611.22
552.09
4265.27
8085.62
10998.68
39.29
254.90
285.49
4225.98
7830.72
10713.19
Basic
17.41
32.25
44.12
Diluted
17.41
32.25
44.12
(Amount in Crore)
2012
2011
2010
Page 82
3995.32
10113.98
15048.60
2. Adjustments for :
Depreciation
4983.87
4952.89
3567.68
2.47
25.23
164.35
18.87
26.56
539.52
Reversal of Impairment
Loss
(12.14)
Amortization on Capital
Grants
(1.19)
(1.16)
(1.20)
Amortization on
Premium on Forward
Contracts
89.66
132.45
133.92
37.78
38.24
22.20
418.15
78.74
1499.48
(718.91)
(229.51)
118.99
(58.62)
(513.21)
(96.86)
(265.91)
110.26
(1171.94)
(1307.46)
(1643.12)
(780.53)
(981.96)
(636.92)
Interest income on
Investments
Dividend income on
Page 83
Investments
Interest Expenditure
(5901.61)
2988.65
1726.31
8866.29
5974.31
4316.64
12861.61
16088.29
19365.24
4. Change in Working
Capital:
Trade and Other
Receivables
(16271.77)
(8960.93)
(10198.6
4)
Inventories
(8962.51)
(13656.74)
(12691.3
2)
12013.86
17351.42
4645.32
(13220.42)
(5266.25)
Change in Working
Capital
(18244.64)
(13220.42)
(5266.25)
(358.81)
10822.04
1120.60
406.61
4003.17
2729.57
(765.42)
6818.87
(1608.97)
1372.78
293.80
250.84
790.74
2950.71
15940.07
1189.94
1659.94
1738.90
Page 84
Dividend income on
Investments
Purchase of Assets
Investment in Long term
Investments/others
Expenditure on
construction work in
progress
780.53
981.96
636.92
(3482.98)
(3103.65)
(1711.12)
(168.76)
(260.48)
(1148.36)
(13535.42)
(10612.72)
(12112.4
5)
(13053.17)
(8090.44)
3594.80
3654.53
(90.00)
3106.86
Proceeds from/
(Repayment of) Short
term Borrowings
18618.27
8455.15
(981.16)
Interest paid
(6364.30)
(3341.79)
(2427.55)
Dividend/Dividend Tax
Paid
(2805.12)
(3812.38)
(1090.65)
13103.38
1210.98
(1392.50)
(715.21)
(60.59)
593.33
821.95
0.67
1537.83
822.62
0.01
1598.43
1537.84
0.08
1598.51
Page 85
1537.83
1598.43
1005.18
NET CHANGE IN
CASH AND BANK
BALANCE (E 1-2)
(715.21)
(60.59)
593.33
Page 86