Hindustan Oil Exploration Co. Ltd.

Company profile
HOEC was incorporated in 1983 for taking up Exploration and Production (E&P) activities
by Late Shri. H T Parekh. HOEC was the first private company in India to enter into field of
oil and gas exploration. HOEC’s operational activities commenced in 1991 with the
Government of India announcing the fourth round of exploration bidding for private sector
participation.

The Company has been under professional management since inception consisting of
eminent industrialists, professionals and technocrats like Late Shri B.K Nehru, Late Dr. I. G.
Patel, Shri Deepak Parekh and the current Chairman Shri R. Vasudevan.
In 2005, Burren Shakti Ltd (BSL) and Burren Energy India Ltd (BEIL), wholly owned
subsidiary of Burren Energy plc (Burren), acquired 26% controlling stake in the Company
from Unocal. Burren is a London based exploration and production company, having core
producing assets in the Caspian state of Turkmenistan, the Republic of Congo and Egypt. In
February 2008, Burren was acquired by ENI UK Holdings plc which is a subsidiary of ENI
spa, Italy.

The Company has a 100% subsidiary, HOEC Bardahl India Ltd, engaged in marketing of
high performance fuel / engine additives.

The Company has participating interest in seven oil/gas fields in India (in Cambay basin,
Cauvery basin and Assam Arakan basin), which are in varying stages of E & P life cycle i.e.
exploration, development and production.

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Manufacturing & production

HOEC and Bardahl Manufacturing Corporation Inc., USA, (Bardahl) engaged in the
formulation, manufacturing and marketing of Bardahl range of high performance engine
additives, conducted a joint marketing study on the sale of such additives in India. The
results were quite encouraging, suggesting that this could be a viable project.

HOEC and Bardahl have agreed to undertake the new project through HOEC Bardahl India
Limited (formerly Hindage Oilfield Services Limited) a wholly owned subsidiary of HOEC.
On account of focused marketing strategy, HBIL has been able to increase its presence in
the automotive segment through strategic alliance with OEMs like Maruti and Hyundai.
Further, HBIL is targeting industrial segment, more specifically power generation.

Basic information
INDUSTRY : petroleum oil

ROC Reg. No. : 29880

Incorporation Year : 1983

Ownership : Private (Indian)

Website : www.hoec.com

ISIN Code : Ine345a01011

BSE Demat Code : 500186

BSE Listing group :B

Face value (Rs) : 10

Beta : 1.479

BOARD OF DIRECTORS

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Mr. R. Vasudevan
Non-Executive Independent Director / Chairman

Mr. R. Vasudevan, 71 years, holds a B.A. (Hons.) (Economics) degree from the University
of Madras, a M.A. (Economic Statistics) degree from the University of Delhi and a M.P.A.
(Development Economics) from Harvard University, Boston, U.S.A.
He has held various senior level positions in the ministries of the Government of India
including the Prime Minister’s Office, Ministry of Steel and Ministry of Petroleum and
Natural Gas. He retired as Secretary to the Government of India, Ministry of Power. He was
a founder director of Small Industries Development Bank of India.

Mr. Deepak S. Parekh

Non-Executive Director
Mr. Deepak S. Parekh, 64 years, is a Fellow of the Institute of Chartered Accountants
(England and Wales). He has been a member of various committees set up by the
Government of India, especially in the field of Finance and Capital Markets.
He is the Executive Chairman of Housing Development Finance Corporation Limited and
Non-Executive Chairman of Infrastructure Development Finance Company Limited,
Siemens Limited and GlaxoSmithKline Pharmaceuticals Limited. He is a recipient of Padma
Bhushan award from the Government.

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Mr. Sunil Behari Mathur

Non-Executive Independent Director
Mr. Sunil Behari Mathur, 64 years, is qualified Chartered Accountant. He is an independent
director of our Company. He has more than 40 years of experience in the fields of insurance
and housing finance. He was the Chairman of Life Insurance Corporation of India from
August 2002 to October 2004. He is currently on the board of directors of various
companies and is also Chairman of the National Stock Exchange of India Limited. He has
been sponsored by United States Agency for International Development ("USAID") for a
training program on housing finance at the Wharton Business School of the University of
Pennsylvania.

Mr. Mukesh Butani

Non-Executive Independent Director
Mr. Mukesh Butani, 44 years, is Chartered Accountant. He is a member of ICC, Paris'
Taxation Commission and served as Chairman of the Tax & Tariff Committee of the
American Chamber of Commerce. He is actively associated with India-Japan Joint Business
Council. He is currently a member of OECD's Business restructuring group. ITR
Euromoney survey has consistently ranked him among the best tax advisors in India for
2006, 2007 and 2008.
Presently, Mukesh Butani leads the Tax practice of BMR and specializes in International
Tax and Transfer Pricing matters. He joined BMR in September 2004 on its formation. He
was head of the Oil and Gas Industry practice at Andersen, a member of the core industry
team at Ernst & Young and has deep experience in working with companies across the
industry value chain from upstream companies to organizations engaged in mid-stream and
down-stream activities.

Bankers
Axis Bank Ltd.
Bank Of Baroda

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Bank Of India
Canara Bank
Corporation Bank
Export-Import Bank Of India
H D F C Bank Ltd.
Indian Overseas Bank
State Bank Of India
Syndicate Bank
Federal Bank Ltd.
Hongkong & Shanghai Banking Corpn. Ltd.
Union Bank Of India

Contact information
Registered office

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Address

Street : HOEC HOUSE', Tandalja Rd., Off Old Padra Rd.,

City : Vadodara

State : Gujarat

Pin code : 390020

Email address : hoecbaroda@hatmail.com

Website : www.hoec.com

Telephone and fax numbers

Country code : 91

Area code : 265

Tel no. : 2330766

Fax no. : 2333567

Study objectives

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 Hindustan Oil Exploration Co. Ltd.

• To know the overall profitability position of the company

• To know the solvency position of the company

• To study the impact of selected ratios on profitability

Assets

Mar Mar Mar Mar Mar Mar

Hindustan Oil Exploration Co. Ltd. 2003 2004 2005 2006 2007 2008
12 12 12 12 12
Rs. Crore (Non-Annualised) mths mths mths mths mths 12 mths
-
Gross fixed assets 135.71 165.23 234.16 199.95 434.26 563.63
Land & building 4.75 4.8 4.8 5.6 140.92 142.32

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Plant & machinery 96.9 95.32 110.64 50.51 11.49 11.56

Transport & comm. equipment/infrastructure 0.42 0.6 0.72 0.89 0.89 0.89
Furniture,amenities & other fixed assets 1.96 2.18 2.29 3.57 3.88 3.89
Capital work-in-progress 31.25 60.68 113.83 136.93 274.46 402.35
Intangible assets 0.43 1.65 1.88 2.45 2.62 2.62

Net pre-operative expenses pending allocation 0 0 0 0 0 0

Net lease reserve adjustment 0 0 0 0 0 0
Less: Cumulative depreciation 81.39 84.81 98.2 14.44 116.74 123.29
Less: Arrears of depreciation 0 0 0 0 0 0

Net fixed assets 54.32 80.42 135.96 185.51 317.52 440.34

Investments 3.57 18.43 5.43 0.5 69.43 568.25

Equity shares 0.6 0.6 0.6 0.6 0.6 0.6
Preference shares 0 0 0 0 0 0
Mutual funds 3.57 18.43 4.93 0 67.32 54.95
Debt instruments 0 0 0 0 0 0
Approved securites (slr/statutory req.) 0 0 0 0 0 0
Assisted companies 0 0 0 0 0 0
Others 0 0 0 0 1.61 512.8
Less: Provision for dimunition in value of
investments 0.6 0.6 0.1 0.1 0.1 0.1

Group companies 0.5 0.5 0.5 0.5 0.5 0.5

Non-group companies 3.67 18.53 5.03 0.1 67.42 55.05

Market value of quoted investments 0.01 0.02 0.02 0.04 67.38 55.05

Deferred tax assets 17.02 16.98 16.16 27.97 57.61 46.47

Current assets 63.17 97.46 158.32 197.11 255.28 320.66

Cash & bank balance 30.94 71.77 92.71 73.11 110.87 157.2
Inventories 3.1 6.1 8.09 19.3 24.39 23.82
Receivables 10.05 3.35 21.87 15.39 42.2 47.5
Expenses paid in advance 19.08 16.24 35.65 89.31 77.82 92.14

Loans & advances 79.88 34.08 23 0 0 0

Deferred revenue expenditure 0.16 0.11 0.06 0.03 6.33 6.98

Total assets 218.12 247.48 338.93 411.12 706.17 1382.7

Income & expenditure

Mar Mar Mar Mar Mar
Hindustan Oil Exploration Co. Ltd. 2003 2004 2005 2006 2007 Mar 2008
Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
-
Total income 65.71 56.08 110.07 136.71 173.69 153.1
Sales 56.72 42.97 97.69 121.12 152.21 119.68
Industrial sales 56.72 42.97 97.69 114.85 141.17 104.03
Income from non-financial services 0 0 0 6.27 11.04 15.65

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Income from financial services 8.71 7.69 6.74 5.44 13.05 20.42
Interest 7.09 6.06 5.44 4.62 7.15 4.32
Dividends 0.79 1.63 0.47 0.27 4.29 12.77
Treasury operations 0.83 0 0.83 0.55 1.61 3.33
Other income 2.89 1.7 4.06 7.36 10.5 10.66
Prior period income & extraordinary income 0.64 0.2 1.29 0 1.31 0.01
Change in stock -3.25 3.52 0.29 2.79 -3.38 2.33

Total expenses 54.19 34 71.41 118 171.1 127.32

Raw material expenses 0.76 0.7 0.85 0 0 0
Packaging expenses 0.19 0.24 0.35 0.51 0.96 1.75
Purchase of finished goods 0 0 0 1.31 2.3 3.24
Power, fuel & water charges 0.66 0.77 0.48 0.31 1.05 1.31
Compensation to employees 2.42 3.31 4.97 7.36 6.07 7.82
Indirect taxes 2.66 2.18 8.19 20.94 27.22 25.12
Royalties, technical know-how fees, etc. 0.38 0.66 0.77 0.45 0.74 0.43
Lease rent & other rent 14.73 12.18 12.18 13.49 13.01 28.23
Repairs & maintenance 0.14 0.29 0.74 0.82 0.77 0.82
Insurance premium paid 0.99 1.02 1.11 0.95 0.55 0.39

Outsourced mfg. jobs (incl. job works, etc.) 0 0 0 0 0 0

Outsourced professional jobs 2.21 2.03 2.2 3.71 3.26 3.39
Directors' fees 0.01 0.01 0.03 0.03 0.03 0.03
Selling & distribution expenses 0.65 0.75 0.85 1.41 3.09 4.44
Travel expenses 0.5 0.59 0.71 0.83 0.66 0.46
Communication expenses 0.23 0.26 0.31 0.47 0.45 0.42
Printing & stationery expenses 0.12 0.14 0.27 0.37 0.29 0.33
Miscellaneous expenses 0.55 0.65 0.69 1.09 1.42 1.61

Other operational exp. of indl. enterprises 1.25 1.48 2.81 2.81 2.66 2.14
Other oper. exp. of non-fin. service enterprises 0 0 0 0 0 0
Share of loss in subsidiaries/JVs,etc. 0 0 0 0 0 0
Lease equalisation adjustment 0 0 0 0 0 0
Loss on securitisation of assets/loans 0 0 0 0 0 0
Fee based financial service expenses 0.14 0.17 0.12 0.33 0.73 0.54
Treasury operations expenses 0.12 0.01 0.33 0 0 0
Total provisions 1.21 1.91 0 0 0 0.04
Write-offs 16.24 0.25 0.02 41.84 94.36 16.65
Less: Expenses capitalised 0 0 0 1.25 2.78 4.71
Less: Expenses transferred to DRE 0 0 0 0 0 0

Prior period & extraordinary expenses 0 0.55 0.01 0.03 0.02 0.01
Interest paid 0 0 1.63 3.07 7.66 11.76
Financial charges on instruments 0 0 0 0 0 0
Expenses incurred on raising deposits/debts 0 0 0 0 0 0
Depreciation 14.43 4.57 8.82 7.82 7.7 5.31
Amortisation 0.03 0.05 0.05 0.03 0.03 0
Provision for direct taxes -6.43 -0.77 22.92 9.27 -1.15 15.79
PAT 11.52 22.08 38.66 18.71 2.59 25.78
Minority interest 0 0 0 0 0 0
Share in profit/loss in associate/jv 0 0 0 0 0 0

PBDITA 19.55 25.93 72.08 38.9 16.83 58.64

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PBDTA 19.55 25.93 70.45 35.83 9.17 46.88

PBT 5.09 21.31 61.58 27.98 1.44 41.57

Profits
Mar Mar Mar Mar Mar Mar
Hindustan Oil Exploration Co. Ltd. 2003 2004 2005 2006 2007 2008
Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
-
PBDITA 27.99 28.34 71.49 36.96 15.49 56.13
Depreciation 14.42 4.56 8.8 7.79 7.64 5.26
Amortisation 0.05 0.05 0.05 0.03 0.03 0

PBIT 13.52 23.73 62.64 29.14 7.82 50.87

Interest paid 0 0 1.63 3.07 7.63 11.77
Financial charges on instruments 0 0 0 0 0 0
Fee based financial services expenses 0 0 0 0 0 0

PBT 13.52 23.73 61.01 26.07 0.19 39.1

Provision for direct tax 1.91 1.61 22.53 8.58 -2.28 15
Corporate tax 1.9 1.6 19.5 16.8 28.6 3.5

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Deferred tax 0 0 3.02 0 0 11.3

Less: Deferred tax assets / credit 0 0 0 8.5 31.1 0
Other direct tax 0.01 0.01 0.01 0.28 0.22 0.2
Fringe benefits tax 0 0 0 0.26 0.2 0.18

PAT 11.61 22.12 38.48 17.49 2.47 24.1

Prior period & extra-ordinary income 8.83 2.7 0.32 0 1.31 0

Prior period & extra-ordinary expenses 0 0.55 0 0.03 0.02 0
Net prior period & extraordinary
transactions -8.83 -2.15 -0.32 0.03 -1.29 0

PBDITA net of P&E 19.16 26.19 71.17 36.99 14.2 56.13

PBIT net of P&E 4.69 21.58 62.32 29.17 6.53 50.87
PBT net of P&E 4.69 21.58 60.69 26.1 -1.1 39.1
PAT net of P&E 2.78 19.97 38.16 17.52 1.18 24.1

Distribution of profits (%)

PBDITA 100 100 100 100 100 100
Depreciation & Amortisation 51.697035 16.26676 12.37935 21.158009 49.515817 9.371103
Financial charges 0 0 2.280039 8.3062771 49.257586 20.96918
Tax 6.8238657 5.681016 31.5149 23.214286 -14.71917 26.72368
PAT 41.4791 78.05222 53.82571 47.321429 15.945771 42.93604

Non--provisions 0 0 0 0 0 0
Diminution in investement 0 0 0 0 0 0
Sundry debtors 0 0 0 0 0 0
Loans & advances including NPAs 0 0 0 0 0 0
Loans & advances to group cos. 0 0 0 0 0 0
Interest expenses 0 0 0 0 0 0
Power expenses 0 0 0 0 0 0
Gratuity 0 0 0 0 0 0
Others 0 0 0 0 0 0

Liabilities

Mar Mar Mar Mar Mar Mar

Hindustan Oil Exploration Co. Ltd. 2003 2004 2005 2006 2007 2008
Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
-
Net worth 183.09 198.56 230.52 242.52 391.54 1011.04
Authorised capital 100 200 200 200 200 200
Issued equity capital 58.78 58.78 58.78 58.78 78.35 130.56
Paid up equity capital (net of forfeited capital) 58.74 58.74 58.74 58.74 78.31 130.49
Forfeited equity capital 0.02 0.02 0.02 0.02 0.02 0.02
Paid up preference capital (net of forfeited capital) 0 0 0 0 0 0
Capital contibution, suspense and application money 0 0 0 0 0 0

Minority interest reserves 0 0 0 0 0 0

Reserves & surplus 124.33 139.8 171.76 183.76 313.21 880.53

Free Reserves 124.33 139.8 171.76 183.76 313.21 880.53
Security premium reserves (Net of deductions) 100.17 100.18 100.18 100.18 227.35 784.15

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Other free reserves 24.16 39.62 71.58 83.58 85.86 96.38

Specific Reserves 0 0 0 0 0 0
Revaluation Reserves 0 0 0 0 0 0
Accumulated losses 0 0 0 0 0 0

Total borrowings 0 0 27.5 16.3 132.09 147.22

Bank borrowings 0 0 27.5 16.3 93.6 69.6
Short term bank borrowings 0 0 27.5 0 0 0
Long term bank borrowings 0 0 0 16.3 93.6 69.6
Financial institutional borrowings 0 0 0 0 0 0
Central & state govt. (usually sales tax deferrals) 0 0 0 0 0 0
Debentures / bonds 0 0 0 0 0 0
Convertible 0 0 0 0 0 0
Non-convertible 0 0 0 0 0 0
Fixed deposits 0 0 0 0 0 0
Foreign borrowings 0 0 0 0 38.49 77.62
Of which : euro convertible bonds 0 0 0 0 0 0
Borrowings from corporate bodies 0 0 0 0 0 0
Group / associate cos. 0 0 0 0 0 0
Borrowings from promoters / directors 0 0 0 0 0 0
Commercial paper 0 0 0 0 0 0
Hire purchase borrowings 0 0 0 0 0 0
Deferred credit 0 0 0 0 0 0
Other borrowings 0 0 0 0 0 0

Secured borrowings 0 0 27.5 16.3 132.09 147.22

Unsecured borrowings 0 0 0 0 0 0
Current portion of long term debt 0 0 10 0 0 0

Current liabilities & provisions 28.46 44.57 74.89 145.37 179.5 223.95
Sundry creditors 7.63 20.99 28.32 22.82 73.02 98.36
Acceptances 0 0 0 0 0 0
Deposits & advances from customers & employees 0 0 0 0 0 0
Interest accrued 0 0 0 0 0 0
Share application money 0 0 0 0 0.07 0.41
Other current liabilities 0.42 0.64 0.74 2.97 1.37 2.03
Provisions 20.41 22.94 45.83 119.58 105.04 123.15

Deferred tax liability 7.07 4.84 7.03 10.34 8.85 9.01

Total liabilities 218.62 247.97 339.94 414.53 711.98 1391.22

Net worth (net of reval & DRE) 182.93 198.45 230.46 242.49 385.21 1004.06
Contingent liabilities 0 0 0 0 0 0

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TOOLS OF ANALYSIS

RATIO ANALYSIS:

INTRODUCTION

Analysis and interpretation financial statements with the help of ratios are termed as
‘Ratio Analysis’. Ratio analysis involves the process of computing, determining, and
presenting the relationship of items or groups of financial statements.

MEANING OF RATIO

1. A Ratio is a mathematical relationship between two items expressed in a quantitative

form.

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 Hindustan Oil Exploration Co. Ltd.

2. Ratios can be defined as “relationships expressed in quantitative terms, between

figures which have cause and effect relationships or which are connected with each
other in some, manner or the other.”

3. Arithmetically ratio is a comparison of the numerator with the denominator.

Accounting ratios are designed to show how one number is related to another and the
meaning of such relationship ratios is worked out by dividing one number by another
number. Accounting ratios measure and indicates efficiency of an enterprise in all aspects.

CLASSIFICATION OF RATIOS

Ratio analysis was pioneered by Alexander. Interpretation of financial statements can

be made easier by establishing quantitative relationships between various items of financial
statements.

Accounting ratios may be classified as:

 Turnover Ratios

 Profitability Ratios

Statistical Tools

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 Hindustan Oil Exploration Co. Ltd.

Trend analysis y=a+bx

Σ y = na + bΣx
Σxy = aΣx + bΣx

Co-efficient of correlation:-
The Correlation matrix is a powerful tool for degree of relationship among
predictors. To examine the correlation among various variables, Pearson product movement
correlation (r) was computed. Thus, the growth is outcome number of strategic decisions
taken by a firm in the every-changing business environment.

N ∑ XY − ( ∑ X )( ∑Y )
r=
Co-efficient of correlation
N ∑ X 2 − ( ∑ X 2 ) N ∑Y 2 − ( ∑Y ) 2

LIQUIDITY RATIOS:
(1) SHORT TERM SOLVANCY RATIOS
(a) CURRENT RATIO (CR):
The ratio of current assets to current liabilities is called “current ratio”.
The term current assets includes debtors, stock, bills receivable, bank and cash balance,
prepaid expenses, income due and short term investments. The term current liabilities
includes creditors, bank overdraft, bills payable, out standing expenses, income received in
advances,etc. standard expected current ratio internationally accepted current ratio is 2:1 i.e.
current assets shall be 2 times to current liabilities.
Current assets
Current ratio =--------------------------------
Current liability

TABLE NO: 1 calculation Of CR during 2003-08 (RS in Crores)

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Years C.A’S C.L’S Ratio Trend

2003 143.05 28.46 5.02 -
2004 131.54 44.57 176.11 Increase
2005 181.32 102.39 1.77 Decrease
2006 197.11 145.37 1.35 Decrease
2007 255.28 179.5 434.37 Increase
2008 320.66 223.95 544.61 Increase

GRAPH NO: 1
CURRENT RATIO

600 544.61
500
434.37
400
Ratio 300
200 176.11
100
5.02 1.77 1.35
0
2003 2004 2005 2006 2007 2008
Years

INTERPRETATION:

From the above table it is observed that the current ratio is fluctuating the period of
2003-08. When compare to standard norm 2:1 current ratio is very high during the study
period. In the year 2008 (544.61:1).

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(b)QUICK RATIO (QR):

This ratio is called “LIQUID” or “ACID TEST RATIO”. It is calculated by comparing

the quick assets with quick liabilities. A quick or liquid asset refers to assets which are
quickly convertible cash. Quick assets other than stock and pre paid expenses are considered
as quick assets. The ideal ratio or generally accepted “norm” for liquid ratio is “1:1”

Quick assets
Quick ratio = -------------------------------
Current liabilities

TABLE NO: 2 Calculation of QR during 2003-08 (RS in Crores)

Years Q.A’S C.L’S Ratio Trend
2003 120.87 28.46 4.24 -
2004 109.2 44.57 2.45 Decrease
2005 137.58 102.39 1.34 Decrease
2006 88.5 145.37 0.68 Decrease
2007 167.3 179.5 0.93 Increase
2008 221.49 223.5 0.99 Increase

GRAPH NO: 2
QUICK RATIO

5 4.24
4
3 2.45
Ratio

2 1.34
0.93 0.99
0.68
1
0
2003 2004 2005 2006 2007 2008
Years

INTERPRETATION:

From the above table it is observed that the Quick ratio is decreasing during the
study period 2003-08. when compare to standard norm in the year 2003 the Quick Ratio is
high (4.24) when compare to the standard norm (1:1).

(c) ABSOLUTE QUICK RATIO (AQR):

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Absolute assets are cash, bank balance &marketable securities. This ratio reveals the
relationship between absolute quick assets and quick liability.

Absolute liquid assets

Absolute quick ratio =--------------------------------------
Current liability

TABLE NO: 3 calculation of AQR during 2003-08 (Rs in crores)

Years A.l.A’S C.L’S Ratio Trend

2003 30.94 28.46 1.08 -
2004 71.77 44.57 1.61 Increase
2005 92.71 102.39 0.90 Decrease
2006 73.11 145.37 0.50 Decrease
2007 110.87 179.5 0.61 Increase
2008 157.2 223.95 0.70 Increase

GRAPH NO: 3

ABSOLUTE QUICK RATIO

2
1.61
1.5
1.08
0.9
Ratio

1 0.7
0.5 0.61
0.5

0
2003 2004 2005 2006 2007 2008
Years

INTERPRETATION:

From the above table is observed that the Absolute Quick ratio is fluctuating from
the period 2003-08. In the year 2004 (1.61%) in the year 2004 the absolute quick ratio is
high (1.64) due to increase in Absolute liquid assets and increase in current liabilities and it
is low in the year 2006 (0.5) due to decreased in the Absolute liquid assets and increase in
current liabilities.

(2) LONG TERM SOLVANCY RATIOS

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(a) PROPRIETARY RATIO(PR):

The ratio compares the shareholder’s fund or owners fund and total tangible
assets. In other words this ratio expresses the relationship between the proprietors
fund and the total tangible assets.
Shareholders fund (Net worth)
Proprietary ratio =----------------------------------------------
Tangible assets

TABLE NO: 4 calculation of PR during the year 2003-08 (Rs in cores)

Years Net worth T.A’S Ratio Trend
2003 183.1 218.12 0.83 -
2004 198.59 247.48 0.80 Decrease
2005 230.38 338.93 0.67 Decrease
2006 241.17 411.12 0.58 Decrease
2007 390.34 706.17 0.55 Decrease
2008 1008.15 1382..7 0.72 Increase

GRAPH NO: 4

PROPRIETORS RATIO

1 0.83 0.8
0.8 0.67 0.72
0.58 0.55
0.6
Ratio

0.4
0.2
0
2003 2004 2005 2006 2007 2008
Years

INTERPRETATION:

From the above table it is observed that the proprietary ratio is fluctuating from the
period 2003-08. In the year 2003 it is high (0.83%) because of decreasing of shareholder
funds & decreasing the tangible assets & in the year 2007 it is low (0.55%) because
increasing of shareholders funds & increasing of tangible assets.

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(b) DEBT-EQUITY RATIO (DER):

This ratio is ascertained to determine long term solvency position of a company. It is

also called as “external-internal equity ratio”. This ratio relationship between outsiders fund
and internal equities. The norm of this ratio is 1:1.
Debt (total borrowings)
Debt-equity ratio = -------------------------------------------
Equity (Net worth)

TABLE NO: 5 Calculation of DER during the year 2003-08 (Rs in crores)
Years Debt Equity Ratio Trend
2003 0 183.1 0 -
2004 0 198.59 0 -
2005 27.5 230.38 0.19 Increase
2006 1.63 241.17 6.75 Increase
2007 13.09 390.34 0.03 Decrease
2008 14.72 1008.15 0.06 Increase

GRAPH NO: 5

DEBT-EQUITY RATIO

8 6.75
6
Ratio

2
0 0 0.19 0.03 0.06
0
2003 2004 2005 2006 2007 2008
Years

INTERPRETATION:

From the above table it is observed that the Debt-equity ratio is fluctuating from the
period of 2003-08. The debt-equity ratio is low when compared to the standard norm 1:1.In
2006 it is increased to (6.75%) due to decreased in debt and equity.

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(c)INTEREST COVERAGE RATIO (ICR):

This ratio establishes the relationship between profit before interest and tax and
interest charges.
Operating Profit
Interest Coverage Ratio = ------------------------
Interest

Operating Profit =PBIT

TABLE NO: 6 Calculation of ICR during the year 2003-08 (Rs in crores)
Years PBIT Interest Ratio Trend
2003 13.52 0 0 -
2004 23.73 0 0 -
2005 62.64 1.63 38.42 Increase
2006 29.14 2.37 12.29 Decrease
2007 7.84 7.63 1.02 Decrease
2008 50.87 11.77 4.32 Increase

GRAPH NO: 6
INTEREST COVERAGE RATIO

50
38.42
40
30
RAtio

20 12.29
10 4.32
0 0 1.02
0
2003 2004 2005 2006 2007 2008
Years

INTERPRETATION:

From the above table it is observed that the interest coverage ratio is fluctuating from
the period of 2003-08. In the year 2005 it is high (38.42%) because of increasing of PBIT &
decreasing of financial changes and in the year 2007 it is low (1.02%) because of decreasing
of PBIT & decreasing in interest.

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 Hindustan Oil Exploration Co. Ltd.

(d) FIXED ASSETS TO NET WORTH RATIO:

It establishes the relation between fixed assets and capital employed. This ratio enables to
know how fixed assets are financed i.e., by use of long-term funds or by short-term funds.
The ideal ratio is 0.67. It should not be more than one.
Fixed assets
Fixed assets ratio= -----------------------------
Capital employed

TABLE NO: 7 Calculation of FANWR during the year 2003-08(Rs in crores)

Years Fixed assets Capital employed Ratio Trend
2003 54.32 183.1 0.29 -
2004 80.42 198.59 0.40 Increase
2005 135.96 230.38 0.59 Increase
2006 185.51 241.17 0.76 Increase
2007 37.52 39.34 0.81 Increase
2008 400.34 1008.15 0.39 Decrease

GRAPH NO: 7

FIXED ASSETS RATIO

1
0.76 0.81
0.8
0.59
0.6
Ratio

0.4 0.39
0.4 0.29
0.2
0
2003 2004 2005 2006 2007 2008
Years

INTERPRETATION:

From the above table it is observed that the fixed asset net worth ratio is increasing
from the period of 2003-07. In the year 2003 it is low (0.29%) because of decreasing of
fixed assets & increasing the capital employed & in the year 2007 it is high (0.81%) because
of decreasing of fixed assets & decreasing the capital employed.

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 Hindustan Oil Exploration Co. Ltd.

PROFITABULITY RATIOS:
Ability to make maximum profit from optimum utilization of resources by a business
concern is termed as “profitability”.
(1)RETURN ON INVESTMENT (ROI):
This ratio is called “overall profitability ratio” or “Return on capital employed”. It
measures the sufficiency or otherwise of profit in relation in capital employed.
Operating profit
ROI =------------------------------------ *100
Capital employed
TABLE NO: 8 Calculation of ICR during the year 2003-08 (Rs in crores)
Years Operating profit Capital employed Ratio Trend
2003 11.61 183.31 6 -
2004 22.12 198.59 11 Increase
2005 38.98 257.88 15 Increase
2006 17.49 242.8 7 Decrease
2007 2.47 403.43 612 Increase
2008 24.1 1002.87 2 Decrease

GRAPH NO: 8
ROI

700 612
600
500
400
300
200
100 6 11 15 7 2
0
2003 2004 2005 2006 2007 2008

INTERPRETATION:

From the above table it is observed that the Return on investment ratio is increased in
the year 2007.and it is decreased during 2003-2006.and again increased continuously up to
2007. in the year 2007 the return investment is high (612%) because of increasing of
operating profit & increasing of the capital employed and in the year 2008.because of
increasing of operating profit & increasing of capital employed.

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 Hindustan Oil Exploration Co. Ltd.

(2) RETURN ON SHAREHOLDERS FUNDS (ROSF):

The ratio determines the profitability from the shareholders point of view. The net
profit here is net income after payment of interest and tax and it includes net non-operating
income also. The turn shareholders funds include equity share capital, preference share
capital and all reserves and profits belonging to shareholders.
PAT
ROSF =------------------------------------ *100
Shareholders funds
TABLE NO: 9 Calculation of ICR during the year 2003-08 (Rs in crores)
Years PAT Shareholders funds Ratio Trend
2003 11.61 183.1 6 -
2004 22.12 198.59 11 Increase
2005 38.98 230.38 16 Increase
2006 17.49 241.17 7 Decrease
2007 2.47 390.34 632 Increase
2008 24.1 1008.15 2 Increase

GRAPH NO: 9

ROSF

700 632
600
500
400
Ratio

300
200
100 6 11 16 7 2
0
2003 2004 2005 2006 2007 2008
Years

INTERPRETATION:

From the above table it is observed that the Return on shareholders funds ratio is
fluctuating from the period of 2003-08. In the year 2007 the return on shareholders funds is
high (632%) because of decreasing of PAT & increasing of shareholder funds and in the
year 2008 it is low (2%) because of increasing of pat & shareholders funds.

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 Hindustan Oil Exploration Co. Ltd.

(3) RETURN ON CAPITAL EMPLOYED :

This ratio is called “overall profitability ratio” or “Return on capital employed”. It
measures the sufficiency or otherwise of profit in relation in capital employed.
EBIT
ROCE =------------------------------------
Capital employed
TABLE NO: 10 Calculation of ROCE during the year 2003-08 (Rs in crores)
Years Operating profit Capital employed Ratio Trend
2003 13.52 183.31 0.07 -
2004 23.73 198.59 0.11 Increase
2005 62.64 257.88 0.24 Increase
2006 29.14 242.8 0.12 Decrease
2007 7.82 403.43 0.01 Decrease
2008 50.87 1002.87 0.05 Increase

GRAPH NO: 10
Return on capital employed Ratio

0.25 0.24

0.2

0.15
Ratio 0.11 0.12
0.1
0.07
0.05
0.05
0.01
0
2003 2004 2005 2006 2007 2008
years

INTERPRETATION:

From the above table it is observed that the Return on capital employed ratio is
fluctuating during the study period 2003-08. In the year 2005 (0.24)it is increased operating
profit is increased & capital employed increased and in the year 2007 (0.01) it is decreased
because of operating profit is decreased & capital employed increased.

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 Hindustan Oil Exploration Co. Ltd.

(4) GROSS PROFIT RATIO(GPR):

This ratio is also known as Gross margin or trading margin ratio. Gross profit ratio
indicates the difference between sales and direct costs. Gross profit ratio explains the
relationship between gross profit and net sales.
Gross profit
GROSSPROFIT RATIO= ------------------*100
Net sales

Table no 11:Calculation of GPR during 2003-2008 (Rs in crores)

Years Gross profit Net sales RATIO(%) Trend
2003 27.99 56.72 49.34 -
2004 28.34 42.97 65.95 Increase
2005 71.49 97.69 73.14 Increase
2006 36.96 121.12 30.51 Decrease
2007 15.49 152.21 10.17 Decrease
2008 56.13 119.68 46.90 Increase

Graph:11

GPR

80 73.14
65.95
60 49.34 46.9
Ratio

40 30.51

20 10.17

0
2003 2004 2005 2006 2007 2008
Years

INTERPRETATION:

From above table is observed that the gross profit ratio is fluctuating from the period
of 2003-2008. in the year 2005 it is high (73.14) when compared to the standard norm (1:1).

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 Hindustan Oil Exploration Co. Ltd.

(5) NET PROFIT RATIO(NPR):

This ratio is called net profit to sales ratio. It is a measure of management’s
efficiency in operating the business successfully from the owner’s point of view.Net profit
includes non operating incomes and profits.

Net profit after tax

NET PROFIT RATIO= --------------------------*100
Net sales

Table no 12:Calculation of NPR during 2003-2008 (Rs in crores)

Years PAT Net sales RATIO(%) Trend
2003 11.61 56.72 20.46 -
2004 22.21 42.97 51.47 Increase
2005 38.48 97.69 39.38 Decrease
2006 17.49 121.12 14.44 Decrease
2007 2.47 152.21 1.62 Decrease
2008 24.1 119.68 20.13 Increase

Graph:12
NPR

60 51.47
50
39.38
40
Ratio

30 20.46 20.13
20 14.44
10 1.62
0
2003 2004 2005 2006 2007 2008
Years

INTERPRETATION:11

From the above table it is observed that the net profit ratio is fluctuating from the period of
2003-2008. In the year 2007 it is low (1.62) when compared to the standard norm (1:1)

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 Hindustan Oil Exploration Co. Ltd.

TREND ANALYSIS

The table shows the estimated values during 2003-2008

YEAR Debt equity Interest Return on capital

ratio coverage employed ratio
ratio
2003 0 0 0.07
2004 0 0 0.11
2005 0.19 38.42 0.24
2006 6.75 12.29 0.12
2007 0.03 1.04 0.01
2008 0.06 4.32 0.05
Estimated 0.29* 9.25* -0.0016

value for 2009

* = ESTIMATED VALUES

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 Hindustan Oil Exploration Co. Ltd.

SIMPLE CORRELATION TABLE

YEARS Debt Interest Return on

equity coverage capital
ratio ratio employed ratio
2003 0 0 0.07
2004 0 0 0.11
2005 0.19 38.42 0.24
2006 6.75 12.29 0.12
2007 0.03 1.04 0.01
2008 0.06 4.32 0.05
Coefficient of 0.0053 0.045 ----

correlation

INTERPRETATION:

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 Hindustan Oil Exploration Co. Ltd.

The coefficient of correlation between selected ratios and ROI are presented
in the table:

It is evident from the table that the coefficient of correlation between debt equity ratio and
interest coverage ratio is 0.0053 It indicates that 1% decreasing in ICR Ratio will leads to
0.0053.Which shows that there is a lower degree of positive association between the
profitability of the company.

It is evident from the table that the coefficient of correlation between DER and return on
Capital employed Ratio is 0.045. It indicates that 1% decreasing ROCE Ratio will leads to
0.045. Which shows that there is a lower degree of positive association between the
Profitability of the company.

FINDINGS

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 Hindustan Oil Exploration Co. Ltd.

• Current ratio is fluctuating the period of 2003-08. when compare to standard norm
2:1 current ratio is very high during the study period. In the year 2008 (544.61:1).

• Quick ratio is decreasing during the study period 2003-08. when compare to standard
norm in the year 2003 the Quick Ratio is high (4.24) when compare to the standard
norm (1:1).

• Absolute Quick ratio is fluctuating from the period 2003-08. In the year 2004
(1.61%) in the year 2004 the absolute quick ratio is high (1.64) due to increase in
Absolute liquid assets and increase in current liabilities and it is low in the year 2006
(0.5) due to decreased in the Absolute liquid assets and increase in current liabilities.

• Proprietary ratio is fluctuating from the period 2003-08. In the year 2003 it is high
(0.83%) because of decreasing of shareholder funds & decreasing the tangible assets
& in the year 2007 it is low (0.55%) because increasing of shareholders funds &
increasing of tangible assets.

• Debt-equity ratio is fluctuating from the period of 2003-08. The debt-equity ratio is
low when compared to the standard norm 1:1.In 2006 it is increased to (6.75%) due
to decreased in debt and equity.

• Interest coverage ratio is fluctuating from the period of 2003-08. In the year 2005 it
is high (38.42%) because of increasing of PBIT & decreasing of financial changes
and in the year 2007 it is low (1.02%) because of decreasing of PBIT & decreasing
in interest.

• Fixed asset net worth ratio is increasing from the period of 2003-07. In the year 2003
it is low (0.29%) because of decreasing of fixed assets & increasing the capital
employed & in the year 2007 it is high (0.81%) because of decreasing of fixed assets
& decreasing the capital employed.

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 Hindustan Oil Exploration Co. Ltd.

• Return on investment ratio is increased in the year 2007.and it is decreased during

2003-2006.and again increased continuously up to 2007. in the year 2007 the return
investment is high (612%) because of increasing of operating profit & increasing of
the capital employed and in the year 2008.because of increasing of operating profit
& increasing of capital employed.

• Return on shareholders funds ratio is fluctuating from the period of 2003-08. In the
year 2007 the return on shareholders funds is high (632%) because of decreasing of
PAT & increasing of shareholder funds and in the year 2008 it is low (2%) because
of increasing of pat & shareholders funds.
• Gross profit ratio is fluctuating from the period of 2003-2008. in the year 2005 it is
high (73.14) when compared to the standard norm (1:1).

• Net profit ratio is fluctuating from the period of 2003-2008. In the year 2007 it is low
(1.62) when compared to the standard norm (1:1).

• Return on capital employed ratio is fluctuating during the study period 2003-08. In
the year 2005 (0.24) it is increased operating profit is increased & capital employed
increased and in the year 2007 (0.01) it is decreased because of operating profit is
decreased & capital employed increased.

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 Hindustan Oil Exploration Co. Ltd.

CONCLUSION

The study reveals that the liquidity of the position of HOECL is not
maintaining the study norm and there is a positive collection between the
DER and ROCE and in the near future the low is in a position to maintain
the liquid assets.

The ROCE estimated value is negative that is -0.0016 it indicates that the
company overall profitability position is not good.

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