Reliance Petroleum Project Report
Reliance Petroleum Project Report
Reliance Petroleum Project Report
1. Introduction 1-3
3. Objective 11
4. Hypothesis 12
9. Findings 42
10. Suggestions 43
11. Conclusion 44
12 Bibliography 45
Reliance Petroleum and RIL own/have long term chartered two oil rings- DD KG-
1 and DD KG-2 (DD standing for Dhirubhai Deepwater). They are both drilling
ships registered in Marshall Islands and owned by Deepwater Pacific Inc., a
subsidiary of Transocean.
Ratio Analysis:
• The limit or extent to which the firm has used its borrowed funds.
• The efficiency with which the firm is utilizing in generating sales revenue.
Classification of Ratios:
Ratios can be classified into different categories depending upon the basis of
classification.
I. TRADITIONAL CLASSIFICATION
Traditional classification has been on the basis of financial statements, on
which ratio may be classified as follows.
1. Profit & loss account ratios.
E.g. Gross Profit Ratio, Net Profit Ratio, Operating Ratio etc.
2. Balance sheet ratio.
E.g. Current Ratio, Debt Equity Ratio, Working Capital Ratio etc.
3. Composite/Mixed Ratio.
E.g. Stock Turnover Ratio, Debtors Turnover Ratio, Fixed Assets
Turnover Ratios etc.
II. FUNCTIONAL CLASIFICATION OF RATIOS
Functional ratios
1. Liquidity ratios
a) Current Ratio
b) Quick Ratio
2. Leverage ratios
a) Debt-equity Ratio
b) Current Asset to Proprietor’s fund Ratio
III. PROBABILITY RATIOS
a) Gross Profit Ratio
b) Operating Profit Ratio
c) Return On Investment
IV. ACTIVITY RATIO
1. Inventory Turnover Ratio
2. Asset Turnover Ratio
a) Fixed Asset Turnover Ratio
b) Current Asset Turnover Ratio
3. Working Capital Turnover Ratio
COMPANY PROFILE
RELIANCE PETROLEUM LIMITED
Was set up by Reliance Industries Limited (RIL), one of India's largest private
sector companies based in Ahmadabad. Currently, RPL is subsidiary of RIL, and
has interests in the downstream oil business. RPL also benefits from a strategic
alliance with Chevron India Holdings Pte Limited, Singapore, a wholly owned
subsidiary of Chevron Corporation USA (Chevron), which currently holds a 5%
equity stake in the Company.
History of Reliance Petroleum
The Company was incorporated under the Companies Act, 1956 on October 24,
2005 as Reliance Petroleum Limited and obtained its certificate of commencement
of business on November 7, 2005.The Company formed to set up a green field
petroleum refinery and polypropylene plant to be located in a Special Economic
Zone in Jamnagar in the state of Gujarat in western India. The proposed refinery
and polypropylene plant will be located adjacent to the existing refinery and
petrochemical complex of the Promoter, Reliance Industries Limited (“RIL”), the largest
private sector company in India with assets of over Rs.806 billion (approximately
US$ 18 billion) as of March 31, 2005.RIL is the only private sector company from
India to feature in the Fortune Global 500.2007- Reliance Petroleum Ltd has
informed that Mr. Michael Seymour Warwick has been appointed as an Additional
Director of the Company.2008-Reliance Petroleum Ltd has appointed Mr. Joffery
Reney Pryor, Vice President Business Development- Chevron Corporation, as a
nominee director of Chevron in place of Mr. Jagjeet Singh Bindra.- Reliance
Petroleum Ltd has informed that Mr. Pawan Kumar Kapil has been appointed as
an Additional Director of the Company with effect from December 15, 2008.
Jamnagar Refinery
Refining activities of Reliance Industries Limited are carried out at the Jamnagar
refinery complex with refining capacity of 1,240,000 barrels per day which is 65
million tons per annum. The refinery is able to process a wide variety of crudes
from very light to very heavy (from 18 to 45-degree API) and from sweet to very
sour (with sulfur content from 0 to 4.5%). RPL commenced its crude processing
on 25 December 2008. The secondary processing units are now under
synchronization and commissioning. The entire refinery complex is expected to
attain full capacity shortly.
With an annual crude processing capacity of 580,000 barrels (92,000 m3) per
stream day (BPSD), RPL will be the sixth largest refinery in the world. It will have
a complexity of 14.0, using the Nelson Complexity Index, ranking it one of the
highest in the sector. The polypropylene plant will have a capacity to produce 0.9
million metric tons per annum.
The International Energy Agency (IEA) estimates the average capital cost of new
refinery in the OECD nations to be in the region of US$15,000 to20,000 per barrel
per day.
The low capital cost of RPL becomes even more attractive when adjusted for high
complexity of the refinery.
GROWTH OF RELIANCE INDUSTRIES
Reliance Industries, India’s largest industrial company by revenue, has posted a modest
Increase in second-quarter net profit, thanks to higher margins in its
petrochemicals businesses and a sharp depreciation in the rupee.
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This broadly positive performance came despite the continued weak performance of the
group’s oil and gas exploration division, which has seen regulatory disagreements
and delays relating to an eastern Indian gas field it co-owns with BP. Reduced
production meant quarterly revenues at the exploration division fell 35 per cent
year-on-year to only Rs14.6bn, even as quarterly revenues for the wider group rose
14 percent top as Rs1tn for the first time.
BP owns a one-third stake in the company’s KG-DG gas field following a $7.2bn deal
in 2011, but the partnership has been further undermined by indications that India’s
government may roll back a planned increase in the price that the partners can charge
for the gas.
Negotiations over the proposed price rise which both companies say is a necessary
precondition to any further investment in improving output have been marred by
wrangling over the reasons behind recent production falls.
Reliance and BP insist the field’s difficulties are caused by geological complication a claim
that India’s government has decided to investigate by appointing independent consultants to
Review the field’s performance.
Reliance also reported a fall in margins at its oil refining and marketing operations,
which provide around half of the group’s revenue and include its main Jamnagar facility in
western India the world’s largest oil refinery.
Mr. Ambani plans to invest about Rs1.5 tn in the group by 2017, part of which
will go into reviving the oil and gas business, as well as a major upgrade for its
petrochemicals facilities and a closely watched new operation in the
telecommunications sector.
However, Reliance’s result statement made no mention of the long-awaited launch date
for this mobile telecoms operation, which plans to provide ultra-fast 4G services
but has been delayed since last year.
Reasons of decrease in Reliance Petroleum
Dhirubhai Ambani died in 2002, and the Ambani brothers took over as heads of the
company. In that year, the company increased its dominance of the country's petrochemicals
sector through its acquisition of main private-sector rival Indian Petrochemicals
Corporation. Also in 2002, Reliance launched a diversification effort, targeting
the telecommunications sector, especially the fast-growing cellular phone market.
Reliance set up its own phone service, Reliance Info comm., in that year.
Yet the petroleum industry remained the company's major growth focus. In 1999,
the Indian government auctioned off 25 blocks for exploration; bids were given in
the form of royalty percentage offers. Reliance won 12 of the blocks and promptly
set in place its own team of exploration experts, backed by oilfield services from
Halliburton and Schlumberger. Reliance's investment quickly paid off with
the discovery of natural gas reserves estimated at some 14 trillion cubic feet, the
largest natural gas field discovered in India in decades, in the Krishna-Godavari
Basin in the Bay of Bengal. In 2004, the company struck again, locating a new gas
field in the Bay of Bengal, off the Orissa Coast.
In the meantime, rising tensions between Mukesh and Anil Ambani came to a head in late
2005, when a long-simmering disagreement over company strategy broke out into
an open and highly publicized feud. In the end, a truce was brokered by the
brother’s mother, who proposed a breakup of Reliance Industries into two roughly equal
components. Mukesh Ambani remained as head of the company's petroleum,
petrochemical, and textiles operations, and Anil Ambani regrouped the company's
telecommunications, energy, capital finance, and other operations into a new company. The
breakup of the company took place in 2006. As a result, Reliance Industries
emerged as a focused and highly integrated petroleum and petrochemicals
challenger to the global heavyweights.
OBJECTIVE
RESEARCH:
Research is a process in which the researcher wishes to find out the end result for a
given problem and thus the solution helps in future course of action. The research
has been defined as “A careful investigation or enquiry especially through search
for new facts in branch of knowledge”.
RESEARCH DESIGN:
Redman and Mory (1923) defined research as a “systematic effort to gain new
knowledge” According to Clifford Woody “research comprises defining or
redefining problems, formulating hypothesis or giving solutions, collecting,
organizing, evaluating the data, making deductions and reaching conclusions and
at carefully testing the conclusion to determine whether they fit the formulating
hypothesis.”
The research design used in this project is Analytical in nature the procedure using,
which researcher has to use facts or information already available, and analyze
these to make a critical evaluation of the performance.
Primary Data:
Primary data is the information collected by the researcher in first hand. This data
is collected by the researcher in order to analyze the research. Primary data is
collected from the field organization selected that is from the employees,
customers and observing the real life situations. The main benefit of the primary
data is collected only for the specific study so it is more relevant to the study. But
there is disadvantage for the collection of primary data it involves more cost and
time. It is not suitable for short term study. Primary data for this proposal will be
collected from the employees and customers of Reliance Petroleum Company in
order to know how they work over there. Primary research may be quantitative and
qualitative research. Qualitative research is a method where the researcher set the
questionnaire which will give to large number of respondents. Based on the
responses the data will be analyzed. In this study questionnaire will be given to the
customers and employees of Reliance Petroleum Company to analyze the data.
Secondary Data:
Secondary data is the information which is collected already and it is used for
some other studies by different researcher. This data not only used for the current
study. The sources of secondary data are books, journals, articles, newspapers,
internet, government, corporate reports and library. The advantage of this data it is
easily available and also very cheap compared to primary data. In this study we are
using secondary data for the analyses of ratio in order to know the financial
performance of Reliance Petroleum Company.
Data are collected from the annual reports maintained by the company.
Data are collected from the company’s website.
Financial Statement:
1] Calculation of ratio
2] Comparing the ratio with some predetermined standards. The standard ratio may
be the past ratio of the same firm or industry’s average ratio or a projected ratio or
the ratio of the most successful firm in the industry. In interpreting the ratio of a
particular firm, the analyst cannot reach any fruitful conclusion unless the
calculated ratio is compared with some predetermined standard. The importance of
a correct standard is oblivious as the conclusion is going to be based on the
standard itself.
Share holders/Investors:
Investor in the company will like to access the financial position of company
where he is going to invest. The first concern would be the security of the
investment and then the return on the investment in the form of interest and
dividends. So, Investors concentrate on the firm’s financial structure to the extent
that influences the firm’s earning ability and risk.
Trade creditors:
They are interested in firm’s ability to meet its claims over a short period of time.
So their analysis is usually confined to evaluation of firm’s liquidity position.
They are concerned with firm’s long term future solvency and survival. They
analyze the firm’s profitability over a period of time, its ability to generate cash,
ability to pay interest, repay the principle and relationship between various sources
of funds.
Employees:
Government:
Management:
Management of the firm requires these statements for its own evaluation and
decision making. Moreover, it is responsible for the overall performances of the
firm maintaining its solvency so as to be able to meets short-term and long-term
obligations to the creditors and at the same time ensuring an adequate rate of
return, consistent with safety of funds of its owner. Financial analysis may not
provide exact answer to the questions but it will be an indication of forthcoming
future.
1- Operational & Financial Ratios
Meaning:
Earnings per Share are calculated to find out overall profitability of the
organization. Earnings per Share represent earning of the company whether
or not dividends are declared. If there is only one class of shares, the earning
per share are determined by dividing net profit by the number of equity
shares.
EPS measures the profits available to the equity shareholders on each share
held.
NPAT
Earnings per share =
Number of equity share
For Reliance Petroleum Limited the variance of EPS ratio for 5 years is –
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
53.06 96.66 84.52 70.21 68.02
100
80
60
40
20
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
b) Dividend Per Share (Rs)
Formula:
For Reliance Petroleum Limited the variance of DPS ratio for 5 years is
10
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
c) Book NAV/Share(Rs.)
Meaning: An expression for net asset value that represents a fund's (mutual,
exchange-traded, and closed-end) value per share. It is calculated by dividing the
total net asset value of the fund or company by the number of shares outstanding.
For Reliance Petroleum Limited the variance of Book NAV Share (%) ratio for 5
years is
BOOK NAV/SHARE(Rs.)
1000
900
800
700
600
500
400
300
200
100
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
2- Performance Ratios
(a) ROA Ratio:
For Reliance Petroleum Limited the variance of ROA (%) ratio for 5 years is
ROA (%)
6.6
6.4
6.2
5.8
5.6
5.4
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
(b) ROE Ratio:
For Reliance Petroleum Limited the variance of ROE (%) ratio for 5 years is
ROE (%)
11.8
11.6
11.4
11.2
11
10.8
10.6
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
(c) ROCE Ratio:
For Reliance Petroleum Limited the variance of ROCE (%) ratio for 5 years is
ROCE (%)
12.5
12
11.5
11
10.5
10
9.5
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
3- Valuation Parameters
(a) PER (x) Ratio:
Meaning: The P/E ratio (price-to-earnings ratio) of a stock (also called its "P/E",
"PER", "earnings multiple," or simply "multiple") is a measure of the price paid for
a share relative to the annual net income or profit earned by the firm per share.[2]
It is a financial ratio used for valuation: a higher P/E ratio means that investors are
paying more for each unit of net income, so the stock is more expensive compared
to one with lower P/E ratio.
For Reliance Petroleum Limited the variance of PER (x) ratio for 5 years is
PER (x)
18
16
14
12
10
8
6
4
2
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
(b) PCE (x) Ratio:
For Reliance Petroleum Limited the variance of PCE (x) ratio for 5 years is
PCE (x)
14
12
10
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
(c) Price/Book Ratio:
Meaning: A ratio used to compare a stock's market value to its book value. It is
calculated by dividing the current closing price of the stock by the latest quarter's
book value per share. It is also known as the "price-equity ratio".
Stock Price
Price Book Ratio =
Total Assets − Intangible Assets and Liabilities
For Reliance Petroleum Limited the variance of Price/Book (x) ratio for 5 years is
PRICE/BOOK (x)
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
(d) Yield Ratio:
For Reliance Petroleum Limited the variance of YIELD (%) ratio for 5 years is
YIELD (%)
1.4
1.2
0.8
0.6
0.4
0.2
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
(e) EV/ NET Sales Ratio:
For Reliance Petroleum Limited the variance of EV/NET Sales (x) ratio for 5 years
is
1.5
0.5
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
(f) EV / Core EBITDA(x) Ratio:
For Reliance Petroleum Limited the variance of Book NAV Share (%) ratio for 5
years is
EV / Core EBITDA(x)
12
10
8
6
4
2
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
(g) EV / EBIT(x) Ratio:
Meaning: Enterprise value to earnings before interest and tax (EV/Ebit) is a way of
deciding whether a share is cheap (a low number) or expensive relative to, say, its
peers or the wider market.
For Reliance Petroleum Limited the variance of EV/EBIT (x) ratio for 5 years is
EV / EBIT(x)
16
14
12
10
8
6
4
2
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
(h) EV / CE(x) Ratio:
Meaning: Enterprise value (EV) and Enterprise value ratios are part of the basic
foundation of stock analysis for value investors.
The purpose of Enterprise Value (EV) is twofold; First, to calculate what it would
cost to purchase the entire company or business. Secondly, to provide a capital
neutral valuation with which to compare with other companies.
For Reliance Petroleum Limited the variance of EV/CE (x) ratio for 5 years is
EV / CE(x)
1.2
0.8
0.6
0.4
0.2
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
(i) M Cap / Sales Ratio:
For Reliance Petroleum Limited the variance of M Cap/ Sales ratio for 5 years is
M Cap / Sales
2.5
1.5
0.5
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
4- Growth Ratio:
(A) Core Operating Income Growth:
Meaning: It measures the amount of money a company makes from its core
business activities not including other income expenses not directly related to the
core activities of the business.
For Reliance Petroleum Limited the variance of Core Operating Growth ratio for 5
years is
60
40
20
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
-20
-40
(B) Operating Profit Growth
Meaning: The operating profit growth ratio indicates how much profit a company
makes after paying for variable costs of production such as wages, raw materials,
etc.
For Reliance Petroleum Limited the variance of Operating Profit Growth ratio for
5 years is
Meaning: The net profit growth is equal to how much net income or profit is
generated as a percentage of revenue. Net profit growth is the ratio of net profits
to revenues for a company or business segment. Net profit margin is typically
expressed as a percentage but can also be represented in decimal form. The net
profit growth illustrates how much of each dollar in revenue collected by a
company translates into profit.
Formula:
For Reliance Petroleum Limited the variance of Net Profit Growth ratio for 5 years
is
20
15
10
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
(D)BVPS Growth
Meaning: Book value of equity per share (BVPS) is the equity available to
common shareholders divided by the number of outstanding shares. This represents
the minimum value of a company's equity.
For Reliance Petroleum Limited the variance of BVPS Growth ratio for 5 years is
BVPS Growth
30
20
10
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
-10
-20
-30
-40
-50
(E) EPS Growth (%)
Meaning: Earnings per share (EPS) Growth Rate ratio, is expressed as a percentage
and it shows the relative growth of EPS over the last two reporting periods. A
minus sign indicates negative growth from last year. If the previous year's EPS-
basic is zero earnings per share growth rate is not defined.
For Reliance Petroleum Limited the variance of EPS Growth (%) ratio for 5 years
is
20
10
0
Mar ‘18 Mar’ 17 Mar’ 16 Mar’ 15 Mar’ 14
-10
-20
-30
-40
-50
LIMITATION OF THE STUDY:
1) The Current ratio is below the standard ratio and it is not good from
company’s point of view. It shows that it is not good position to meet the
short term liabilities.
2) The liquidity ratio is according to standard ratio (1:1) and it is good from
company’s point of view. It shows the company is able to meet its liabilities
is short period.
3) The debtor turnover ratio is good. It shows the collection of debtors is very
prompt.
SUGGESTIONS
1. The current ratio of the company doesn’t reach standard ratio so company
need to concentrate on increasing the current ratio by increasing in current
assets.
2. Debt ratio of the company has been increased to subsequent year. High debt
ratio is unfavorable of the company.
3. The company needs to maintain good capital employed turnover ratio by
increasing the sales.
4. The company needs to increases the working capital turnover ratio for
efficiency utilization of working capital.
CONCLUSION
Study of the ratio analysis of Reliance Petroleum Limited reveals the performance
of the company in terms of financial aspects. It is found that there is an increase in
sales, net profit; during 2017-18 the cash balance is also increased for the above
said year. It is also observed that the current ratio is not satisfactory. Net working
capital ratio is also increasing for the above said year.
Further the company performance and efficiency can be improved by above
mentioned points in the suggestion.
BIBLIOGRAPHY
1) Shashi K. Gupta & R. K. Sharman; “Financial Management Theory and
Practice”; 6th revised edition, Kalyani Publishers
2) C. R. Kothari, “Research Methodology, Methods & Techniques”; 2nd revised
edition, New Age International Publishers.
3) Prasana Chandra; “Financial Management Theory & Practice”, 7th Edition,
Tata Mc Graw Hill
4) Ravi M. Kishor; “ Financial Management” 7th edition; Taxman’s
Annexure- 1