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TERM PAPER

ON

FINANCIAL

MANAGEMENT

2010

ONGC

AVINASH KUMAR

[FINANCIAL ANALSIS ON ONGC]

SUBMITTED TO:

SWATI GOYAL

SUBMITTED BY:

AVINASH KUMAR

MBA (IB)

REG NO: 10901244

ROLL NO: R1906A10

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T ABLE OF CON T EN T

1. HISTORY

2. GLOBAL RANKING

3. MANAGEMENT:

4. FINANCIAL HEIGHTS

5. STOCK MARKET DATA

6. CAPITAL STUCTURE

7. STEP BY STEP RESEARCH AND ANALYSIS

8. BALANCE SHEET

9. ONGC VS OIL INDUSTRY

10. ANALYSIS REPORT

11. REFERENCES AND BIBLIOGRAPHY

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HISTORY

1947 - 1960

During the pre-independence period, the Assam Oil Company in the northeastern and Attock Oilcompany in northwestern part of the undivided India were the only oil companies producing oil

in the country, with minimal exploration input. The major part of Indian sedimentary basins wasdeemed to be unfit for development of oil and gas resources.

After independence, the national Government realized the importance oil and gas for rapidindustrial development and its strategic role in defense. Consequently, while framing theIndustrial Policy Statement of 1948, the development of petroleum industry in the country wasconsidered to be of utmost necessity.

Until 1955, private oil companies mainly carried out exploration of hydrocarbon resources oIndia. In Assam, the Assam Oil Company was producing oil at Digboi (discovered in 1889) andthe Oil India Ltd. (a 50% joint venture between Government of India and Burmah Oil Company)

was engaged in developing two newly discovered large fields Naharkatiya and Moran in Assam.In West Bengal, the Indo-Stanvac Petroleum project (a joint venture between Government oIndia and Standard Vacuum Oil Company of USA) was engaged in exploration work. The vastsedimentary tract in other parts of India and adjoining offshore remained largely unexplored.

In 1955, Government of India decided to develop the oil and natural gas resources in the variousregions of the country as part of the Public Sector development. With this objective, an Oil and Natural Gas Directorate was set up towards the end of 1955, as a subordinate office under thethen Ministry of Natural Resources and Scientific Research. The department was constitutedwith a nucleus of geoscientists from the Geological survey of India.

A delegation under the leadership of Mr. K D Malviya, the then Minister of Natural Resources,visited several European countries to study the status of oil industry in those countries and tofacilitate the training of Indian professionals for exploring potential oil and gas reserves. Foreignexperts from USA, West Germany, Romania and erstwhile U.S.S.R visited India and helped thegovernment with their expertise. Finally, the visiting Soviet experts drew up a detailed plan for geological and geophysical surveys and drilling operations to be carried out in the 2nd Five Year Plan(1956-57to1960-61).

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In April 1956, the Government of India adopted the Industrial Policy Resolution, which placedmineral oil industry among the schedule 'A' industries, the future development of which was to be the sole and exclusive ResponsibilityofthestaSoon, after the formation of the Oil and Natural Gas Directorate, it became apparent that it wouldnot be possible for the Directorate with its limited financial and administrative powers as

subordinate office of the Government, to function efficiently. So in August, 1956, the Directoratewas raised to the status of a commission with enhanced powers, although it continued to beunder the government. In October 1959, the Commission was converted into a statutory body byan act of the Indian Parliament, which enhanced powers of the commission further. The mainfunctions of the Oil and Natural Gas Commission subject to the provisions of the Act, were "to plan, promote, organize and implement programmes for development of Petroleum Resourcesand the production and sale of petroleum and petroleum products produced by it, and to performsuch other functions as the Central Government may, from time to time, assign to it ". The actfurther outlined the activities and steps to be taken by ONGC in fulfilling its mandate.

1961 ± 1990

Since its inception, ONGC has been instrumental in transforming the country's limited upstreamsector into a large viable playing field, with its activities spread throughout India andsignificantly in overseas territories. In the inland areas, ONGC not only found new resources inAssam but also established new oil province in Cambay basin (Gujarat), while adding new petroliferous areas in the Assam-Arakan Fold Belt and East coast basins (both inland andoffshore).ONGC went offshore in early 70's and discovered a giant oil field in the form of Bombay High,now known as Mumbai High. This discovery, along with subsequent discoveries of huge oil andgas fields in Western offshore changed the oil scenario of the country. Subsequently, over 5

billion tonnes of hydrocarbons, which were present in the country, were discovered. The mostimportant contribution of ONGC, however, is its self-reliance and development of corecompetence in E&P activities at a globally competitive level.

After 1990

The liberalized economic policy, adopted by the Government of India in July 1991, sought toderegulate and de-license the core sectors (including petroleum sector) with partialdisinvestments of government equity in Public Sector Undertakings and other measures. As aconsequence thereof, ONGC was re-organized as a limited Company under the

Company'sAct,1956inFebruary1994.

After the conversion of business of the erstwhile Oil & Natural Gas Commission to that of Oil & Natural Gas Corporation Limited in 1993, the Government disinvested 2 per cent of its sharesthrough competitive bidding. Subsequently, ONGC expanded its equity by another 2 per cent byofferingsharestoitsemployees.

During March 1999, ONGC, Indian Oil Corporation (IOC) - a downstream giant and Gas

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Authority of India Limited (GAIL) - the only gas marketing company, agreed to have crossholding in each other's stock. This paved the way for long-term strategic alliances both for thedomestic and overseas business opportunities in the energy value chain, amongst themselves.Consequent to this the Government sold off 10 per cent of its share holding in ONGC to IOC and2.5 per cent to GAIL. With this, the Government holding in ONGC came down to 84.11 per cent.

In the year 2002-03, after taking over MRPL from the A V Birla Group, ONGC diversified intothe downstream sector. ONGC will soon be entering into the retailing business. ONGC has alsoentered the global field through its subsidiary, ONGC Videsh Ltd. (OVL). ONGC has mademajor investments in Vietnam, Sakhalin and Sudan and earned its first hydrocarbon revenuefrom its investment in Vietnam.

Global R anking

ONGC ranks as the Numero Uno Oil & Gas Exploration& Production (E&P) Company in the world, as per Platts

250 Global Energy Companies List for the year 2008 basedon assets, revenues, profits and return on invested capital(ROIC).

ONGC ranks 20th among the Global publicly-listedEnergy companies as per µPFC Energy 50´ (Jan 2008)

ONGC is the only Company from India in the Fortune Magazine¶s list of the World¶sMost Admired Companies 2007.

Occupies 152nd rank in ³Forbes Global 2000´ 2009 list (up 46 notches than last year)

of the elite companies across the world; based on sales, profits, assets and marketvaluation during the last fiscal. In terms of profits, ONGC maintains its top rank fromIndia.

ONGC ranked 335th position as per Fortune Global 500 - 2008 list; up from 369th rank last year, based on revenues, profits, assets and shareholder¶s equity. ONGC maintainstop rank in terms of profits among seven companies from India in the list.

Financials (2008-09)

ONGC posted a net profit of Rs. 161.26 billion despite volatile oil markets and crude prices.

Net worth Rs. 781 billion

Practically Zero Debt Corporate

Contributed over Rs. 280 billion to the exchequer

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MANAGEMENT:

CHAIR MAN &MANAGING DIR ECTOR

R S SharmaChairman & Managing Director

FUNCTIONAL DIR ECTORS

Dr. A K BalyanDirector (HR)

A K HazarikaDirector (Onshore)

D K PandeDirector (Exploration)

U N Bose

Director (Technology & Field Services)

D K Sarraf

Director (Finance)

Sudhir Vasudeva

Director (Offshore)

SPECIAL INVITEE GOVER NMENT NOMINEE

R S ButolaManaging Director, OVL

Sudhir BhargavaAdditional Secretary, MoP&NG

L M Vas

Addl. Secy. DEAMinistry of Finance,

Govt. of India

INDEPENDENT DIR ECTORS

S Balachandran S S Rajsekar Santosh Nautiyal Anita Das

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FINANCIAL HEIGHTS

ONGC Perf ormance Graphs

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STOCK MAR K ET DATA:

Stock Mark et Inf ormation

Stock Mark et Data

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CAPITAL STUCTUR E:

SOURCE: http://content.icicidirect.com/research/CapitalStructure.asp?icicicode=ONGC

Capital Structure

From Year To

Year Class Of Share

AuthorisedCapital

(Cr.)

IssuedCapital

(Cr.) PaidUp Shares

Face

Value

PaidUp Capital

(Cr.)

2008 2009 Equity Share 15,000.00 2,138.8921388725302138872530

10 2,138.87

2007 2008 Equity Share 15,000.00 2,138.8921388725302138872530

10 2,138.87

2006 2007 Equity Share 15,000.00 2,138.8921388725302138872530

10 2,138.87

2005 2006 Equity Share 15,000.00 1,425.931425933992

142593399210 1,425.93

2004 2005 Equity Share 15,000.00 1,425.9314259339921425933992

10 1,425.93

2003 2004 Equity Share 15,000.00 1,425.9314259339921425933992

10 1,425.93

2002 2003 Equity Share 15,000.00 1,425.9314259339921425933992

10 1,425.93

2001 2002 Equity Share 15,000.00 1,425.9314259339921425933992

10 1,425.93

2000 2001 Equity Share 15,000.00 1,425.93

1425933992

1425933992 10 1,425.93

1999 2000 Equity Share 15,000.00 1,425.9314259339921425933992

10 1,425.93

STEP BY STEP R ESEAR CH AND ANALYSIS

How to research a stock ?

When considering the purchase of a stock, investors should find answers to some key questions.

Fundamentals What is the company's business, is it financially sound -- and is itgrowing?

Price

History

How much have other investors been willing to pay for the stock in the

past?Price Target How much are investors likely to pay for the stock in the future?

Catalysts What catalysts will change investors' perceptions of the stock in thefuture?

Comparison How does the stock compare to others in its industry?

R ecent

Developments Check out what are the recent developments in the company

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Step1:What does the company do?

- The Oil and Natural Gas Corporation (ONGC) plans to invest Rs 5,000 crore in the oil and gasexploration business in order to double its reserve base to 12 billion tonnes oil equivalent by2020, according to the ONGC Chairman and Managing Director, Mr Subir Raha.

- The Consortium of Cairn Energy, Oil and Natural Gas Corporation and Tata Petrodyne willinvest about $300 million in development of Lakshmi oil and gas field in Gulf of Khambat by2008.

- OIL AND Natural Gas Corporation (ONGC) won a two-decade-old litigation in the SupremeCourt last week when it directed some 10 industries in Gujarat to pay ONGC interest at thecontracted rates on arrears retained by them during the long period. With this order, ONGC isexpected to get around Rs 500 crore.

-The company entered into strategic alliance with Indian Oil Corporation and set-up ONGIO

Internatinal Pvt Ltd. on 8th June 2001 a 50:50 joint venture company for Training, Consultancy& Services in Hydrocarbon Sector.

2009 - Oil and Natural Gas Corp (ONGC) reported a gas discovery in the west Tripura block inthe Assam and Assam Arakan basin.

- ONGC achieves all-time record in oil, gas production.

- ONGC awards contract worth Rs 753 crore to UAE company.

Step2 : How f ast is the company growing?

Companies are judged by their sales and earnings growth rates than on the absolute value of

their sales and earnings. Look for companies that consistently grow faster than there peers.

Year 2009/03 2008/03 2007/03 2006/03 2005/03

Sales 64,003.99 60,065.10 56,913.43 47,989.75 46,159.40

Var % 6.56 5.54 18.59 3.97

Profit After Tax 16,126.32 16,701.65 15,642.92 14,430.78 12,983.05

Var % -3.44 6.77 8.40 11.15

Step3 : How prof itable is the company?

Investors prefer companies that increase profit margins -- the percentage of sales that theykeep -- every year. T his is accomplished either by lowering expenses or raising prices. Look

or companies that consistently find ways to squeeze more profits out of sales than their

eers.

Year 2009/03 2008/03 2007/03 2006/03 2005/03

Profit After Tax 16,126.32 16,701.65 15,642.92 14,430.78 12,983.05

Var % -3.44 6.77 8.40 11.15

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Year 2009/03 2008/03 2007/03 2006/03 2005/03

OPM (%) 48.73 50.02 50.04 56.73 51.75

Var % -2.58 -0.04 -11.79` 9.62

Step4 : How is the company's f inancial health?

The financial health of a company is dependent on a combination of profitability, short-termliquidity and long term liquidity. Companies, which are profitable, but have poor short term or long term liquidity measures, do not survive the troughs of the trade cycle. Also firms, whichare not profitable but are cash rich, do not survive in the long term either. Such companies aretaken over for their cash flow or by others who believe that they can improve the profitability of the business. Thus, those companies that do succeed and survive over the long term have awell-rounded financial profile, and perform well in all aspects of financial analysis.Profitabilityratios reflects the business environment of the time.

The k ey prof itability ratios are:

Return on Total Assets (ROTA) 10.70%

Return on capital employed (ROCE) 17.01%

Net profit margin 23.50%

Short-term liquidity is the ability of the company to meet its short-term financial commitments.Short-term liquidity ratios measure the relationship between current liabilities and currentassets. Current assets are stocks and work-in-progress, debtors and cash that would normally bere-circulated to pay current liabilities. The ideal ratio 1:1. But a very high ratio indicates that thecompany is unable to manage its cash properly.

The k ey short-term liquidity ratios are

:

Current Ratio 1.45

Quick Ratio 1.27

Long term liquidity or gearing is concerned with the financial structure of the company. Longterm liquidity ratios measure the extent to which the capital employed in the business has beenfinanced either by shareholders through share capital and retained earnings, or through borrowing and long-term finance. Highly geared companies are risky. Look for a balance.The k ey long-term liquidity ratios are:

Gearing Ratio 88.23%

Interest Cover 1.90

Step5:How has the stock perf ormed?

Investors need to know how a stock has performed relative to all other stocks.Generally they

attempt to hold the markets top-performing securities-those that have done better over the past

ear than majority of stocks in their industrial group and all stocks in our database.Look for a

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ositive trend in 12-month,6-month and 3-month periods.

BSE NSE

period close price change period close price change

3 Months 1,103.95 -5.24 3 Months 1,105.10 -5.20

6 Months 1,132.80 -7.65 6 Months 1,133.40 -7.57

12 Months 832.75 25.62 12 Months 832.65 25.82

Step6:Where is the stock 's support and resistance?

Investors should note that the average prices at which a stock traded over the past 50- and

200-day periods.T hese "moving averages" tend to provide a floor,or support,for stocks trading

above them and a ceiling,or resistance,for stocks below them.Stocks that sink below support

are in danger of further weakening;stocks that rise above resistance have a shot at new highs.

BSE NSE

Close Price Rs.1,046.10 Close Price Rs.1,047.60

52 Week Low Rs.802.00 52 Week Low Rs.802.35

50-day Moving Average Rs.1,071.46 50-day Moving Average Rs.1,071.73

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Oil & Natural Gas Corporation Ltd.

Key Financial R atios

2009/03 2008/03 2007/03 2006/03 2005/03

Per Share

EPS 75.40 78.09 73.14 101.20 91.05

CEPS 95.76 96.39 88.53 128.22 103.84

Book Value 368.12 330.16 289.52 378.42 328.52

Dividend/Share 32.00 32.00 31.00 45.00 40.00

Operating Profit / Share 150.80 139.05 131.65 188.98 164.96

Net Operating Income / Share 299.24 280.83 266.09 336.55 323.71

Free Reserves / Share 353.81 315.74 275.84 363.84 312.79

Prof itability R atios

OPM 50.39 49.51 49.47 56.15 50.96

GPM 43.58 42.99 43.69 48.12 47.00

NPM 23.50 25.93 25.79 28.93 2

RONW 19.95 23.17 27.40 26.01 27.91

Liquidity ratios

Debt/Equity 0.20 0.17 0.24 0.23 0.21

Current Ratio 1.45 1.56 1.41 1.42 1.46Quick Ratio 1.27 1.39 1.28 1.28 1.33

Interest Cover 4.34 6.79 8.56 7.76 7.04

Turn Over R atios

Sales/Total Assets 2.49 2.42 2.35 2.37 2.63

Sales/Fixed Assets 1.01 1.16 1.22 1.16 1.33

Sales/Current Assets 0.77 0.87 0.68 0.71 0.83

Miscellaneous

No of Days of Working Capital 144.51 148.96 152.97 151.62 136.63

CAR 0.00 0.00 0.00 0.00 0.00

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ONGC

5/3/2010 3:30:11 PM

Last:

1,050.30

Change:

-4.50

Exchange Code:

ONGCEQ

Open:

1,050.00

Low:

1,043.75

Volume:

540404

Percent Change:

-0.43

Last Close:

1,054.80

High:

1,058.70

52 Week High:

1,277.65

52 Week Low:

802.35

Date News Headlines

05/03/2010 ONGC gas pipeline leaks in Surat, no casualties

04/27/2010 Govt plans to hike ONGC gas price to $4/mmBtu

04/27/2010 ONGC adds 83 mn tonnes of oil and gas reserves in FY'10

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BALANCE SHEET

Balance Sheet

R s. cr

Period & months 2009/03 2008/03 2007/03 2006/03 2005/03

SOUR CES OF FUNDS

Owned Funds

Equity Share Capital 2,138.89 2,138.89 2,138.89 1,425.93 1,425.93

Share Application Money 0.00 0.00 0.00 0.00 0.00

Preferential Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves & Surplus 76,596.53 68,478.51 59,785.04 52,533.74 45,419.49

Loan Funds

Secured Loans 0.00 0.00 0.00 0.00 0.00

Unsecured Loans 16,035.70 12,482.71 15,109.07 12,722.61 9,916.22

TOTAL 94,771.12 83,100.11 77,032.99 66,682.28 56,761.63

USES OF FUNDS

Fixed Assets

Gross Block 61,355.61 57,463.78 52,038.07 47,882.35 42,983.85

Accumulated Depreciation 50,941.23 46,945.77 43,198.95 40,040.15 37,147.32

Less: Revaluation Reserve 0.00 0.00 0.00 0.00 0.00

Net Block 10,414.37 10,518.01 8,839.11 7,842.20 5,836.53

Capital Work-in-progress 52,923.19 41,154.63 37,794.16 33,373.92 28,838.35

Investments 5,090.32 5,899.50 5,702.05 4,888.57 4,036.67

Net Current Assets

Current Assets, Loans & Advances 83,204.71 69,165.19 83,784.78 67,849.42 55,340.09

Less: Current Liabilities & Provisions 57,512.08 44,311.12 59,601.18 47,638.17 37,821.16

Total Net Current Assets 25,692.62 24,854.07 24,183.60 20,211.25 17,518.93

Miscellaneous Expenses not written off 650.61 673.90 514.06 366.34 531.16

TOTAL 94,771.12 83,100.11 77,032.99 66,682.28 56,761.63

Number of Equity shares outstanding (Cr.) 213.89 213.89 213.89 142.59 142.59

Bonus component in Equity Capital 1,789.40 1,789.40 1,789.40 1,076.44 1,076.44

Notes:

Book Value of Unquoted Investments 2,333.84 3,143.02 2,945.57 2,132.10 1,280.19

Market Value of Quoted Investments 11,143.95 16,943.91 9,979.81 13,365.52 11,876.20

Contingent liabilities 36,024.57 26,006.73 34,157.17 32,907.71 26,593.45

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ONGC VS OIL INDUSTRY

Splits:none

IMPACT OF NEWS ON SHAR E PRICE

Live Charts

Oil & Natural Gas Corporation Ltd. - (NSE)

Oil & Natural Gas Corporation Ltd. - (BSE)

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News

Oil & Natural Gas Corporation Ltd.

05/03/2010 ONGC gas pipeline leaks in Surat, no casualties

04/27/2010ONGC adds 83 mn tonnes of oil and gas reserves in

FY'10

04/27/2010 Govt plans to hike ONGC gas price to $4/mmBtu

04/26/2010 Oil & Natural Gas Corpn Ltd - Press Release

04/16/2010 Current KG gas sale price unviable: ONGC

04/09/2010ONGC wins Dalal Street Investment Journal PSU

Award

04/06/2010 ONGC gets credits for Mumbai high project

04/06/2010 ONGC gets CER from UN Agency

03/29/2010ONGC firms up on three new oil and gas fields

discovery

03/25/2010China's CNOOC beats ONGC's bid to win oil property

in Uganda, deal details

03/23/2010 ONGC, OIL may get higher price for gas

03/22/2010ONGC in talks with 3 Russian companies for

partnerships

03/19/2010 Govt clears ONGC & partners' Venezuela investment

03/18/2010 ONGC - Change in Directorate

03/15/2010ONGC FY10 output may be lower than target, stock

down

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03/12/2010 ONGC spurts on expansion plans in Russia

03/10/2010 ONGC's proposed SEZ in Gujarat gets green signal

03/10/2010 ONGC to invest $5.8 bn in FY11: Oil minister

02/25/2010ONGC eyes Latin America, Africa assets in growth

push

02/23/2010 ONGC - Resignation of Director

02/19/2010Govt nod to ONGC, GAIL's stake in China gas

pipeline

02/18/2010 ONGC team to invest $2.25 bn initially in Venezuela

02/16/2010 ONGC to bring imported liquefied natural gas to India

02/11/2010ONGC gains momentum overseas unit wins

Venezuela's Carabobo oil auction

02/11/2010 ONGC - Press Release

02/08/2010 ONGC ties-up with PFC for Tripura power plant

02/02/2010 ONGC to spend Rs 26K cr on capital expenditure innext fiscal

02/01/2010 ONGC's K-G basin wells to start production next year

01/29/2010 ONGC in pact with Angola's Sonangol

01/27/2010ONGC - Disclosures under Reg.13(6) of SEBI

(Prohibition of Insider Trading) Regulations, 1992

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ANALYSIS R EPORT :

a) The Company has generally maintained proper records showing full particulars

including quantitative details and situation of fixed assets.

The fixed assets, other than those which are underground/ submerged/ under joint

venture, having substantial value have been physically verified by the management in

phased manner. The reconciliation of physically verified assets with the book records

is in progress. Discrepancies noticed on physical verification and consequential

adjustments are carried out on completion of reconciliation.

According to the information and explanations given by the management, in our

opinion, the same is not material.

The Company has not disposed off a substantial part of fixed assets during the year.

a) The inventory has been physically verified in a phased manner (excluding inventory

lying with third parties, at some of the site- locations, inventory with joint ventures

and material in transit) during the year by the management. In our opinion, the

frequency of verification is reasonable.The procedures of physical verification of inventory followed by the management to

the extent verified were generally reasonable and adequate in relation to the size of the

Company and nature of its business.

The Company has generally maintained proper records of inventory except for

recording of consumption at a few of its site- locations. In our opinion the

discrepancies noticed on physical verification between the physical stock and book

records were not material having regard to the size of the Company and nature of its

business. In case where discrepancies noticed on physical verification have been

identified with inventory records, necessary adjustments have been carried out in the

books. In respect of cases where the reconciliation is not complete, the managementhas stated that the same would be adjusted in due course.

a) The Company has granted secured loans to five parties covered in the register

maintained under section 301 of the Companies Act, 1956. The amount outstanding at

the year end is Rs. 1.44 million and the maximum amount outstanding at any time

during the year was Rs. 1.82 million.

The rate of interest and other terms and conditions of the loans granted are not

prejudicial to the interest of the Company.

The payment of principal amount and interest are regular.

There is no overdue amount in respect of loans granted to the parties listed in the

register maintained under section 301 of the Companies Act, 1956.

The Company has not taken any loans, secured or unsecured, from companies, firms

or other parties covered in the register maintained under section 301 of the Companies

Act, 1956.

In our opinion, and according to the information and explanations given to us, the

internal control procedures are generally adequate and commensurate with the size of

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the Company and the nature of its business with regard to purchases of inventory,

fixed assets and sale of goods and services.

There is no contract or arrangement that need to be entered in the register required to

be maintained pursuance of section 301 of the Companies Act, 1956.

Accordingly, the provisions of clause 4 (v) (b) of the Companies (Auditor¶s Report)

Order, 2003 is not applicable to the company.

The Company has not accepted any deposits from the public.

The Company has an internal audit system commensurate with the size and nature of

its business.

The Company is generally regular in depositing with appropriate authorities

undisputed statutory dues including Provident Fund,

There are no such material outstanding statutory dues accrued in accounts as of the

last date of the financial year concerned for a period of more than six months from the

date they became payable.

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R EFER ENCES AND BIBLIOGR APHY

1.http://content.icicidirect.com/research/myresearch3.asp?icicicode=ONGC

2.http://content.icicidirect.com/research/chartstop.asp?icicicode=ONGC&category=corporate\

3.http://content.icicidirect.com/research/CapitalStructure.asp?icicicode=ONGC

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