equity research sski securities pvt[1]. ltd

7/31/2019 Equity Research SSKI Securities Pvt[1]. Ltd

1/49

Equity Research (SSKI Securities Pvt. Ltd.)

A PROJECT REPORT ON

Equity Research

AT

SSKI Securities Pvt. Ltd.

IN PARTIAL FULFILLMENT OF THE

MASTERS DEGREE IN BUSINESS ADMINISTRATION

SUBMITTED TO

UNIVERSITY OF PUNE

BY

ABHIJEET S. KELKAR

MBA II

2004 - 06

VISHWAKARMA INSTITUTE OF MANAGEMENT

PUNE

Abhijeet Kelkar 1


2/49


TO WHOMSOEVER IT MAY CONCERN

This is to certify that Mr. Abhijeet S. Kelkar is a bonafide student ofVishwakarma

Institute Of Management, Pune. He has successfully carried out his Summer Project

titled , Equity Research at SSKI Securities Pvt. Ltd., Pune.

This is the original study of Mr. Abhijeet S. Kelkar and important sources used by him

have been acknowledged in his report. This report is submitted in the fulfillment of two-

year full time course of MBA(2004-2006) as per the rules of the Pune University. He has

worked under our guidance and direction.

Dr. Sharad Joshi Prof. C. Ranade(Director VIM) (Project guide)

ACKNOWLEDGEMENT

Abhijeet Kelkar 2


3/49


Its a great privilege that I have done my project in such a wellorganized and diversified organization. I am grateful to all those who helpedand supported me in completing the project.

First and foremost I would like to thankMr. Jatin Kulkarni (Asst.Manager) for giving me an opportunity to work as a summer trainee in SSKISecurities Pvt. Ltd. And there by fulfilling the requirement of our MBAcourse.

I am also thankful to our director, Dr. Sharad Joshi and my projectguide Prof. Ranade for helping me in completing the project.

Last but not least, I am also thankful to all college staff and myfriends for helping me directly or indirectly in project.

CONTENTS

Abhijeet Kelkar 3


4/49


1. Company Profile Page no. - 1

2. About the Project Page no. - 3

3. Fundamental Analysis Page no. - 6

4. Technical Analysis Page no. - 12

5. About Oil and Gas Sector in India Page no. - 29

6. Analysis of a Indian Oil Corporation Page no. - 34

7. Interpretation Page no. - 43

8. Conclusion Page no. 44

9. Bibliography Page no. 45

Abhijeet Kelkar 4


5/49


Organizational Profile.

ShareKhan (SSKI): your friendly neighborhood broker.

ShareKhan, Indias leading stockbroker is the retail arm of SSKI, an

organization with over eight decades of stock market experiences.

ShareKhan runs India's largest chain of share shops with 150 outlets, hich

includes 28 branches & 122 business partners in more than 80 cities! What's a share shop?

& Indias premier online trading destinations, www.sharekhan.com, ShareKhan reach out

to customers like no one else.

To cut a long story short, ShareKhan is an equities focused organization tracing its

lineage to SSKI, a veteran equities solutions company with over 8 decades of experience in

the Indian stock markets. ShareKhan offer you trade execution facility on the BSE & the

NSE, for cash as well as derivatives, depository services & most importantly, investment

advices tempered by 80 year of research & broking experiences. To insure that youre

trading experiences with ShareKhan is fast, secure & hassle free, we offer a suite of

product & services, providing you with multi-channel access to the stock market.

ShareKhan is also about focus. ShareKhan does not claim expertise in too many

things. ShareKhans expertise lies in stocks and that's what he talks about with authority.

So when he says that investing in stocks should not be confused with trading in stocks or a

portfolio-based strategy is better than betting on a single horse, it is something that is

spoken with years of focused learning and experience in the stock markets. And these

beliefs are reflected in everything ShareKhan does for you. To sum up, ShareKhan brings

to you a user- friendly online trading facility, coupled with a wealth of content that will

help you stalk the right shares.

Abhijeet Kelkar 5


6/49


About ShareKhan i.e. SSKI LTD: apart from ShareKhan, SSKI group also comprises

institutional broking & corporate finance. While the institutional broking division caters to

largest domestic & foreign institutional investors, the corporate finance division focuses on

niche areas such as infrastructure, telecom & media.

POWER-PACK FEATURES: a main trade mark of ShareKhan is customized services,

from Indias largest network for the retail investor. Investor can trade in equities as well as

derivatives on live terminals of NSE (NEAT) & BSE (BOLT). ShareKhan also provide you

the convenience of trading from wherever you are. All you have to do is to get yourself a

classic trading account & enjoy the freedom that comes with it. ShareKhan also looks for

the convenient settlement with integrated depository services.

RESEARCH: the sciences of investing.

Stop trying to predict the direction of the stock market, the economy, interest rates

or elections. Warren Buffet. Chairman, Berkshire Hathaway Inc.

The tenets of Warren Buffetare simple. Research & in-depth knowledge of market

provides better analysis than speculation or reacting to rumors. ShareKhan team of

dedicated analysts is therefore, constantly at work to track performances & trends &

determine the winners. Thats why all our trading products have more than 75% successrate. We set up research team in 1992 to offer research based advices to institutional

clients. Voted four times as the top domestic brokerage house by Asiamoney survey, SSKI

is consistently ranked amongst the top domestic brokerage houses in India & our research

team has been acknowledged as one of the finest in the industries. At ShareKhan we have

extended the institutional depth of research to the retail investors.

Abhijeet Kelkar 6


7/49


WHATS THIS EQUITY ANALYSIS?

Professional investor will make more money & less loss than, who let their heart

rule. Their head eliminate all emotions for decision making. Be ruthless & calculating, you

are out to make money. Decision should be based on actual movement of share price

measured both in money & percentage term & nothing else. Greed must be avoided

patience may be a virtue, but impatience can frequently be profitable.In Equity Analysis anticipated growth, calculations are based on considered

FACTS & not on HOPE. Equity analysis is basically a combination of two independent

analyses, namely fundamental analysis & Technical analysis. The subject of Equity

analysis, i.e. the attempt to determine future share price movement & its reliability by

references to historical data is a vast one, covering many aspect from the calculating

various FINANCIAL RATIOS, plotting of CHARTS to extremely sophisticated

indicators.

A general investor can apply the principles by using the simplest of tools: pocket

calculator, pencil, ruler, chart paper & your cautious mind, watchful attention. It should be

pointed out that, this equity analysis does not discuss how to buy & sell shares, but does

discuss a method which enables the investor to arrive at buying & selling decision.

The financial analysts always need yardsticks to evaluate the efficiency &

performances of any business unit at the time of investment. Fundamental analysis is useful

in long term investment decision. In Fundamental analysis a companys goodwill, its

performances, liquidity, leverage, turnover, profitability & financial health was checked &

analysis with the help of ratio analysis for the purpose of long term successful investment.

Technical analysis refers to the study of market generated data like prices &

volume to determine the future direction of prices movements. Technical analysis mainly

seeks to predict the short term price travels. The focus of technical analysis is mainly on

Abhijeet Kelkar 7


8/49


the internal market data, i.e. prices & volume data. It appeals mainly to short term traders.

It is the oldest approach to equity investment dating back to the late 19 th century.

Assumptions for the Equity Analysis.

1. Works only in normal share-market conditions with great reliability, it also works

in abnormal share-market conditions, but with low reliability.

2. Equity analysis is purely based on the INVESTMENT PHILOSOPHY, so the

investment object has vital importance associated to return along with risk.

3. Cash management gets the magnitude role, because the scenario of equity analysis

is revolving around the term money

4. Portfolio management, risk management was up to the investors knowledge.

5. Capital market trend is always a friend, whether it is short run or long run.

6. You are buying stock & not companies, so dont be curious or panic to do

postmortem of companies performances.

7. History repeats: investors & speculators react the same way to the same types of

events homogeneously.

8. Capital market has a typical market psychology along with other issues like;

perceptions, the crowd Vc the individual, traditions & trust.

9. An individual perceptions about the investment return & associated risk may

differ from individual to individual.

10. Although the equity analysis is art as well as sciences so, it also has some

exceptions.

Abhijeet Kelkar 8


9/49


Economical analysis; Environmental analysis.

An Economical analysis & Environmental analysis is the filter or scanner of the

surrounding at the time of equity research, which help the analyst to make a rational

decision. In the economical & environmental analysis, mainly the following factor is

considered as a whole with a perspective of industry & also considered with a perspective

of individual company:

1. Inflation rates.

2. Economic growth.

3. Governmental Exim & other policies regarding businesses & industry.

4. LPG (liberalization, privatization, globalization)5. Interest rates: standards of returns for measurement.

6. FIIs perception to share market.

7. Political feel.

8. targeted Industrial growth.

9. Product line & other industry/company strengths.

10. Capacity installed & utilized.

11. Efficiencies; input output combination.

12. Demand: potential market: purchasing power.

13. Management board of company.

14. Companies prospects, growth.

15. Technical know-how.

EQUITY ANALYSIS.

ENVIRONMENT & ECONOMICAL ANALYSIS.

FUNDAMENTAL ANALYSIS TECHNICAL ANALYSIS.

Abhijeet Kelkar 9


10/49


Fundamental Analysis.

Fundamental analysis is the study of economic, industry and company conditions inan effort to determine the value of a companys stock. Fundamental analysis typicallyfocuses on key statistics in companys financial statements to determine if the stock price iscorrectly valued.

Most fundamental information focuses on economic, industry and companystatistics. The typical approach to analyzing a company involves four basic steps :

1 Determine the condition of the general economy.2 Determine the condition of the industry.3 Determine the condition of the company.

4 Determine the value of the companys stock

Fundamental Analysis consist of following

Study of Balance sheet

Study of Profit and Loss a/c

Study of Ratios

Balance Sheet :

A financial statement that summarizes a company's assets, liabilities

and shareholders' equity at a specific point in time. These three balance sheet segmentsgive investors an idea as to what the company owns and owes, as well as the amountinvested by the shareholders.

The balance sheet must follow the following formula:Assets = Liabilities + Shareholders' Equity

Each of the three segments of the balance sheet will have many accounts within itthat document the value of each. Accounts such as cash, inventory and property are on theasset side of the balance sheet, while on the liability side there are accounts such asaccounts payable or long-term debt. The exact accounts on a balance sheet will differ by

company and by industry, as there is no one set template that accurately accommodates forthe differences between different types of businesses.

It's called a balance sheet because the two sides balance out. This makes sense: acompany has to pay for all the things it has (assets) by either borrowing money (liabilities)or getting it from shareholders (shareholders' equity).

The balance sheet is one of the most important pieces of financial information

Abhijeet Kelkar 10


11/49


issued by a company. It is a snapshot of what a company owns and owes at that point intime. The income statement, on the other hand, shows how much revenue and profit acompany has generated over a certain period. Neither statement is better than the other -rather, the financial statements are built to be used together to present a complete picture ofa company's finances.

The balance sheet shows the financial condition of a business at a given point oftime. As per the Companies Act, the balance sheet of a company shall be in either theaccount form or the report form.

Structure of Balance Sheet as per the companies Act

Liabilities Assets

Share Capital

Reserves and Surplus

Secured loans

Unsecured loans Current liabilities and

Provisions

Fixed assets

Investments

Current assets and Advances

Miscellaneous Exp.

Liabilities

Liabilities, defined very broadly, represent what the firm owes others. A liabilityarises when a firm receives benefits or services and , in turn, promises to pay cash orprovide goods and services in future.

The format prescribed in the Companies Act classifies liabilities as follows : -

Share Capital: Share capital includes equity capital and preference capital. Equity capitalrepresents the contribution of equity shareholders who are the owners of the firm. Equitycapital, being the risk capital, carries no fixed rate of dividend. Preference capitalrepresents the contribution of preference shareholders and the dividend rate payable on it isgeneral fixed.

Reserve and Surplus: Reserve and Surplus comprise retained earnings as well as non-earnings items like share premium and capital subsidy. In common practice for companiesto transfer from the profit and loss account to various reserve accounts. This process is

called appropriation.

Secured loan: Secured loan are loans that are secured by a charge on the assets of the firm.The charge may be created in the form of pledge or hypothecation of movable assets suchas inventories and debtors and or in the form of mortgage of immovable assets such asland, building, and plant and machinery.

Abhijeet Kelkar 11


12/49


Unsecured loans: in contrast to secured loans, unsecured loans are loans which are notsecured by a charge on the assets of the firm.

Current liabilities and Provisions: current liabilities and provisions represent obligationsthat are expected to mature within a year. Current liabilities include items such as bills

payable, sundry creditors, interest accrued etc. and provisions include items such asprovision for taxes, dividend, and other exp.

Assets

Assets are resources which are expected to provide a firm with future economic benefits,by way of higher cash inflows or lower outflows. Assets are classified as follows under theCompanies Act:

Fixed Assets: fixed assets, also called non current assets, are assets that are expected to

produce benefits for more that one year. These assets may be tangible or intangible.Tangible fixed assets include items such as land, buildings, plant and machinery, furniture.Intangible assets include goodwill, patents, and copyrights.

Investment: investments represent financial securities owned by the firm. They aredivided into two categories, long term investment and current investment.

Current Assets: this category consists of cash and other assets which get converted intocash or which result in cash savings, during the operating cycle of the firm. The majorcomponents of current assets, loans and advances are: inventories, debtors, cash and bankbalances, other current assets and loans and advances.

Miscellaneous Exp : this comprise of items such as preliminary exp, discount allowed onissue of securities, interest paid out of capital during construction, and developmentexpenditure to the extent not written off or adjusted.

Profit and Loss a/c :

A financial report that - by summarizing revenues and expenses, and showing thenet profit or loss in a specified accounting period - depicts a business entitys financialperformance due to operations as well as other activities rendering gains or losses. Alsoknown as the "profit and loss statement" or "statement of revenue and expense".

The income statement is the most analyzed portion of the financial statements.It displays how well the company can assure success for both itself and its shareholdersthrough the earnings from operations.

The companies act has prescribed a standard form for the balance sheet, but nonefor the profit loss account. However, the companies act does require that the information

Abhijeet Kelkar 12


13/49


provided should be adequate to reflect a true and fair picture of the operations of thecompany for the accounting period.

Structure of Profit and Loss a/c

Income

Sales

Expenditure

Material and other expenditureInterestDepreciationProfit before taxProvision for tax

Profit after tax

While a single step profit and loss account aggregates all revenues and expenses, amulti step profit and loss account provides disaggregated information. Further, instead ofshowing only the final profit measure, the profit after tax figure, it presents proft measuresat intermediate stages as well.

ITS ALL ABOUT THE FINANCIAL RATIO ANALYSIS:

The financial analysts always need yardsticks to evaluate the efficiency &performances of any business unit at the time of investment. Fundamental analysis is usefulin long term investment decision. In Fundamental analysis a companys goodwill, itsperformances, liquidity, leverage, turnover, profitability & financial health was checked &analysis with the help of ratio analysis for the purpose of long term successful investment.It is important criteria for selecting the company to invest. It also provides the base fordecision-making in investment.

The one of the most frequently used yardstick to check & analyzeprofitability & financial health is Ratio Analysis. For that matter a verity of ratios wasconsider. This Fundamental analysis is helpful to general investor in many ways. Itprovides important & vital information regarding the financial position of the company.Ratio analysis involves the use of various methods for calculating & interpreting financialratios to assess the performances & status of the business unit. It is the tool of financial

Abhijeet Kelkar 13


14/49


analysis, which not only studies but also reflecting the numerical & quantitativerelationship between the important financial variables.

Fundamental analysis facilitates comparison between two companies. It reflects thefinancial efficiency & financial position of a company. Fundamental analysis is fruitful in

preparing plans for the future. However, fundamental Analysis should not be consideringas the ultimate objective test but it may be carried further based on the outcome &revelations about the cause of variations. Fundamental Analysis is helpful in forecastinglikely position of company in near future.

Fundamental analysis is a very powerful analytical tool useful for measuringperformance of an organization. The ratio analysis concentrates on the inter-relationshipamong the figures appearing in the financial and accounting statements. The ratio analysishelps the investor to analyze the past performance of the firm and to make further futureprojection regarding financial position. Ratio analysis allows interested parties likeshareholders, investors, creditors and government to make an evaluation of financial aspect

of a firms performance.

Fundamental analysis i.e. Ratio analysis is process of comparison of one figureagainst another, which makes a ratio, and appraisal of the ratios to make proper analysisabout the strength and weakness of the firms operation. Fundamental analysis is extremelyhelpful in providing valuable insight into a companys financial picture. Ratios provide aneasy way to compare present performance of businesses. Ratios depicts the areas in whicha particular business competitively advantaged or disadvantaged through comparing ratiosto those of other businesses of the same size within the same industry.

Types of Ratios:

A ratios can be classified as follows-

1) Liquidity Ratio:

The importance of adequate liquidity in the sense of the ability of a firm to meet currentor short-term obligations. When they become due for payment can hardly be overstressed.Liquidity ratio measures the ability of a firm to meet its short-term obligation and reflectthe short term financing strength in solvency of a firm.

2) Leverage Ratio:

The long-term creditors would judge the soundness of a firm on the basis of the longterm financial strength measured in terms of its ability to pay the interest regularly as wellas repay the installment of the principal on due dates or in one lump sum at the time ofmaturity. The long-term solvency of a firm can be examined by using leverage ratio. Thisratios also facilitates to know optimum capital structure i.e. relation between debt & equity.

Abhijeet Kelkar 14


15/49


3) Profitability Ratio:

The investors & owners invest their funds in the expectation of reasonable returns.The operating efficiency of a firm and its ability to ensure adequate returns to its investors,

shareholders depends ultimately on the profits earned by it. The profitability of a firm canbe measured by its profitability ratio. Profitability ratio can be determined on the basis orestablishing the relationship with either sales or investments i.e. Fix assets.

4) Activity/Component/Turnover Ratio:

Activity ratios are concerned with measuring the efficiency in the asset management.The efficiency with which the assets & equity capital are used would be reflected in thespeed and rapidity with which assets & equity capital are converted into sales.

5) Market test Ratio:

The market test ratio relates the firms stock price to its earning and book value pershare. This ratio give investors an indication of what share market will think about thecompanies past performance and future prospects, if the firm profitability and solvency,activity ratio are good, than the market

test ratio will be high and its share price is also expected to be high. A pay out ratio &coverage ratios are in the scope of market test ratio. P/E has been arrivedat by dividing the days closing prices of a script by its earning per share (EPS). EPS is netprofit calculated on a trailing 12 months basis divided by full diluted equity capital. Theindustry P/E is the aggregate market capitalization of the industry divided by the aggregatenet profit of the industry after excluding loss-making companies. The market capitalizationis arrived at by multiplying the closing prices of shares with fully diluted equity capital.Return on capital employed is the ratio of net profit of capital employed. Capitalemployed is net worth plus total borrowings. Alpha is the excess return of the stock abovethe risk-adjusted market return, given its level of risk as measured by beta. It indicates thereturn given by a stock in a stagnant market or when the market return is zero. A positivealpha indicates the stock has performed better than expected. Beta is the shares sensitivityto market movements. It indicates how much the script moves for a unit change in themarket index. Beta could be positive or negative. A negative beta indicates that the sharemoves in direction opposite to the market. The beta of the index is 1. A higher betaindicates the stocks movements are sharper than that of the market index. Standarddeviation in the returns of a stock measures the volatility of the stock over its trend. Meanis the average of daily returns of a script in the last 30 trading days.

Technical analysis

Abhijeet Kelkar 15


16/49


Technical analysis refers to the study of market generated data like prices &volume to determine the future direction of prices movements. Technical analysis mainlyseeks to predict the short term price travels. It is important criteria for selecting thecompany to invest. It also provides the base for decision-making in investment. The one ofthe most frequently used yardstick to check & analyze underlying price progress. For thatmatter a verity of tools wasconsider.

This Technical analysis is helpful to general investor in many ways. It providesimportant & vital information regarding the current price position of the company.Technical analysis involves the use of various methods for charting, calculating &interpreting graph & chart to assess the performances & status of the price. It is the tool offinancial analysis, which not only studies but also reflecting the numerical & graphicalrelationship between the important financial factors.

The focus of technical analysis is mainly on the internal market data, i.e. prices &volume data. It appeals mainly to short term traders. It is the oldest approach to equityinvestment dating back to the late 19th century.

Basic premises of technical analysis:

1. Market prices are determined by the interaction of supply & demand forces.

2. Supply & demand are influenced by variety of supply & demand affiliated

factors both rational & irrational.

3. These include fundamental factors as well as psychological factors.

4. Barring minor deviations stock prices tend to move in fairly persistent trends.

5. Shifts in demand & supply bring about change in trends.

6. This shifts can be detected with the help of charts of manual & computerized

action, because of the persistence of trends & patterns analysis of past market

data can be used to predict future prices behaviors.

Abhijeet Kelkar 16


17/49


Drawbacks / limitations of technical analysis:

1 Technical analysis does not able to explain the rezones behind the employmentor selection of specific tool of Technical analysis.

2 The technical analysis failed to signal an uptrend or downtrend in time.

3 The technical analysis must be a self defeating proposition. As more & morepeople use, employ it the value of such analysis trends to reduce.

Usually the following tools & instruments are used to do the technical analysis:

Price Styles

Price in a chart can be displayed in three styles: bar, line, and candlestick.

Bar: It gives the detailed information about every aspect.

Line: A line chart simply connects the closing prices from one period to the next. Thistype of chart is ideal for securities with no high or low price data i.e., mutual funds or thatis even with the equity in case of base price.

Abhijeet Kelkar 17


18/49


Japanese Candlestick: A candlestick is black if the closing price is lower than the openingprice. A candlestick is white if the closing price is higher than the opening price.

White Japanese Candlestick:

Black Japanese Candlestick:

Doji Japanese Candlestick:

Price Patterns:

Overview: A basic principle of technical analysis is that security prices move intrends. We also know that trends do not last forever. They eventually change direction andwhen they do, they rarely do so on a dime. Instead, prices typically decelerate, pause,and then reverse. These phases occur as investors form new expectations and by doing so,shift the security's supply/demand. .

The changing of expectations often causes price patterns to emerge. Although notwo markets are identical, their price patterns are often very similar. Predictable price

Abhijeet Kelkar 18


19/49


behavior often follows these price patterns. Chart patterns can last from a few days to manymonths or even years. Generally speaking, the longer a pattern takes to form, the moredramatic the ensuing prices move. .

Interpretation:

Head and Shoulders: TheHead-and-Shoulders price pattern is the most reliable and well-known chart pattern. It getsits name from the resemblance of a head with two shoulders on either side. The reason thisreversal pattern is so common is due to the manner in which trends typically reverse..

An up-trend is formed as prices make higher-highs and higher-lows in a stair-stepfashion. The trend is broken when this upward climb ends. As you can see in theillustration (Intel, INTC), the "left shoulder" and the "head" are the last two higher-highs.The right shoulder is created as the bulls try to push prices higher, but are unable to do so.This signifies the end of the up-trend. Confirmation of a new down-trend occurs when the"neckline" is penetrated.

During a healthy up-trend, volume should increase during each rally. A sign thatthe trend is weakening occurs when the volume accompanying rallies is less than the

volume accompanying the preceding rally. In a typical Head-and-Shoulders pattern,volume decreases on the head and is especially light on the right shoulder.

Following the penetration of the neckline, it is very common for prices to return tothe neckline in a last effort to continue the up-trend. If prices are then unable to rise abovethe neckline, they usually decline rapidly on increased volume. An inverse (or upside-down) Head-and-Shoulders pattern often coincides with market bottoms. As with a normalHead-and-Shoulders pattern, volume usually decreases as the pattern is formed and thenincreases as prices rise above the neckline

Rounding Tops and Bottoms:

Abhijeet Kelkar 19


20/49


Rounding tops occur as expectations gradually shift from bullish to bearish. Thegradual, yet steady shift forms a rounded top. Rounding bottoms occur as expectationsgradually shift from bearish to bullish.Volume during both rounding tops and roundingbottoms often mirrors the bowl-like shape of prices during a rounding bottom. Volume,which was high during the previous trend, decreases as expectations shift and traders

become indecisive. Volume then increases as the new trend is established

Double Tops and Bottoms:

A double top occurs when prices rise to a resistance level on significant volume,retreat, and subsequently return to the resistance level on decreased volume. Prices thendecline marking the beginning of a new down-trend.

Abhijeet Kelkar 20


21/49


A double bottom has the same characteristics as a double top except it is upside isdown.

Double top reversal pattern:

Interpretation:

Tops T1 & T2 are almost at the same level & trend violated the support line formedwith the help of bottom B1 hence, a Double top reversal pattern has been formed. Tomeasure the likely downward reaction, measure the distances between the interveningbottom & the double tops. Deduct these distances from the intervening bottom & that willbe the downward target of the double top reversal pattern.

Abhijeet Kelkar 21


22/49


Double bottom reversal pattern:

Interpretation: Bottom B1 & B2 are almost at the same level & trend violated the

resistances level formed with the help of top T1 hence; a Double bottom reversal patternhas been formed. To measure the likely upward reaction, measure the distances betweenthe intervening top & the double bottom. Deduct these distances from the intervening top& that will be the upward target of the double bottom reversal pattern.

Triple top reversal pattern:

Interpretotion: Tops T1, T2 & T3 are almost at the same level & trend violated thesupport line formed with the help of bottom B1 because the B1 is the lowest bottom hence,

a triple top reversal pattern has been formed. To measure the likely downward reaction,measure the distances between the intervening bottom & the triple tops. Deduct thesedistances from the intervening bottom & that will be the downward target of the triple topreversal pattern.

Abhijeet Kelkar 22


23/49


Triple bottom reversal pattern:

Interpretation:

Bottom B1, B2 & B3 are almost at the same level & trend violated the resistanceslevel formed with the help of top T1 because the T1 is the heights top hence, a triplebottom reversal pattern has been formed. To measure the likely upward reaction, measurethe distances between the intervening top & the triple bottom. Deduct these distances fromthe intervening top & that will be the upward target of the triple bottom reversal pattern.

Triangles:

Abhijeet Kelkar 23


24/49


A triangle occurs as the range between peaks and troughs narrows. Trianglestypically occur as prices encounter a support or resistance level which constricts the prices.

A "symmetrical triangle" occurs when prices are making

both lower-highs and higher-lows."Symmetrical triangle" .

Confused; wait & watch policy.

An "ascending triangle" occurs when there are higher-lows (as with a symmetrical triangle), but the highs areoccurring at the same price level due to resistance. Theodds favor an upside breakout from an ascending triangle.

"Ascending triangle".

Buying pressure; usually has upward trend. Bullish

rally.

A "descending triangle" occurs when there are lower-highs (as with a symmetrical triangle), but the lows areoccurring at the same price level due to support. The oddsfavor a downside breakout from a descending triangle."Descending triangle" .

Selling pressure; usually has downward trend. Bearishrally.

Just as pressure increases when water is forced through a narrow opening, the"pressure" of prices increases as the triangle pattern forms. Prices will usually breakoutrapidly from a triangle. Breakouts are confirmed when they are accompanied by anincrease in volume. The most reliable breakouts occur somewhere between half and three-quarters of the distance between the beginning and end (apex) of the triangle. There areseldom many clues as to the direction prices will break out of a symmetrical triangle. Ifprices move all the way through the triangle to the apex, a breakout is unlikely.

Trend lines:

In the previous section, we saw how support and resistance levels can be penetratedby a change in investor expectations (which results in shifts of the supply/demand lines).

Abhijeet Kelkar 24


25/49


This type of a change is often immediate and "news based." .In this section, we'll review "trends." A trend represents a consistent change in

prices (i.e., a change in investor expectations). Trends differ from support/resistance levelsin that trends represent change, whereas support/resistance levels represent barriers tochange.

Types of trend lines:

1. Basically the trend can be classified on the basis of time factor into two ways,namely; short term, long term.

A: long term trend 1. Secular variation.. 2. Cyclical variation.

B: short term trend 1. Seasonal variation. .

2. Erratic variation.

[CHART FOR ALL TYPE OF TREND LINES.]

2. But we are going to consider the trends as per its movement so, once again thetrend can be classified into three ways as below discuss in detail:

Rising trend:

As shown in the following chart, a rising trend is defined bysuccessively higher low-prices. A rising trend can be thought of

as a rising support level--the bulls are in control and are pushingprices higher.

Falling trend:

Abhijeet Kelkar 25


26/49


As shown in the next chart, a falling trend isdefined by successively lower high-prices. A fallingtrend can be thought of as a falling resistance level--thebears are in control and are pushing prices lower.

Sidewise trend:

The upper & lower trendlines will provide the resistances &the support levels i.e. the script ismoving in the same range bound.

Support and Resistance lines:

The foundation of most technical analysis tools is rooted in the concept of supplyand demand. There is nothing mysterious about support and resistance -- it is classicsupply and demand. Remembering supply / demand lines show what the supply anddemand will be at a given price.

Resistance is equivalent to a "supply" line. When prices increase, the quantity of sellers

also increases as more investors are willing to sell at these higher prices. When toomuch selling occurs, however, prices retreat. When this happens repeatedly near a specificprice level, resistance forms at that price level. Support is equivalent to a "demandline. When prices decrease, the quantity of buyers increases as more investors are willingto buy at lower prices. When too much buying occurs, however, prices rise. When thishappens repeatedly near a specific price level, support forms at that price level.

Following the penetration of a support/resistance level, it is common for tradersto question the new price levels. For example, after a breakout above a resistance level,buyers and sellers may both question the validity of the new price and may decide to sell.This creates a phenomena referred to as traders' remorse where prices return to a support

& resistance level following a price breakout.The price action following this remorseful period is crucial. One of

two things can happen. Either the consensus of expectations will be that the new price isnot warranted and prices will move back to their previous level; or investors will accept thenew price and prices will continue to move in the direction of the penetration. When aresistance level is successfully penetrated, that level becomes a support level. Similarly,when a support level is successfully penetrated, that level becomes a resistance level.

Abhijeet Kelkar 26


27/49


Moving Average

Overview:

A Moving Average is an indicator that shows the average value of a security's priceover a period of time. When calculating a moving average, a mathematical analysis of thesecurity's average value over a predetermined time period is made. As the securities pricechanges, its average price moves up or down.

There are several popular ways to calculate a moving average. General investorscan calculate a "simple" moving average--meaning that equal weight is given to each priceover the calculation period.

Interpretation:

The most popular method of interpreting a moving average is to compare the

relationship between moving averages of the security's price with the security's priceitself. A buy signal is generated when the security's price rises above its movingaverage and sell signal is generated when the security's price falls below its movingaverage.

This type of moving average trading system is not intended to get you in at theexact bottom nor out at the exact top. Rather, it is designed to keep you in line with thesecurity's price trend by buying shortly after the security's price bottoms and selling shortlyafter it tops. The critical element in a moving average is the number of time periods used incalculating the average. When using hindsight, you can always find a movingaverage that would have been profitable. The key is to find a moving average that will beconsistently profitable. The most popular moving average is the 39 - week (or 200 day)

moving average. This moving average has an excellent track record in timing the major(long -term) market cycles.

Moving Average Crossover

Overview:

A Moving Average is an indicator that shows the average value of a security's price

Abhijeet Kelkar 27


28/49


over a period of time. When calculating a moving average, a mathematical analysis of thesecuritys average value over the predetermined time period is made. As the securities pricechanges, its average price moves up or down. See the Moving Average page for moreinformation on moving averages. .

The Moving Average Crossover indicator prompts you for two parameters: A

shorter moving average & a longer moving average.

Interpretation:

The most popular method of interpreting a single moving average is to compare therelationship between moving averages of the security's price with the security's price itself.However, you can also compare the relationship between a shorter-term moving averageand a longer-term moving average. By entering 9 and 39 for the average calculation, thecomputer program will plot both moving averages on the price chart. Look for possiblebuying opportunities when the shorter moving average crosses above the longer movingaverage. Conversely, look for possible selling opportunities when the shorter movingaverage crosses below the longer moving average.

Moving Average Convergence/Divergence.

Overview:

. The MACD ( "Moving Average Convergence/Divergence" ) is a trend followingmomentum indicator that shows the relationship between two moving averages ofprices. The MACD was developed by Gerald Appeal, publisher of Systems and Forecasts.The MACD is the difference between a 26-day and 12-day exponential moving average. A9-day exponential moving average, called the "signal" ("trigger") line is plotted on top ofthe MACD to show buy/sell opportunities. (Thus, he refers to these three moving averages

as 7.5%, 15%, and 20% respectively.)

Interpretation:

The MACD proves most effective in wide-swinging trading markets. There arethree popular ways to use the MACD: crossovers, overbought/oversold, and divergences.

Cross over:

The basic MACD trading rule is to sell when the MACD falls below its signalline. Similarly, a buy signal occurs when the MACD rises above its signal line. It is sopopular to buy/sell when the MACD goes above/below zero.

Overbought / Oversold Conditions.

The MACD is also useful as an overbought/oversold indicator. When the shortermoving average pulls away dramatically from the longer moving average ( i.e., theMACD rises ), it is Likely that the security price is overextending and will soon return tomore realistic levels. MACD overbought and oversold conditions exist vary from securityto security.

Abhijeet Kelkar 28


29/49


Divergences.

An indication that an end to the current trend may be near occurs when the MACDdiverges from the security (page 32). A bearish divergence occurs when the MACD is

making new lows while prices fail to reach new lows. A bullish divergence occurs whenthe MACD is making new highs while prices fail to reach new highs. Both of thesedivergences are most significant when they occur at relatively overbought/oversold levels.

Momentum

Overview:

The Momentum indicator measures the amount that a security's price has changedover a given time span.

Interpretation: The interpretation of the Momentum indicator is identical to the

interpretation of the Price ROC. Both indicators display the rate-of-change of a security'sprice. However, the Price ROC indicator displays the rate-of-change as a percentagewhereas the Momentum indicator displays the rate-of-change as a ratio. .

There are two ways to use the Momentum indicator:

1. You can use the Momentum indicator as a trend-following oscillator similarto the MACD (this is the method I prefer). Buy when the indicator bottomsand turns up and sell when the indicator peaks and turns down. You may

want to plot a short-term (e.g., 9-period) moving average of the indicator todetermine when it is bottoming or peaking.

If the Momentum indicator reaches extremely high or low values (relative to itshistorical values), you should assume a continuation of the current trend. For example, ifthe Momentum indicator reaches extremely high values and then turns down, you shouldassume prices will probably go still higher. In either case, only trade after prices confirmthe signal generated by the indicator (e.g., if prices peak and turn down, wait for prices tobegin to fall before selling).

2. You can also use the Momentum indicator as a leading indicator. This

method assumes that market tops are typically identified by a rapid priceincrease (when everyone expects prices to go higher) and that marketbottoms typically end with rapid price declines (when everyone wants to getout). This is often the case, but it is also a broad generalization.

As a market peaks, the Momentum indicator will climb sharply and then fall off--diverging from the continued upward or sideways movement of the price. Similarly, at a

Abhijeet Kelkar 29


30/49


market bottom, Momentum will drop sharply and then begin to climb well ahead of prices.Both of these situations result in divergences between the indicator and prices.

Price Oscillator

Overview:

The Price Oscillator displays the difference between two moving averages of asecurity's price. The difference between the moving averages can be expressed in eitherpoints or percentages. The Price Oscillator is almost identical to the MACD, except thatthe Price Oscillator can use any two user-specified moving averages. (The MACD alwaysuses 12 and 26-day moving averages, and always expresses the difference in points.).

Interpretation:

Moving average analysis typically generates buy signals when a short-term movingaverage (or the security's price) rises above a longer-term moving average. Conversely,sell signals are generated when a shorter-term moving average (or the security's price) fallsbelow a longer-term moving average. The Price Oscillator illustrates the cyclical and oftenprofitable signals generated by these one or two moving average system.

Price Rate-Of-Change (price ROC)

Overview:

The Price Rate-of-Change ("ROC") indicator displays the difference between thecurrent price and the price x-time periods ago. The difference can be displayed in eitherpoints or as a percentage. The Momentum indicator displays the same information, butexpresses it as a ratio. .

Interpretation: It is a well recognized phenomenon that security prices surge ahead and retract in a

cyclical wave-like motion. This cyclical action is the result of the changing expectations asbulls and bears struggle to control prices. The ROC displays the wave-like motion in anoscillator format by measuring the amount that prices have changed over a given timeperiod.

As pricesincrease, the ROC rises; as prices fall, the ROC falls. The greater the change in prices, thegreater is the change in the ROC. The time period used to calculate the ROC may rangefrom 1-day (which results in a volatile chart showing the daily price change) to 200-days(or longer). The most popular time periods are the 12- and 25-day ROC for short tointermediate-term trading. These time periods were popularized by Gerald Appel and FredHitschler in their book, Stock Market Trading Systems.

The 12-day

Abhijeet Kelkar 30


31/49


ROC is an excellent short- to intermediate-term overbought / oversold indicator. Thehigher the ROC, the more overbought the security; the lower the ROC, the morelikely a rally. However, as with all overbought / oversold indicators, it is prudent towait for the market to begin to correct ( i.e., turn up or down ) before placing yourtrade. A market that appears overbought may remain overbought for some time. In

fact, extremely overbought / oversold readings usually imply a continuation of thecurrent trend.The 12-day

ROC tends to be very cyclical, oscillating back and forth in a fairly regular cycle. Often,price changes can be anticipated by studying the previous cycles of the ROC and relatingthe previous cycles to the current market.

Envelope

Overview:

An envelope is comprised of two moving averages. One moving average is shiftedupward and the second moving average is shifted downward.

Interpretation:

Envelopes define the upper and lower boundaries of a security's normaltrading range. A sell signal is generated when the security reaches the upper band whereasa buy signal is generated at lower band. The optimum percentage shift depends on thevolatility of the security - the more volatile, the larger the percentage.

The logic behind envelopes is that overzealous buyers and sellers push the price tothe extremes ( i.e., the upper and lower bands ) at which point the prices often stabilize

by moving to more realistic levels. This is similar to the interpretation of BollingerBands.

Bollinger Bands

Overview:

Bollinger Bands are similar to moving average envelopes. The difference betweenBollinger Bands and envelopes is envelopes are plotted at a fixed percentage above andbelow a moving average, whereas Bollinger Bands are plotted at standard deviationlevels above and below a moving average.Since standard deviation is a measure of

volatility, the bands are self-adjusting: widening during volatile markets &contracting during calmer periods. Bollinger Bands were created by John Bollinger.

.

Interpretation:

Bollinger Bands are usually displayed on top of security prices, but they can bedisplayed on an indicator. These comments refer to bands displayed on prices. As withmoving average envelopes, the basic interpretation of Bollinger Bands is that prices tend tostay within the upper- and lower-band. The distinctive characteristic of Bollinger Bands is

Abhijeet Kelkar 31


32/49


that the spacing between the bands varies based on the volatility of the prices. Duringperiods of extreme price changes (i.e., high volatility), the bands widen to become moreforgiving. During periods of stagnant pricing (i.e., low volatility), the bands narrow tocontain prices.

Mr. Bollinger notes the following characteristics of Bollinger Bands.

Sharp price changes tend to occur after the bands tighten, as volatility lessens.

When prices move outside the bands, a continuation of the current trend is implied.

Bottoms and tops made outside the bands followed by bottoms and tops madeinside the bands call for reversals in the trend.

A move that originates at one band tends to go all the way to the other band. Thisobservation is useful when projecting price targets.

THEORIES OF TECHICAL ANALYSIS.

DOW THEORY: There are two main trends in this theory. Minor & majortrends representing daily or weekly, monthly or yearly trends in prices comparingthe prices trends to recurring waves & ripples.

ELLIOT WAVES THEORY: The market is unfolded by a basic rhythm orpattern of 5 waves up to be corrected by there waves down with a total of 8 waves aphilosophy of prices trends. This waves are constructed either on the basis of returnor risk profile.

Indian Oil and Natural Gas Sector

THE ORIGIN OF THE OIL INDUSTRY in India can be traced back to the last partof the 19th century when petroleum was discovered in Digboi in north-east India. Afterindependence, the industry - which had Burmah Shell, Esso and Caltex as major players -

Abhijeet Kelkar 32


33/49


was nationalised. Every activity - exploration, development, production, refining,marketing, distribution - was controlled by the various national oil companies.

Since Indias economic liberalisation programme started, however, the Indian oiland gas sector has gone through some very fundamental changes.

Facts

India is currently the fourth largest oil consumer in the Asia-Pacific region afterJapan, China and South Korea. Estimated to increase at the rate of 7 % a year, the demandfor petroleum products, in absolute terms, is expected to be 155 and 195 million tonnesrespectively for the year 2006-07 and 2011-12.

India is endowed with 26 sedimentary basins totaling around 1.72 million sq. km.of which offshore area amounts to 0.38 million sq. km. Most of the basins are under

various stages of intensive/extensive exploration.

The size of the Indian Oil & Industry is estimated to be US$ 90 Billion. The Oil &Gas sector is also one of the largest contributors to Central and State exchequer amountingto US$13.58 Bn.

Apart from enhancing the domestic efforts in the sector Indian Companies areventuring overseas as well to give the country a sense of energy security and strategicpositioning. In the upstream segment, we have OVL investing in Sakhalin, Sudan,Myanmar, Vietnam, Libya, Syria, Iraq and Angola. Reliance has gone into Yemen.

In the downstream, IOC has a presence in Sri Lanka and has expressed its interest

in distribution in Singapore and Malaysia as well Middle East Markets. BPCL has also bidfor retail outlets in Sri Lanka. GAIL is eyeing the Egyptian and UK markets also.

Upstream and Downstream Companies

Indias Oil and Gas sector divided into two parts one is Upstream Companies andanother is Downstream Companies.

Upstream Companies : -

Upstream Companies generally undertakes Exploration and Development activities.The Government has till recently been allotting exploration blocks through the system ofbidding rounds. In 1997, the Government announced the New Exploration LicensingPolicy (NELP) in an effort to promote investment in the exploration & production of

Abhijeet Kelkar 33


34/49


domestic oil & gas. Under NELP, foreign investors are granted the same treatment asdomestic companies and it is no longer binding on them to partner with state oilcompanies; no blocks are reserved for national oil companies and income is free for sevenyears from the start of production. Till now, four rounds of NELP have been done. Therehave been 36 discoveries in the past 7 years and Reliances discovery in the KG Basin and

Cairns discovery in Rajasthan is considered to be world class.

Deepwater exploration has been taken up earnestly by ONGC to supplement theexisting efforts in increasing the production.

Downstream Companies : -

Downstream Companies generally undertakes activities like Refining andDistribution and marketing of petroleum products.

The Government has opened the domestic refining sector for private investment

from Indian/foreign private companies. The country has attained self-sufficiency inrefining crude oil. The capacity now stands at 116.97 MMTPA, against the annualconsumption of about 103.6 MMTPA. This benefits the country by not importingexpensive products like petrol and diesel and local value addition to crude by converting tomore expensive products within the country. The country has the 10th largest refiningcapacity in the world.

De-regulation History

DE-REGULATION OF REFINERIES

Year 1998 -99 Refining sector removed from APM regime All products except Gasoline, Gas oil, ATF, LPG and Kerosene decontrolled Private companies allowed to import crude oil

Year 2000-01 FDI in refining sector raised from 49% to 100% Stand-alone refining companies aligned with existing integrated refining and

marketing companies

Year 2002-02 ATF pricing decontrolled w.e.f April 1, 2001 Oil Co-ordination Committee dismantled w.e.f. April 1, 2002 Dues of Oil companies under Oil Pool Accounts settled on provisional basis Majority of products made freely tradable Pricing of all products except LPG and Kerosene decontrolled Pipeline transportation tariff decontrolled w.e.f. April 1, 2002

Abhijeet Kelkar 34


35/49


Year 2003-04 Import of Gasoline, HSD and ATF allowed to companies having marketing rights Phased reduction in subsidies for LPG and Kerosene FDI in Marketing, E&P and Pipelines increased to 100% subject to certain

approvals

Marketing rights granted to private sector entities for marketing of transportationfuels through their own retail network

Regulatory Overview

Government Policy

Market Determined Pricing Mechanism (MPDM) for most of the products w.e.f.April 1, 2002 except for LPG and Kerosene

Refineries de-regulated w.e.f. April 1, 1998 Oil Industry Pool Accounts dismantled w.e.f. April 1, 2002

Pipeline Transportation tariff decontrolled and based on commercial terms

Private sector entities allowed marketing rights for transportation fuels subject tosuch entities investing Rs. 20 billion

Ground Realities

Despite Market Determined Pricing Mechanism (MDPM), prices still determinedby Ministry of Oil & Natural Gas

Subsidies on LPG and Kerosene shared by downstream companies (IOC, BPCL,HPCL), upstream companies (ONGC, GAIL) and fiscal budget

Subsidies on LPG and Kerosene slated to be completely phased out by March 2007

Marketing service obligations for rural and far flung areas for all the players

Petroleum Regulatory Board to be set up by the Government

The opportunities

The last 6-8 years have seen a radical restructuring of the Indian oil and gas sector. Therecent initiatives enable private oil companies, both foreign and Indian, to explore new oil

Abhijeet Kelkar 35


36/49


and natural gas reserves, develop proven reserves, and establish petroleum refineries andpipelines.

The Indian Govt has earmarked US $ 12.91 Bn for Exploration & production andUS $ 7.97 Bn for Downstream sector as per the Tenth Five year plan. As per the India

Hydrocarbon Vision 2025, refining would have an investment of $ 50 Bn and themarketing infrastructure would involve and investment of US $ 29.34 Bn. The breakup forthe marketing infrastructure is as follows :

Product Pipelines : US $ 4.56 Bn

Product tankage and related facilities : US $ 3.47 Bn

Retail outlets : US $ 20.2 Bn

LPG Bottling Plants : US $ 1.08 Bn

The significant factors fueling private investment in the Indian oil and natural

gas sector are:

An investment is needed over the next 10 to 15 years to meet the projected early21st century demand. With a view to meeting this growing demand, the newhydrocarbon policy aims at encouraging investment in oil and gas exploration andproduction.

Additional refining capacity of 110 million tones per annum will be required in thenear future. With such phenomenal growth in this sector, there is ample scope andopportunity for the transfer of technologies required and exports of capital goods,etc. to India. The technologies required will be for

Upgrading, expansion, replacement and new refineries To meet the predominant demand for middle distillates and

Also to improve the quality of petroleum products to make themenvironment friendly and globally competitive.

Extensive oil and gas distribution infrastructure such as cross country pipelines,port terminals, tankages and strategic reserves build up will have to be developed tomeet the projected requirements.

India is adopting more environmentally benign measures with regard to usage andquality of fuels. Lead phasing out and benzene reduction in gasoline, sulphurreduction and cetane improvements of diesel are amongst the prominent measuresthat are under implementation. Such quality upgradation of fuels will call foradopting latest/state of the art technology requiring huge investments by way ofproviding reformulated gasoline producing units, hydro-crackers, hydro-treaters,hydro-desulphurisers, etc.

Abhijeet Kelkar 36


37/49


Policy New Initiatives

The Indian petroleum sector has been opened to the private sector, both domestic

and foreign for investments through joint ventures and strategic alliances.

In exploration and production, Indian oil and natural gas fields have been openedup to the private sector as well as to foreign participation under production sharingcontracts.

The refining sector has been opened to the joint sector (public-private partnerships)as well as to the private sector for new refineries.

Foreign investment is to be permitted up to 100% in exploration.

For petro product marketing, 100% FDI is permitted.

All petro products taken out of the administered price mechanism from 1st April,2002.

All petroleum products, except MS, HSD, Kerosene, ATF and LPG have beendecontrolled

Sourcing and import of crude to joint and private sector refineries allowed underactual user licensing policy.

The GoI has already tabled the Draft Petroleum and Natural Gas Board Bill in theParliament, which proposes a Petroleum and Natural Gas regulator to regulate thedownstream activities. A common Carrier Pipeline Policy allowing two or morecompanies to use a single pipeline for the transportation of products is alsoannounced. At least 25% of the product carrying capacities of the pipeline willhave to be shared with other interested companies by the parent pipeline layingcompany.

Analysis on Indian Oil Corporation

History of a Company

Abhijeet Kelkar 37


38/49


2000

IndianOil crossed the turnover of the magical mark of Rs l ,00,000 Crore -- the firstCorporate in India to do so.

2001Chennai Petroleum Corporation Ltd. (CPCL) and Bongaigaon Refinery and PetrochemicalsLtd. (BRPL) were acquired.

Eight Exploration blocks awarded to the IndianOilled consortium under NELP-II.

2002

APM dismantled. Pricing of Petroleum products decontrolled.IBP Co. Ltd. was acquired with management control.

2003

Lanka IOC Pvt. Ltd. (LIOC) launched in Sri Lanka.

Retail operations began in Sri Lanka. IndianOil became the first Indian PetroleumCompany to begin downstream marketing operations in overseas market. Lanka IOCbecame an independent oil company in Sri Lanka

Concept of XTRA, covering Retail Outlets and customer service, launched

SERVO became a Super Brand

2004

IndianOil turned a Gas marketer by sale of regasified LNG

Indian Oil Corporation Limited - Consolidated FinancialStatementsBALANCE SHEET as at 31st March 2005

Abhijeet Kelkar 38


39/49


(Rs. in Crore)

March-05 March-05

SOURCES OF FUNDS:

1. Shareholders Funds:

a) Capital

b) Reserves and Surplus

1,168.01

26,281.96

27,449.97

1,168.01

22,783.56

23,951.57

2. Loan Funds:

a) Secured Loans

b) Unsecured Loans

3,902.03

16,427.80

20,329.83

4,441.74

10,504.32

14,946.06

3. Deferred Tax Liability (Net) 5,055.53 4,816.44

4. Minority Interest 1,706.65 1,293.98

TOTAL54,541.98 45,008.05

APPLICATION OF FUNDS:

1. Fixed Assets & IntangibleAssets:

1) Net Block of Fixed Assets

2) Net Block of Intangible

Assests

3) Dismantled Capital Stores

4) Capital Work-in-Progress

28,713.96

142.94

17.48

8,907.57

37,781.95

26,216.95

65.06

28.43

6,460.14

32,770.58

Abhijeet Kelkar 39


40/49


2. Goodwill on Acquisition 1,748.06 1,791.34

3. Investments 2,719.46 2,701.71

4. Advances for Investments 150.00 6.88

5. Finance Lease Receivables 103.00 129.06

6. Current Assets, Loans andAdvances:

35,634.98 27,860.73

7. Less: Current Liabilities andProvisions

23,636.00 20,337.27

8. Net Current Assets (6-7) 11,998.98 7,523.46

9. Miscellaneous Expenditure 38.78 85.02

10. Deferred Tax Asset 1.75 0.00

TOTAL 54,541.98 45,008.05

Indian Oil Corporation Limited - Consolidated FinancialStatementsPROFIT AND LOSS ACCOUNT for the year ended 31st March 2005

(Rs. in Crore)

Abhijeet Kelkar 40


41/49


March-05 March-04

INCOME:

1. Sale of Products and CrudeLess: Commi & Disc

Sale (Net of Commi & Disc)Less : Excise Duty

149,715.511,309.44

48,406.0716,762.03

131,644.04

132,149.92825.22

131,324.7017,923.21

113,401.49

2. Companys use of own Productsand crude oil

272.58 214.34

3. Net claim from/(surrender to)PPAC/GOI

77.97 206.23

4. Subsidy From Government ofIndia

1,415.00 2,809.92

5. Increase/(Decrease) in Stocks 2,169.30 831.03

6. Interest and other Income 1,418.59 1,637.07

TOTAL INCOME 136,997.48 119,100.08

EXPENDITURE:

1. Purchase of Products and Crudefor resale

57,215.02 44,932.02

2. Manufacturing, Admn., Selling& other exp

68,525.21 60,068.39

3. Duties applicable on Products(net)

425.80 533.80

4. Depreciation and Amortisationon :a) Fixed Assets

b) Intangible Assets2,400.3413.58

2,413.92

2,093.332.48

2,095.81

5. Interest Payments on: a) Fixed period loans from

banks, FIs and others b) Bonds c) Short term loans from Banks d) Public Deposits e) Others

335.58

70.12 99.25330.891.4529.89

251.79

99.25156.924.3913.24

Abhijeet Kelkar 41


42/49


Less: Interest Capitalised 0.01 0.11

6. Deferred Revenue Expenditurewritten off

2.79 0.99

TOTAL EXPENDITURE 129,350.66 108,156.49

PROFIT FOR THE YEAR 7,646.82 10,943.59

Income/(Expenses) pertainingto previous years (Net)

(111.07) 16.88

PROFIT BEFORE TAX 7,535.75 10,960.47

Provision for Current Tax 1,384.75 2,605.82

PROFIT BEFORE DEFERRED

TAX

6,151.00 8,354.65

PROFIT AFTER TAX 5,900.91 7,837.31

Add: Transfer from Burma CurrentA/c

Less: Share of Minority Interest

0.08

431.76

(0.06)

345.63

PROFIT FOR THE GROUP 5,469.23 7,491.62

Balance brought forward from lastyears account

16.51 1.45

DISPOSABLE PROFIT 5,485.74 7,493.07

Analysis of Companies Financial Position

Growth of a Company

Abhijeet Kelkar 42


43/49


Year 2005 2004

Sales 139214.32 116888.54

% Changed 19.10%

PAT 4891.38 70004.82

% Changed -30.17%

Explanation

Companies Sales Increased by around 19.10 % over the period of time

Companies Profit After Tax is decreased by almost 30%

Main reason for decreasing profit is, there is a decrease of 50% in Govt. subsidy

Depreciation and Amortization on fixed and Intangible Assets Increased by 16%

Profitability of the Company

Year 2005 2004

Profit After Tax 4891.38 7004.82

% Changed -30.17

Operating Profit

Margins (%)

5.20 8.79

% Changed -40.84

Companies Financial Health

Short Term liquidity of the Company

Current Ratio 1.18

Abhijeet Kelkar 43


44/49


Quick Ratio 0.55

Explanation:Short-term liquidity is the ability of the company to meet its short-term financialcommitments. Short-term liquidity ratios measure the relationship between current

liabilities and current assets. Current assets are stocks and work-in-progress, debtors andcash that would normally be re-circulated to pay current liabilities. The ideal ratio 1:1. Buta very high ratio indicates that the company is unable to manage its cash properly.

Long Term Liquidity of the Company

Gearing Ratio 93.68%

Interest Cover 8.10

Explanation:

Long term liquidity or gearing is concerned with the financial structure of the company.Long term liquidity ratios measure the extent to which the capital employed in the businesshas been financed either by shareholders through share capital and retained earnings, orthrough borrowing and long-term finance. Highly geared companies are risky.

Profitability Ratio

Return On Total Asset (ROTA) 6.83%

Return On Capital Employed (ROCE) 11.29%

Net Profit Margins 3.48%

Explanation:The financial health of a company is dependent on a combination of profitability, short-term liquidity and long term liquidity. Companies, which are profitable, but have poor shortterm or long term liquidity measures, do not survive the troughs of the trade cycle. Alsofirms, which are not profitable but are cash rich, do not survive in the long term either.Such companies are taken over for their cash flow or by others who believe that they canimprove the profitability of the business. Thus, those companies that do succeed andsurvive over the long term have a well-rounded financial profile, and perform well in allaspects of financial analysis profitability ratios reflects the business environment of thetime.

Stock Support and Resistance

BSE NSE

Close Price Rs. 612.30 Close Price Rs. 613.25

52 week low Rs. 390 52 week low Rs.384.90

50 day Moving Average Rs.551.49 50 day Moving AverageRs.551.61

Abhijeet Kelkar 44


45/49


Performance of a Company against its Competitors

Company Sales PAT Market

CapIndian Oil Corporation 1392140.32 4891.38 71517.25

Bharat Petroloeum 57877.40 965.80 13749.00

Hindustan Petroloeum 60164.55 1277.33 11874.41

Essar Oil 1045.12 9.86 4735.24

Cash Flow Analysis

A) Cash Flow from Operating Activities.

Net Cash generated from operating activities, which is decreased by almost 50%from 10705.67 to 5314.49 over the period of time.Reasons :-

1. PBT is decreased by 52%2. Decreased in subsidy by 50% by Govt of India.3. Interest Expenditure increased by 46% due to increased in short term loan by bank4. Inventories increased by 420%

B) Cash Flow from Investing Activities.

Total Cash Outflow from investing activities is increased by 42% from 5005.24 to7255.25.

Reasons :-1. Company paid Advance amount Rs. 150 Cr for investment in Haldia

Petrochemical.2. Expenditure on Construction WIP increased by 40% compare to last year

3. This year company realiaseed less cash from Sale of Assets.

C) Cash Flow from Financing Activities.

This year Companys cash inflows are Rs. 1849.02 compare to last years Cashoutflow of Rs. 5726.17.

Reasons :-

Abhijeet Kelkar 45


46/49


1. Company Issue Shares of Rs. 152.36 Cr.2. Company received Capital Grant of Rs.3000003. Company realized funds from short term borrowings.

Interpretation

Positives :1. Companies Sales increased by almost 19%.2. IOC also entered into LNG market. So their Product Portfolio is very diversified

Abhijeet Kelkar 46


47/49


3. Company is a market leader in this sector in terms of Sales and MarketCapitalization.

4. Companies liquidity position is also very strong, company maintains its currentratio above 1.

5. Though this year company record the less profits compare to last year but company

maintains their Dividend outflow compare to last year.

Negatives :1. Companies PAT dropped by 32 %.2. It is because of two reasons

a. Decreased in Subsidy by 50% by GOIb. Companies operating exp increased.

3. If we deduct Govt subsidy from PBT, we will come to know the exact financialcondition of company, So after deducting Subsidy PBT for both years come asfollowsFor year 2004 it is Rs. 4685.15 Cr.

and for 2005 it is Rs. 4070.74 Cr.According to that the companies profit actually decreased by 13%, its mainlybecause of decreased in operating profit

4. Companies EPS is down from Rs. 64 to Rs.46.5. Companies Capital Gearing ratio is also very high.

Outcomes

1. Companies Sales are increasing Year on Year

2. Company is currently investing in Haldia Petrochemicals so in revenues from thatwill also contribute to companies Top Line Growth.

3. Company still largely depend on Govt Subsidy, so Company requires still 10 yearsto become self sufficient.

4. Though Govt. introduced Market Determined Pricing Mechanism (MDPM) fordeciding oil prices, but still prices determined by Ministry of Oil & Natural Gas

5. Currently India is Forth largest oil consumer in Asia Pacific region, and demandfor petroleum product is expected to increase very rapidly, and being a leadercompany in this sector IOC has a very good future.

CONCLUSION

Equity Research consist of anticipating growth of a particular security or sector

based on considered Facts not on hope. A general investor can apply the principles by

Abhijeet Kelkar 47


48/49


using the simplest of tools: pocket calculator, pencil, ruler, chart paper & your cautious

mind, watchful attention. It should be pointed out that, this equity analysis does not discuss

how to buy & sell shares, but does discuss a method which enables the investor to arrive at

buying & selling decision.

In Fundamental analysis a companys goodwill, its performances, liquidity,

leverage, turnover, profitability & financial health is checked & analysis with the help of

ratio analysis for the purpose of long term successful investment. Fundamental Analysis

gives more accurate information about the company than Technical analysis. Fundamental

Analysis is very useful for Investors not for Traders or Speculators, because it useful for

long term investors. Investors may suffer a loss in short term but they always make a profit

in long term.Technical Analysis is generally based on market generated data like prices &

volume to determine the future direction of prices movements. Technical Analysis is just

the prediction about the companies performance, so it may be useful in short term but it

will not always profitable in long term investment.

Biblography

Abhijeet Kelkar 48


49/49


1). Capital market magazines.

2). Financial Management - Prasanna Chandra.

3).Financial Management - Khan And Jain.

4).www.sharekhan.com

5).www.myiris.com

equity research sski securities pvt[1]. ltd

Documents