CORPORATE FINANCE

PROJECT REPORT

ON
OIL AND NATURAL GAS
CORPORATION LTD (ONGC)
SUBMITTED TO: SUBMITTED BY:

Mrs. NEETI SANAN ROHIT PRAJAPAT

(faculty of finance) ROHITASH

ROUBLE BAJAJ

SACHIN PANWAR

SAGAR TALREJA

(SECTION-B)
 ACKNOWLEDGEMENT

It gives us immeasurable pleasure, to acknowledge the help and advice given by all the

concern people. It will be impertinent on our behalf if we do not thank each and every person

who has made an effort to put together this project.

We, first of all would like to acknowledge the cooperation and encouragement of the

Mrs. NEETI SANAN, FACULTY OF FINANCE Who provides us an opportunity & motivated

me to complete this project on an esteemed organization.

We are debited to our advisor Ms. AMANJYOT, ASSISSTENT whose guidance, patience,

encouragement and trust has been a great source of support for us throughout our completion of

project report at ONGC. We are privileged to work under her. She also helped us to set up and

refine our research agenda and career goals .

ONGC a state-owned oil and gas company in India. ONGC found resources in assam and
established the new oil province in cambay basin (Gujarat). in 1970 with the discovery of
Bombay high (now known as Mumbai high), ONGC went offshore. It is a Fortune Global 500
company ranked 413, and contributes 77% of India's crude oil production and 81% of India's
natural gas production. It is the second highest profit making corporation in India. It was set up
as a commission on 14 August 1956. Indian government holds 74.14% equity stake in this
company.

ONGC is Asia's largest and most active company involved in exploration and production of oil.
It is involved in exploring for and exploiting hydrocarbons in 26 sedimentary basins of India. It
produces about 30% of India's crude oil requirement. It owns and operates more than 11,000
kilometres of pipelines in India. In 2010, it stood at 18th position in the Platts Top 250 Global
Energy Company

In 2002-03 ONGC took over Mangalore Refinery and Petrochemicals Limited (MRPL) from
Birla Group and announced its entrance into retailing business.
CORPORATE GOVERNANACE
In compliance with Clause 49 of the Listing Agreement with the Stock Exchanges, guidelines on
Corporate Governance issued by the Department of Public Enterprises (DPE) and some of the
best practices followed globally on Corporate Governance, the Corporate Governance of the
Company is led by strong emphasis on human values, individual dignity and adherence to
honest, ethical and professional conduct.

ONGC is committed to achieving highest level of transparency, openness and accountability and
fairness in all areas of operation, meeting the aspirations of all its stakeholders with primary
objective of enhancing shareholders value, timely and balanced disclosure of all material
information to all the stakeholders and protection of their interest. The Company has put in place
a sound system of internal control to mitigate the risks and comply with the laws of land, rules
& regulations in true letter and spirit with a view to provide oversight and guidance to
management in strategy implementation.

1 Corporate Governance Recognitions

In recognition of excellence in Corporate Governance, the following accolades have been

conferred on ONGC in recent years:

(i) ICSI National Award for Excellence in Corporate Governance-2003- by the Institute
of Company Secretaries of India;
(ii) SCOPE Meritorious Award for Corporate Governance 2006-07' by the Standing
Conference on the Public Enterprises;
(iii) Golden Peacock Award for Excellence in Corporate Governance by the Institute of
Directors in the years 2002, 2005 and 2006;
(iv) Golden Peacock Global Award for Corporate Governance by World Council for
Corporate Governance, U.K. in the years 2005, 2007, 2008 and 2009.
(v) Golden Peacock Award for Excellence in Corporate Social Responsibility in
Emerging Economies - 2006 by World Council for Corporate Governance, U.K. in
2006.

2. Board of director

The Company is managed by a Board of Directors, which formulates strategies, policies and
reviews its performance periodically.
Composition

The Board of Directors has an adequate combination of Executive (Functional) and

Nonexecutive Directors. As on 31st March, 2010, the Board had 13 members, comprising 7
Functional Directors (including the Chairman & Managing Director) and 6 Non-executive
Directors (comprising 2 part-time official nominee Directors and 4 part-time non-official
Directors) nominated by the Government of India.

Institutionalised decision making process

With a view to institutionalize all corporate affairs and set up systems and procedures for
advance planning for matters requiring discussion/ decisions by the Board, the Company has
defined guidelines for the meetings of the Board of Directors and Committees

During the year 2006-07, Twelve Board Meetings were held on: April 12, May 8, June 06 & 26,
July 26, August 08, September 06,October 19, November 28, December 23, 2006 and January
30 and March 08, 2007.

The minimum and maximum interval between any two Board meetings was 13 days and 43
days, respectively.

Audit & ethics committee

The terms of reference of the Audit & Ethics Committee are in accordance with Section 292 of
the Companies Act, 1956 and the guidelines set out in Clause 49 of the Listing Agreement.

The role of the Audit & Ethics Committee includes the following:

a) Overseeing financial reporting processes and the disclosure of financial information, to ensure
that the financial statements are correct, sufficient and credible;

b) Recommending to the Board, audit fees payable to Statutory Auditors appointed by C&AG
and approving payments for any other services;

c) Reviewing with the management, Statutory Auditors, Govt. Audit and Internal audit reports,
adequacy of internal control systems and recommending improvements to the management;

d) Reviewing the financial statements and in particular the investments made by the unlisted
subsidiaries of the Company.

e) Matters relating to Corporate Governance including Ethics in business.

STOCKHOLDER ANALYSIS
One who owns shares of stock in a corporation or mutual fund. For corporations, along with the
ownership comes a right to declared dividends and the right to vote on certain company matters,
including the board of directors. also called shareholder.

ONGC stockholder pattern is as followed:-

Government of India is one of the major stakeholders of ONGC. It holds about 74.14% of total
stake of ONGC. Bank, financial institution and insurance companies hold 5.74% of company
stakes and around 4.21% of stake is hold by foreign investors and NRIs. UTI and mutual funds
shares around 2.21% of ownership. Share of pubic in ONGC stake is on 1.6% and employees of
ONGC has only 0.10% stake. Government companies and other hold 12% of company equity.
COST OF CAPITAL
Cost of capital refers to the cost of a company's funds. It involves cost of debt, cost of preference
shares and cost of equity.

equity (rs in millions)

Debts (rs in millions)

 (rs in millions)

Total capital issued from equity by ONGC is rs 21,388.87millions in 2009-2010 and total capital
issued by ONGC through debt is rs 62,669.25millions.

Total capital issued by ONGC is 84058.12 millions.

Cost of debt(Rd)

=kd(1-tc)

Kd=9%

Tax=35%

Rd=9%(1-0.35)

Rd=5.85%
Cost of equity(Re)

Risk free rate of return = 7%

Equity risk preminum= 5%

Company beta=0.80

Corporate tax=35%

Cost of equity= risk free rate of return+beta(return on market-risk free rate of return)

=0.07+0.80(0.17-.07)*100

=15.1%

WACC

= E*Re + D*Rd(1-tc)

V V

=26%*15.1% + 74%*5.85%(1-35%)

=0.26*15.1%+0.74*5.85%*0.65

=7.32%

Weighted Average Cost of Capital (WACC) is an overall return that a corporation must earn on
its existing assets and business operations in order to increase or maintain the current value of
the current stock. ONGC WACC is 7.32% and current stock price is rs 1176.15, then the
company must earn a 7.32% return on its existing assets and business operations (net income) in
order to maintain the stock price at rs 1176.15.
INVESTMENT RETURN ANALYSIS
It performance measure used to evaluate the efficiency of an investment or to compare the
efficiency of a number of different investments.

Operating profit of the company before interest and tax in 2009-2010 is Rs 287983 millions and
in 2008-2009 is Rs 278087 millions.

Total capital of ONGC is Rs 1,176,766 millions in 2009-2010 and Rs 1,035,164 millions

Return on investment = EBIT

Total capital

ROI analysis compares the magnitude and timing of investment gains directly with the
magnitude and timing of investment costs.

In 2008-2009 return on investment is 26.8% which was reduces to 24.5% in 2009-2010. Since
the ROI of the ONGC is reduce as compare to its previous year it means company is not earning
enough as compare to its investment, investment gains is not favourably compare to investment
cost. Decision maker should improve ROI by reducing costs and increasing gains.
CAPITAL STRUCTURE

In 2010 company has 2138872530 shares of equity at rs 10 each. And tax rate is 35%. Company
is earning profit before interest and tax is rs 287983millions. Company is paying rs 5564millions
as interest on borrowing and receiving on investment rs 16431millions. Therefore total interest
paid by ONGC is rs (10867) millions. Therefore Earning per share (EPS) of ONGC which
means the portion of a company's profit allocated to each outstanding share of common
stock. Earning per shares serve as an indicator of a company's profitability.

EPS=(EBIT-INTEREST)(1-Tax)

No. Of shares

EPS= (287983000000+10867000000)(1-0.35)

2138872530

EPS= rs90.8
in 2008-2009 EPS of the company was rs92.35, it was reduce to rs90.8 in 2009-2010 which
means

earning of share holder of ONGC was reduced.

company is providing less dividend to their shareholder.
Company is focusing on debt more as compare to equity.
Company should focus more on share holder.

Optimal capital structure

It is refers to the capital structure that the company should adopt to maximize the value of the
firm. ONGC currently has debt equity ratio of 2.34:1 which means company has more debt as
compare to equity since debt is liability for the company. In order to have a optimal capital
structure the company should reduce debt and raise capital more through equity.
DIVIDEND POLICY

Dividends are declared at the Annual General Meeting of the shareholders based on the
recommendation by the Board. The Board may recommend dividends, at its discretion, to be
paid to our members. The Board may also declare interim dividends. Generally, the factors that
may be considered by the Board before making any recommendations for the dividend include,
but are not limited to, future capital expenditure plans, profits earned during the financial year,
cost of raising funds from alternate sources, cash flow position and applicable taxes including
tax on dividend, subject to the Government guidelines described below:

As per the guideline dated February 11, 1998 from the Government of India, all profit-making
PSUs which are essentially commercial enterprises should declare the higher of a minimum
dividend of 20 percent on equity or a minimum dividend payout of 20 percent of post-tax profit.
The minimum dividend pay-out in respect of enterprises in the oil, petroleum, chemical and
other infrastructure sectors such as us should be 30 percent of post-tax profits