Description
The PPT explaining about Capital Structure Analysis of Oil and Gas sectors including companies like IOC, RIL, HPCL, BPCL, Essar.
Pecking order & Capital Structure Analysis - Oil and Gas Sector
Companies Under Scan
• • • • • • • • • • Reliance Industries Ltd. (RIL) Indian Oil Corporation (IOC) HPCL BPCL Aban Offshore Ltd. ONGC GAIL Reliance Natural Ltd. Essar Oil Cairn India Ltd.
Capital Structure Analysis
• Calculation
? Took closing price of stock on BSE from 1 Jan, 2000 till 28 Feb, 2009 ? Regressed the daily return on these shares with daily return on Sensex ? Formula used : Ke = Rf + B*(Rm-Rf) ? Here Ke is required return on stock and in regression it is daily return on stock ? Rm is substituted by Daily return on sensex ? Rf is taken as 7.5% ? And Beta is calculated to fit the regression.
• After getting the Beta of firm, we calculate Beta of unlevered firm
? BL = Bu + Bu (1-t)*D/E
• Using this Beta we calculate beta for firm at various leverage levels and thereby Cost of Equity • Then we calculate Cost of Debt for firm at current level and assumed cost at different levels, since no method was available to calculate cost of debt at other levels
Pecking Order Analysis
Particulars
Number of Years
Percentage of Total
Total no. of years
36
100%
No. of yearsfollowing pecking order completely
13
36%
No. of years following Pecking order except Secured Unsecured Loans
11
31%
Total No. of times Secured Unsecured order breached
18
50%
No. of times Prefrence Stock order Breached
36
100%
No. of companies which overall followed Pecking order completely
3
30%
No. of Companies which followed pecking order except Secured Unsecured Loans
6
60%
Conclusion
• Pecking order is generally followed in the industry • Preference share not Existent in the industry • Increasingly firms are moving from secured debt to unsecured debt in order to free their assets
Thank You
doc_318172199.ppt
The PPT explaining about Capital Structure Analysis of Oil and Gas sectors including companies like IOC, RIL, HPCL, BPCL, Essar.
Pecking order & Capital Structure Analysis - Oil and Gas Sector
Companies Under Scan
• • • • • • • • • • Reliance Industries Ltd. (RIL) Indian Oil Corporation (IOC) HPCL BPCL Aban Offshore Ltd. ONGC GAIL Reliance Natural Ltd. Essar Oil Cairn India Ltd.
Capital Structure Analysis
• Calculation
? Took closing price of stock on BSE from 1 Jan, 2000 till 28 Feb, 2009 ? Regressed the daily return on these shares with daily return on Sensex ? Formula used : Ke = Rf + B*(Rm-Rf) ? Here Ke is required return on stock and in regression it is daily return on stock ? Rm is substituted by Daily return on sensex ? Rf is taken as 7.5% ? And Beta is calculated to fit the regression.
• After getting the Beta of firm, we calculate Beta of unlevered firm
? BL = Bu + Bu (1-t)*D/E
• Using this Beta we calculate beta for firm at various leverage levels and thereby Cost of Equity • Then we calculate Cost of Debt for firm at current level and assumed cost at different levels, since no method was available to calculate cost of debt at other levels
Pecking Order Analysis
Particulars
Number of Years
Percentage of Total
Total no. of years
36
100%
No. of yearsfollowing pecking order completely
13
36%
No. of years following Pecking order except Secured Unsecured Loans
11
31%
Total No. of times Secured Unsecured order breached
18
50%
No. of times Prefrence Stock order Breached
36
100%
No. of companies which overall followed Pecking order completely
3
30%
No. of Companies which followed pecking order except Secured Unsecured Loans
6
60%
Conclusion
• Pecking order is generally followed in the industry • Preference share not Existent in the industry • Increasingly firms are moving from secured debt to unsecured debt in order to free their assets
Thank You
doc_318172199.ppt