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Rina Tandon works as a junior research analyst at Finterest Research, one of the leading credit rating agencies. As part of her role, she has been tracking the Oil and gas sector and has to rate the forthcoming IPO of Lily Refineries, one of the strategic clients of Finterest. Lily Refineries is primarily an Oil Marketing Company based in India and its business is split into drilling (15%) and distribution activities(35%), Oil Futures(20%), Forex trading (10%) and Surface transport(20%).
Rina finds the following information useful in preparing her report. (Image attached)
Atul, Rina’s supervisor, has already instructed Rina to give a favorable rating to the IPO regardless of her findings. So far, Rina is trying hard to find any other factors that will guide her in the analysis. Can you help her in preparing the report?
Other Factors Which can help to Conduct analysis can be as follows ,
1) Comapany’s revenue and its Profit on YnY basis can help to derive company’s performance.
2) As its primary business is to market oil , She can check how much crude they are outsourcing and currently at what rate , from where , what are the contracts signed, which will give an outlook for the futures.
3) Gross Refining Margins (GRM) is a parameter which can help to analyse companys performance ,it can be compared with benchmark indices .
Not the correct approach for a case discussion. Though I liked the alternative solutions, but the case is not as simple as it seems.
Low OPEC revenues (as seen in the chart) usually result from a drop in crude oil prices. This is favorable for Oil Marketing Companies like Lily Refineries since crude oil is the raw material they need. Surface transports(20%) and distribution activities(35%) make up 55% of Lily Refineries’ business. Both of these generate more profit when crude oil prices are low. This can be mentioned in Rina’s report as a favorable factor.
1.Sir, I have absolutely no idea either about crude oil market nor I could comprehend the graph… How should I try to add points or get ideas…morover panick is added weight to it..
2. Will this be our topic if we choose finance exclusively or without choice I will be given this case discussion??
Typically , Rita needs to look into the market at this point of time,whether the market is favourable for an oil refining company or not. She should also check how the previous oil refining IPOs have fared. She should also check how the other parts of the business are faring and after preparing a detailed report give a green signal to the ipo. Simply pushing it through is a thing she must avoid at all costs.
1.Sir, I have absolutely no idea either about crude oil market nor I could comprehend the graph… How should I try to add points or get ideas…morover panick is added weight to it..
You need to be able to analyse data. My suggestion do analyse few graphs. Its not different from data interpretation in CAT exam. Regarding market, you need to be aware by reading newspapers. I can understand if someone says not much idea, but no clue won’t work.
2. Will this be our topic if we choose finance exclusively or without choice I will be given this case discussion??
Can come in either case. CD is common across all core programmes
Typically , Rita needs to look into the market at this point of time,whether the market is favourable for an oil refining company or not. She should also check how the previous oil refining IPOs have fared. She should also check how the other parts of the business are faring and after preparing a detailed report give a green signal to the ipo. Simply pushing it through is a thing she must avoid at all costs.
Liked the way you applied yourself. You look at benchmarking with previous IPOs which is a good suggestion. Good application. If you can add few ratios and impacted industries, you can score well. +2
In the case given to us the main problem is rina has been provided with less info than required to prepare a report.The graph shows revenue from crude oil has been consistently decreasing and the company is not able to match the actual profit with the planned one.So rina should do a thorough annalysis of the past performance.Also she can use other sectors that has generated profit in her study.
second problem is her supervisor has already instructed her to give a favourable rating irrespective of her findings.She should have a conversation with her boss and tell him that it would be unethical to misguide their clients and customer.There is a chance of loosing their goodwill as for us client’s and customer’s trust is the utmost important thing .So she should prepare a true report and can tell the supervisor where the problem lies .
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