Suppressed product cracks especially on petrol coupled with inventory and forex losses pulled down the second quarter net profit of Indian Oil Corporation (IOC), the country’s largest fuel retailer, to lowest in three years since the second quarter of 2015-16 when it had reported profit of Rs 329 crore.
The company’s net profit in the September of the current financial year (2019-2020) declined to Rs 563 crore, as compared to Rs 3,247 crore posted in the corresponding quarter a year ago.
The company’s Gross Refinery Margin (GRMs) excluding inventory gain or loss dropped to $3.99 per barrel for the second quarter ended September 2019, as compared to $5.88 per barrel during the corresponding quarter a year ago.
IOC Chairman Sanjiv Singh attributed the dismal performance to subdued product cracks. “GRMs also depend upon product cracks, which is the difference between crude and product price. Compared to previous years, gasoline cracks have been very suppressed. Lower product cracks led to lower GRMs,” he said at a media interaction on Thursday.
“If you look at the physical performance, our refineries exceeded 100 per cent capacity utilisation. We achieved 59.9 per cent of distillate yield which is in line with the numbers posted last year, we posted 8.8 per cent fuel and loss which is exactly in line with last year. Physical performance-wise, refineries operated perfectly,” he added.
The company recorded an inventory loss of Rs 1,807 crore for the second quarter (July-September 2019) as against Rs 2,895 crore of inventory gain in the corresponding quarter a year ago. Also, IOC posted Rs 1,135 crore loss on foreign exchange, lower as compared to a loss of Rs 2,620 posted in the corresponding quarter a year ago.
In addition, maintenance and refinery-upgrade activities in a run-up to change in fuel specifications to BS VI have impacted the company’s crude throughput.
The refiner’s throughput in the second quarter of the current financial year declined 2 per cent to 17.53 Million Tonnes. Similarly, refinery throughput in the first six months (April-September) of the current financial year declined 2 per cent to 34.82 MT.
The company’s Director-Refineries S M Vaidya said four of its nine refineries will witness either part or complete shutdown in the current financial year in a run-up to BS VI transition.
“Most of the major refineries have undergone shutdown. The next major refinery which will undergo shut-down is Mathura, which will undergo shutdown between November-December (60 day shut-down). Haldia refinery is currently undergoing part-shutdown which will be completed by mid-January and Guwahati and Bongaigaon refineries will undergo part-shutdown from December to February,” he said.
Singh also said that the company will take significant time to recoup the capital expenditure of Rs 16,000 crore made on supplying BS VI fuel. “The way the pricing is done today it is floating based on international prices. If you compare Euro IV and Euro VI prices there is no significant difference in the pricing in the international market. Although one or two parameters for Indian petroleum products are better, especially for gasoline, there are a few advantages, but the delta is very little. It will take significant time before we are able to recover these costs,” Singh said.
He also added that the growth in the country’s petroleum product consumption in the current fiscal year is lower as compared to earlier years even as gasoline consumption grew 9 per cent in the first six months of the current fiscal and diesel use grew 1 per cent. “Second quarter typically witnesses low diesel demand because of monsoon months. Demand for diesel is also impacted by other factors as a lot of diesel is consumed in the transport sector,” Singh said.
Singh also informed that the company will set-up a Joint Venture with Riyadh-based Al Jeri Group to set-up fuel retail outlets in Saudi Arabia and plans to set-up the first of these retail outlets in the next six months. According to Director of Marketing, Gurmeet Singh, the JV is yet to decide on the total number of fuel retail outlets to be set-up under the agreement.
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