Bharat Petroleum Corporation
BSE: 500547 | NSE: BPCL | ISIN: INE029A01011 | Refineries
- Directors Report
- Chairman's Speech
- Auditors Report
- Notes To Accounts
- Accounting Policy
- Finished Products
- Raw Materials
| Chairman's Speech | Year : Mar '04 |
Dear Shareowners, On behalf of the Board of Directors and on my own behalf, let me extend a very warm welcome to all of you in this Annual General Meeting of the Corporation. The Notice of the AGM, Directors' Report and the Audited Accounts are already with you and with your permission, I take them as read. BPC has been recognised by 'Fortune' magazine as one of the global giants - giving it the 450th rank in the prestigious Fortune 500 list. BPC stands second amongst the four Indian companies featuring in the list. Our position is the result of the efforts put in by all the stakeholders viz. our customers, suppliers, employees, Government officials and all of you. The year 2004-05 is an important year for all of us at BPC, as our refinery at Mumbai is completing 50 years of operation during the year. The refinery started with a capacity of 1.8 Million Metric Tonnes per Annum (MMTPA) in 1955 and by the end of this financial year, would reach a capacity of 12 MMTPA of crude processing. Throughout this period, it has retained its technical edge over the competition through leveraging technology and has focused relentlessly on value addition. The refinery has been a manifestation of the innovative ways used by BPC to enhance performance. With the settling down of the deregulated scenario, changes in the economy, changes in the mindset of consumers and new canvas provided by the Government, BPC is facing challenging times. I now intend to share with you my thoughts on the year that has passed, the international oil markets, the burgeoning consumerism in the country and BPC's plans to surmount these issues and outperform in the times to come. International Oil Markets Although oil prices did fluctuate throughout 2003, except for an occasional spurt, they were moving mainly in a band of US $ 25 to 30 per barrel. This comparative stability had allowed the oil companies to effectively stabilize domestic prices. This was also aided by the strengthening rupee and therefore, the margins available during this period were quite significant. However, by the turn of the year, there was an upward swing in the crude prices. They have increased by about 50% from US $ 30 per barrel levels to US $ 45 per barrel as at present. The stubborn refusal of oil prices to drop in the recent past has amplified the doubts regarding adequacy of near term supplies and long term outlook for crude oil prices. The upswing can be attributed to a number of global geopolitical reasons. To begin with are the regional conflicts in the Middle East, the Iraq crisis, US embargo on Iran etc. These conflicts have reduced the new availability of oil from this region while creating doubts about the current availability. The supply fears were further aided by the labour turmoil in Nigeria and Venezuela and the Yukos impasse. All these have given rise to a 'Scarcity Premium' in the crude oil prices. On the other hand, the temporary stabilization in world oil demand is also under attack, particularly with a surge in the Asian demand - Chinese and Indian. The International Energy Agency (IEA) estimates that the world oil demand is likely to increase in the region of 3 to 3.3 million barrels per day. The increase in demand is also forcing the oil 'Security Premium' to burgeon and is resulting in spiraling crude oil prices. Thus, oil prices are expected to remain at considerably high levels during the rest of 2004 and even during early 2005. The situation can only be salvaged through certain major increases in production - particularly by OPEC. The impact of the high prices on the domestic oil companies, including BPC, is an area I will touch upon later. Another major feature in the last year was an increase in the product spreads over crude oil. The Gas Oil AG - Dubai spread, which used to be in the range of US $ 2 to 3 per barrel during the period upto December 2003, has now moved up substantially, ranging from US $ 7 to 10.5 per barrel. The average would be above US $ 8 per barrel. The increase in spreads has increased the refiners' margins for all refineries in the world including the Indian refineries. The Indian Economy Last year, the Indian economy bounced back and began a move on a high growth trajectory. The country achieved an annual GDP growth rate of 8.2%. This impressive growth rate could be attributed to the bountiful monsoon and the stellar performance from the services, agriculture and automobile sectors. Along with the GDP, the oil industry too has come out of stagnation by registering a 3.4% growth. The consumption of petroleum products for the FY 2003-04 is estimated at 107.7 MMT. A major change in the consumption pattern was the welcome growth in diesel consumption which was either stagnant or was reducing during the last three years. A similar growth is also expected during the current year. Performance The relatively stable oil prices, growth in demand and higher refiners' margins have resulted in a remarkable performance by the BPC group in 2003-04. All three group companies, BPC, Kochi Refineries Limited (KRL) and Numaligarh Refinery Limited (NRL) have recorded their highest profits ever. The group turnover increased from Rs. 569.25 billion to Rs. 625.70 billion. Group profit after tax (PAT) increased by 30% from Rs. 18.22 billion to Rs. 23.64 billion. The Group Earnings Per Share (EPS) for a BPC shareholder has gone up from Rs. 51.76 per share last year to Rs. 67.80 per share. BPC, as a company, also gave a sterling performance. Financially, BPC achieved 11% growth in sales turnover from Rs.472.38 billion to Rs. 525.16 billion. The profit after tax showed an increase of 35% from Rs.12.50 billion last year to Rs. 16.95 billion. Internal cash generation has been placed at Rs. 17.4 billion. This has helped to bring the debt equity ratio further down to 0.46. Investment in the business has been very profitable for the shareholders as the return on capital employed has been 21.3% and return on net worth has been 32%. BPC has been following a liberal dividend policy and this year too, we have not deviated. The dividend has been increased by Rs. 2.50 per share from Rs. 15.00 per share last year to Rs. 17.50 per share this year. Nearly 39% of the profits are being paid out in the form of dividend and dividend tax. The first quarter of the current year has been very eventful. On the positive side, there has been a major gain in the refiners' margins as a result of the widening of the spreads between crude oil and products. The physical performance on the marketing side has also been encouraging with most of the products showing significant sales growth. However, major increases in the international oil prices, coupled with maintaining prices of major retail products for the customers, has put substantial pressure on the marketing margins. This has resulted in gains for the refineries at the cost of the marketing companies. This pressure is evident from the declared results of most of the oil companies. The new Government has also been watching the increases in the international prices and has twice taken steps to cut duties since it has taken charge at the Centre. Excise duty has been reduced on all major products. In case of diesel, duty has been cut in two steps by 6% from 14% to 8%. Petrol duty has been reduced from 30% to 23%, LPG duty has been halved from 16% to 8% and a reduction of 4% has been effected in kerosene. The Government has also reduced the customs duties on major petroleum products, thereby reducing the cost of purchases for the marketing companies. These measures have partially helped the oil companies to maintain prices in the domestic market. However, in case the international prices keep on ballooning in the days to come, the current domestic prices would be inadequate to cover costs. Retail Revolution The domestic retail customers are facing a new phenomenon with the changing retail landscape in the country. The customers are now experiencing shopping as a 'pleasurable activity' as against the traditional 'necessary evil' outlook. New channels of distribution are rising rapidly including shopping malls, self service stations and even internet shopping. Of particular significance is the development of the 'Self-Service' stores and supermarkets. These channels, although covering a small percentage of sales today, are fast emerging as a preferred channel in metros and small towns. These stores help customers make an educated choice by way of 'touch and feel' and aid in the growth of 'impulse' purchases. BPC's response to customers' increasing retail aspirations has been the 'Errand Mall' proposition, branded as 'In & Out'. This was a build up on the existing convenience store model with value added through the concept of networked alliances in the product and service categories. The 'In & Out' initiative was launched in February 2001 across 13 stores in Mumbai and Chennai. Today 'In & Out' is a 234 store network and is the single largest retail chain in the country. The 'In & Out' initiative is expected to expand to over 400 stores by March 2005. BPC has decided to focus on the areas which are critical for the 'In & Out' proposition in order to remain successful and evolve into a strong brand. These include inter alia consistently ensuring three-way stakeholder profitability - dealers, alliance partners and BPC, while creating value for our customers. The store format is being fine-tuned and offerings are being modified, based on our learning till date. The possibility of an integrated 'In & Out' model with the grocery proposition is also being examined in the perspective of a larger rollout in its present form. We at BPC are striving to make the 'In & Out' a true convenience retail destination by a combination of offerings and process deliverables. In the process, we are also trying to build a strong retail organisation by identifying, developing and charting out a path for acquiring necessary skill sets with clear responsibilities for multiple retail functions. We believe that in the days to come, BPC would continue to be in the forefront of the retailing movement. Rural Marketing BPC has been the forerunner of various marketing initiatives benefiting the customers as well as the company. Some of the new initiatives introduced so far have benefited both, the urban and the rural customers. BPC realises that the six lakh villages in India include a large number of customers who need to be targeted through different initiatives. With this aim, BPC has decided to tie-up with ITC Limited in their 'e-choupal' programme. The aim of the 'e-choupal' programme is to cover one lakh Indian villages and link them electronically to the world. The programme aims at cutting the intermediaries and middlemen involved in purchase from and sale of products to the rural customer. BPC would make its products available through 'e-choupals' to the rural customers. The tie-up includes LPG cylinders, diesel and lubricants. This would enhance our market reach to a great extent, bringing us closer to our customers. Branded Fuels BPC's main success has been the propagation and establishment of 'Branded' fuels in the country. As you are aware, two years ago, BPC introduced the concept of 'Branded' fuels to the domestic market. 'Speed', our branded petrol, which was offered with value additions and at a higher price, now represents nearly 10% of our total sales. 'Speed' has nearly 50% of the branded petrol market in the country. The prominent market share has been a result of the high values perceived by 'Speed' customers consistently. A similar proposition was being researched on diesel and recently, we have also introduced our branded premium variant of diesel titled 'Hi Speed Diesel'. This has been introduced in the two major metro markets of Mumbai and Delhi. The consumers' response to 'Hi Speed Diesel' has been very encouraging and in some of the outlets, the conversion ratio is as high as 50%. Refinery Modernisation By the end of the current financial year, modernisation of our Mumbai refinery would be complete. This project consists of four main units viz. Crude / Vacuum Distillation unit, Hydro-cracker unit, Hydrogen unit and Sulphur Recovery unit along with utilities and offsite facilities. Execution of this project in the existing working refinery with its space constraints was a major challenge. This was handled by large scale re-organisation of existing operating facilities and ingenious solutions for accommodating new equipments. This project would enhance the refinery capacity to 12 MMTPA. At the end of the year, our refinery would be able to make 50% of the MS - HSD production with a product quality matching Euro III levels. The rest of the production would match Euro II levels. Other Businesses BPC has added LNG as one of the products being offered to the industrial customers. The LNG field is one of the most promising fields. As a promoter stakeholder in Petronet LNG and as a marketer of LNG, BPC has made a small entry in this area. Further projects are under consideration and would be implemented wherever found viable. During NELP IV, BPC has acquired stakes in three exploration blocks. Further work on the exploration opportunities through 'farming in' is being undertaken. Agreements have been signed with GAIL for participating in joint ventures in two Gas Distribution Projects - one in Pune and another in Kanpur. BPC is also undertaking gas distribution projects in the Gandhinagar, Mehsana and Sabarkanta districts of Gujarat. This would provide opportunities for diversification of business. Human Resources BPC is proud of its 12000 plus human resources who have been toiling consistently to garner a better performance every year. BPC has studied the competencies required for critical and frontline positions like SBU Head, Entity Head, Regional Manager, Territory Manager and Sales Officer and has developed Competency Models. These models would form a basis for people recruitment, development and placement decisions in the company. They would also help individuals to improve their capabilities and thereby, successfully achieve business goals. Arising out of this process, BPC has also undertaken a landmark study on developing a new ethos on corporate leadership in India jointly with Public Enterprises Selection Board (PESB). The study aims at determining characteristic competencies required of successful Indian CEOs. The results of this study and the new model that has evolved are major contributions by BPC to management research in the country. Acknowledgements I would like to express my gratitude to our customers, for their loyalty and faith in our abilities to continuously improve on our offerings to them. Thanks are also due to our dealers, distributors, contractors and suppliers, whose continued allegiance has sustained our excellent performance through the years. I gratefully acknowledge the guidance and support afforded by the Ministry of Petroleum & Natural Gas and the other Ministries of the Central and State Governments. My heartfelt thanks to all the staff members whose unstinted efforts have contributed to make BPC the exemplary organization that it is. Our performance bears witness to the commitment of our team to deliver value to our customers and exceed expectations always. I also thank my colleagues on the Board for their valuable contributions, which have steered this company onto the path of progress. Most of all, I sincerely thank each and every one of you, our shareowners, for the confidence and trust you have placed in us. We will try our best to surpass your expectations. Thank you, ladies and gentlemen. Sarthak Behuria 30th August 2004 |
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| Source : Religare Technova | |
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