Inventory gains may push mid-term GRMs to $3-5/bbl: IOC

Q: Were there significant inventory gains in second quarter?

A: Not very much. We have gained because of lower interest cost and a little bit on rupee, appreciation or weakening of dollar as compared to the previous year. As you know minus the under recovery on kerosene, LPG of over Rs 7,000 crore which we had to bear for the first six months that really dipped our profits to less than Rs 300 crore for the second quarter.

Q: What about marketing margins, where do they stand now? Have they come off significantly as well and which products would you be loosing now

A: We started the year on positive margins as far as the product prices are concerned. However, currently there is still an under recovery of almost Rs 2.80 per litre on petrol and about Rs 2.30 per litre on diesel. Kerosene and LPG have always been a very big under recovery and continuously hammering the organisations profitability. Hence, we are loosing almost about Rs 20 per litre on kerosene and about Rs 200 per cylinder on LPG. So current under recovery is about Rs 75 crore a day. Looking at these numbers, I think if we have lost about Rs 9-9.5 crore in the first six months, at these rates we will be probably loose out about 17,000-18,000 on all four products and taking a total toll of about Rs 27,000 crore, out of which about Rs 7,000-9,000 crore may come about of MHSD reimbursements by upstream companies. Therefore, we are looking at basically LPG kerosene subsidy on under recovery of about Rs 18,000-19,000 for Indian Oil alone, which maybe about Rs 28,000-30,000 for the industry and is expected to come through bonds which is based on what our Ministry has been telling us at various forums.   

Q: What is the situation now? Are the things completely under control?

A: Yes, the fire has been extinguished because of the nature of the fire. It was decided that we will allow the products to burn that contained it, controlled it after three-four days. So there was no further to life of property. Now it is fully extinguished. There are two committees- one is Mr. Lal committee, which is been appointed by the government and we have an internal committee which we have appointed to give us a report in about two weeks time as to what are the causes of fire and what are the lessons to be learnt and what should we do now. Eventually we will wait for the Lal committee report.

Q: By when do you expect to get the oil bonds because it surprised a few people that nothing came in Q2?

A: We will need to have them in Q3 because otherwise profits will be lower and our liquidity projection is also not particularly good and the under recoveries, our the debt equity has again gone up to about one. Borrowings are over Rs 40,000 crore and it is certainly going to create some kind of a strain on the company's working capital and investment. We have huge capital expenditure plans and our naphtha cracker is getting commissioned. All our quality up-gradation projects are at various stages of completion. Huge payments commitments are involved. We have a capital expenditure commitment of Rs 12,000 crore over and above our normal operating expenses. Hence, we currently hold about Rs 24,000 crore worth of bonds but the bonds are something that help us in improving our profitability and also gives us that much confidence of having it as an investment to be able to liquidate smaller trances at an appropriate time.