HPCL board approves issue of 2:1 bonus

Hindustan Petroleum Corporation Ltd has informed exchanges that the board has recommended increase in the company's share capital to Rs 2,500 crore and issue of fully-paid bonus shares in the ratio of two for every one held.This is subject to approval of shareholders at the annual general meeting on September 8.Speaking to CNBC-TV18, CMD MK Surana talked about the rationale behind the bonus issue, talked about the company's superlative performance over the last few years and discussed the company's expansion of its Vizag and Bathinda refineries.Below is the verbatim transcript of MK Surana’s interview to Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: What was the reason for this massive bonus announcement?A: If you recall sometime back when we had the last annual results, your channel and some other channels and all the people were asking when we are going to reward our shareholders. You might have seen that HPCL has been performing quite well both physically and financially and we had quite a healthy reserve to equity ratio. So we thought we must reward our shareholders who had faith in the company and have continued to be invested in us and that is the reason that we have yesterday announced a capitalisation of equity reserve that is bonus share of two equity shares for one equity share held by them.Sonia: The other big announcement that you made was of the expansion of the Visakhapatnam Refinery. Can you tell us what exactly is the expansion plan, how much will you be doing in the first phase and by when do you plan to complete that expansion?A: Yes, we are expanding our Vishakhapatnam refinery from 8.33 million metric tonne per annum capacity to 15 million metric tonne per annum capacity. The project is costing Rs 20,928 crore and the schedule is 48 months for mechanical completion and we already have the environmental clearance for this project and this project will also have, apart from the expansion of the capacity, a bottom upgradation and the project will be ready to produce BS-VI fuels when it gets commissioned.Latha: That will be which year?A: Euro-VI will start at 2020.Sonia: So, what will this do to your gross refining margin (GRM), how much do you think GRMs could expand to over the next couple of years?A: As I mentioned to you that because this expansion is coming along with the bottom upgradation project, which will improve our distressed yield substantially and reduce the heavy ends and we are expecting that it should push our GRMs to double digit figures as the current crude.Latha: Should we understand that at the moment your GRMs are say, five then do they increase by 200 bps, how much is it vis-à-vis at current levels that it can increase?A: We are expecting a rise of USD 3-4.Sonia: So, in FY16 your GRMs were USD 6.7 per barrel. So, you are saying double digit, that would mean 10 percent?A: That is after we commission this expansion.Latha: The other benefit that has been accruing to all the refining companies is the streamlining of the direct benefit transfer (DBT), what has been your own advantage you think?A: As far as the subsidies are concerned, they have already been tapering out. So, when the subsidies are lower or not there, it definitely benefits us on the working capital.Latha: What has been your own experience although I know no subsidy is needed anymore? The benefit is more of the government if anything.A: You are talking about liquefied petroleum gas (LPG) cylinders?Latha: Yes.A: You might have seen that around Rs 3.34 crore of duplicate or inactive or dubious connections had been weeded out of that and normally the mix is that 50:25:25 is the ratio between the three companies. So, it goes more or less statistically in the same ratio.Sonia: Can you tell us a little more about the Bhatinda refinery as well. In FY16, it was profitable to the tune of almost Rs 1,800 crore. Can you tell us what the expectation is for FY17?A: Bhatinda refinery did very well and it posted a very good and healthy GRMs last year, which led to bring this into profit for the first year and it will continue to have the good run this year also.Apart from that, it is also going through a low cost expansion to enhance its capacity from 9 million metric tonne to 11.3 million metric tonne, which is expected to be commissioned by June 2017. So, we are expecting a good run on the Bhatinda refinery this year as well.Latha: What is the volume expansion you are expecting in the current year itself? Yours is a stand out volume performer compared to the industry average of 4.4 percent, you have been doing compounded annual growth of five years of almost 6 percent, 5.7 percent. Will this year do even better than the average?A: We had been doing well. In fact on the motor fuels, we have been getting a market share over our public sector undertaking (PSU) counterparts since last 11 years. Now, this year also we are making all efforts to continue our steam. Of course there will be some private players so, there may be some pressure.Sonia: Your marketing margins have also been very strong both in petrol and in diesel. In the year gone by you stood at somewhere around Rs 1.7 a litre on an average for both. Do you think we can see higher marketing margins in the next couple of quarters?A: We will see as the prices move.Sonia: So, the trend is on the upside?A: Yes, we are doing well.