HPCL working out modalities on discounts for cashless payments

In an interview to CNBC-TV18, MK Surana, CMD of Hindustan Petroleum Corporation Ltd (HPCL) spoke about the latest happenings in his company and sector.

"As Finance Minister has announced that the public sector oil marketing companies (OMCs) are to give 0.75 percent discount on the cashless transactions at retail outlets, we are working out the modalities. We are committed to promote the cashless economy as has been the agenda of the government", he said.Below is the verbatim transcript of MK Surana's interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.Sonia: I wanted to check with you, what exactly is the discount that OMCs like yourself will offer on digital transactions and what could be the impact of that on your earnings in the near-term?A: As the Finance Minister has announced that the public sector oil marketing companies are to give 0.75 percent discount on the cashless transactions at the retail outlets. We are working out the modalities and we are committed to promote the cashless economy as has been the agenda of the government also and shortly we will be announcing the modalities on that.Latha: Credit Suisse -- one of the brokerages have calculated that if the price discount lasts for a year then your EPS will be hurt by 18 percent. Is that correct?A: Various people may be putting a lot of figures but we are yet to calculate any such work out because it will depend on how much the percentage of cashless on the total.Anuj: The counter way of looking at things is that the private competition is almost nil. So OMCs have all the pricing freedom. So they will price their products now taking into consideration this 0.75 percent discount and in effect, this would mean that those who were paying by cash end up paying 0.7 percent more instead of giving 0.75 percent to retail customers, will you adjust your marketing margins accordingly?A: We are still working out the modalities. We have not yet decided that. So once we have firmed up our model, we will let you know.Anuj: What are the current marketing margins during petrol and diesel? I believe it is about Rs 3 on petrol and about Rs 2 on diesel?A: It will be around Rs 2.Anuj: Suffice to say that you could take a combination of discount and increasing the marketing margins a bit?A: The various models where we are working out whether with the oil marketing companies, the overall cash process, non-cash transactions but ultimate idea is to promote the cashless economy and right now the focus is on how we can implement the methodology rather than worrying too much about how it impacts.Anuj: The big surge in crude oil prices -- first your thoughts on inventory gains -- for this quarter what kind of inventory gains can we expect from HPCL?A: Because the crude prices are going up, definitely there will be some inventory gains and it will depend on how the December 31 -- whatever the prices are and the inventories, which we are holding as on December 31 as such so. Right now it will be more projection rather than the reality in that case but I am sure that we will have some inventory gains and that is good for us.Latha: We understand that there has been a fall in regional refining margins, what can you give us by way of numbers, how much was it in last quarter, how much are you expecting average refining margins for this quarter?A: This quarter the average refining margin should be better than last quarter because in the last quarter in July month, the cracks were much lower especially on Gasoline. Subsequent to that, the gasoline cracks have firmed up. As of now the gasoline cracks are in the range of around USD 11 or so. There may be some ups and downs to that extent but it has been maintaining in the range of USD 10-12 and to that extent, the refining margins should be good in this quarter definitely better than the last quarter.Sonia: On an average, what are you expecting by the end of the year because last quarter was just about USD 3.2 per barrel? You did mention that this quarter will be better but by the end of FY17, what are we looking at as average gross refining margins?A: Around 5 or more than 5.Latha: Including inventory gain?A: Yes because we again need to see in January-March quarter how the inventory gains and losses are there, especially how the crude prices move in that quarter. But we are expecting that in the overall basis we should be able to maintain the gross refinery margin of USD 5-6. That is our expectation.Sonia: You said you are working out on the modalities of discount that you have to offer on digital payments, do you know or have you been intimated by the government as to what the duration of these discounts could be? Could be last throughout the next fiscal?A: No, there is no such intimation as regarding the duration but we have got the intimation and the circular is there in the public domain also that 0.75 percent discount on diesel sales on the petrol pumps is to be offered, we are definitely working on that.