No specific directive from government on fuel prices: HPCL

Below is the verbatim transcript of the interview.

Anuj: Can you tell us first on this monthly LPG price hike? We believe that has now been put on backburner but does it impact you at all or do you think the government will take care of that because cooking oil for longest has been the government's problem?

A: As far as domestic LPG is concerned, means the subsidised LPG and the PDS kerosene, these are the two which are the controlled products right now and on that whatever is the under recovery is being reimbursed by the government. We are guided by the directions of the government on pricing of these two products so as such whether the price of the domestic LPG cylinder is hiked or not it does not affect the companies as such.

Latha: What is the actual position? I know either ways it doesn't hurt your company and certainly not immediately but has the government stopped the price hikes or will they come but in lower doses?

A: As far as the controlled products are concerned from time to time the government issues certain directions and oil companies follow that because the under recoveries are fully covered on these two products. I am again repeating it is related to subsidised LPG cylinders and the PDS kerosene.

Anuj: Even the kerosene has stopped, the kerosene price hike which was the monthly price hike even that has stopped?

A: No, I am saying from time to time there are directions by government.

Anuj: From two-there months there has not been hike in that?

A: I think January there is something.

Sonia: What is the directive from the government now?

A: There is no separate directive on this issue. From time to time, the directive comes, so there is no specific thing.

Anuj: On petrol and diesel, are you still making losses now on petrol and diesel because that is where which is not controlled and that is where it will go into your bottomline either way?

A: Earlier also I mentioned that in India presently, the oil marketing set up is dominated by the public sector undertaking (PSU) oil company and when you have got a sector, which is dominant by the PSU companies, in that case, the total thing is guided by multiple factors than one. One thing is purely the international product prices, which remain primarily the direction which decides the prices and the exchange rate.

Anuj: Are you making losses right now on petrol and diesel? I understand that crude prices have gone up but that would mean that the basic pricing freedom gets distorted.

A: But in a process industry, this is not the product costing. It is overall costing.

So it is not a question of that each product, you can cost separately. So as far as – as a company, we are able to maintain our health, that should be good enough.

Anuj: When the stock could rerated, on petrol you were making Rs 3, on diesel you were making Rs 1.50. That is not the case. Do you think this whole process of using the lower crude prices to increase excise has proved counter-productive because now you have reached a stage where the pump prices are almost back to previous high without crude being there and now there is no elbow room to cut excise or to raise prices?

A: No, what I am trying to say is there is crude price – the way it moves in the market. At the same time, there is a level of sensitivity on the prices of petrol and diesel in the market. At the same time we need to ensure that the company’s financial health remains good and we balance all the three. Therefore, if we would have been a pure private company then it would have been if there is an opportunity the crude prices are going up, with the petrol prices going up, etc then you can make whatever the profits you want to do but as I mentioned earlier, we need to balance all the three and as an analyst you may like to independently dissect etc but we don’t do that right now.

Latha: Would it be fair to say that your margins in the quarter gone by would be lower than your margin in Q1, January-March quarter? Would the 2017 Q4 be lower than your Q1 margins?

A: What you call as a margin is a differential of – it is some sort of a GRM but that is not the whole thing which the company retains even earlier even now, there are certain other things, expenses, dealer commission etc etc.

When you say that this quarter is lower or earlier quarter is lower, let us see. The results will be out in another 15 days’ time so then you will be able to make a better guess.

Anuj: I completely take your point especially in a country like India there should be other considerations apart from just gains. We asked this because it's a listed company. So in this case if the crude prices start to fall as well maybe that will not be the only factor driving the pump prices. In that case you will have to recover some of the lost ground as well?

A: We are not a pure marketing company. We are a refining and a marketing company. So the question is the total profitability of the company is guided by the refinery margins as well as marketing margins. Therefore, what you people are looking at is pure marketing margins and trying to decide whether the company will be making higher profit, lower profit etc, but the company's profitability is decided by the sum total of all the things. Now you should be factoring in.

Latha: Would it be safe to say that it is getting difficult for you to pass on prices even if your raw material or even if the petrol prices globally rose?

A: That is the fact that if the crude prices are lower and I wish to clarify that the product prices is not only a function of crude. It is crude and crack, so sometime it is compensating also but it is true that if international product prices are higher then there is a level to which consumers can pay. Our consumers will be willing to pay considering the overall scenario in the country which is there. So at certain level the interventions maybe required and that is a fair point to consider that if it is required it should be made for. If we are able to ensure that the company's financial health is sustained by the refinery margins or something like that then there should be a reasonable way.