With crude firming up, HPCL likely to see higher margins

The company’s Bhatinda refinery is performing well and he believes considering the complexity of the unit, GRMs of anywhere around USD 11-12 are achievable.Below is the verbatim transcript of J Ramaswamy’s interview with Sonia Shenoy & Anuj Singhal on CNBC-TV18.Anuj: I first wanted to get your thoughts on this kerosene price hike of 25 paisa. If you could tell us more about that is this just a one off that the government has allowed or is this going to be staggered in nature, any conversation with government on that?A: At this point it is about 25 paisa increase which is there in the retail selling prices and we will wait and see as to how it progresses further.Anuj: I asked you this because on petrol diesel, aviation turbine fuel (ATF), non-subsidised LPG you have complete pricing freedom. It is kerosene and the subsidised LPG which is still you require permission from the government. So, what has been the feedback? I am sure you have had discussions with the ministry? What has been the feedback, has time come to take most staggered increases or is this going to be just one off and see how the reaction is?A: Government is fully seized of the matter and we are hopeful that the government will take the right steps. As I said let us wait for some more time and see. I am sure that the government is fully seized of the matter and then rightful steps will be taken. Sonia: Tell us little bit about the business itself? The gross refining margins (GRMs) are expected to improve in the quarters to come one because of an improvement in diesel crack itself and two because of the inventory gains? Do you think your gross refining margins could be better than what you did in the last quarter which was USD 7.5 per barrel?A: The specific numbers I wouldn’t be able to share at this point of time but having said that refining margins is the function of crude price and the cracks which are prevalent. Crude prices have stabilised at around USD 45-45 per barrel which is the average for the quarter. What is more important here is not the daily prices but the average because that is the how the crude prices are getting paid in the market. Similarly, cracks of course we see a bit of weakness in both petrol and diesel which are the major volume drivers. Having said that since the crude prices have been improving month-on-month there are compensatory gains which are going to come. So, let us hope for good quarter now and going ahead.Anuj: What about marketing margins? What kind of margins do you enjoy on both petrol and diesel right now?A: The marketing margins have been stable and they have been growing. On an average of about Rs 2,500 per metric tonne of all fuels put together can be taken as the rough cut. I am talking about entire product profile not only petrol and diesel. Sonia: What could the contribution be from the Bhatinda refinery? In FY16 your Bhatinda refinery reported a gross refining margin of about USD 13, now that you guys are expanding the capacity there what could the contribution be?A: The Bhatinda refinery has done excellently well in the last year. Having registered a throughputof more than 100 percent of the capacities to about 10 million metric tonne plus and we are done pretty well in this current quarter as well. For the first time they are turned around the corner and gave a profit about Rs 1,800 crore close to last year with a gross margin of 13. The complexity of the refinery is much more than many of our other refineries here with us. Therefore with polypropylene and other petro chemical products there in the fold we can expect a very good year for the Bhatinda refinery going ahead. Sonia: When you say very good year should be assume something like USD 10-11 per barrel in terms of GRMs for FY17?A: Yes, because the complexity of the refineries is 11 plus which means that could be the order of the GRMs which can be easily assumed.Anuj: If you could also give us the latest numbers available on the kind of overall under recoveries in kerosene and because since that is the talking point of the day and that is really the big story of the day post this 25 paisa hike and based on the international price movement of crude what is the current level of under recoveries on kerosene in particular?A: Kerosene today the subsidiary element is around Rs 13 as you are aware that Rs 12 is coming out of the government compensation with the price increase that will come down. However, with the order of magnitude if you could take it about a quarter it will be anywhere between Rs 300-350 crore per quarter which will be coming through the government support and additional price recoveries. Sonia: Can you tell us how much were you over compensated for the oil subsidy losses last quarter and what is the expectation for the next couple of quarters?A: There is no over compensation, all the under recoveries have been compensated either through market recoveries or by the government support.