In an interview with CNBC-TV18, B Ashok, Chairman of Indian Oil Group Companies says the capital raised will be used to repay Chennai Petro's debts and will be invested in future projects.
Operational performance and capital gains helped Chennai Petroleum turn corner in the June quarter, says B Ashok, Chairman of Indian Oil Corporation(IOC), the parent company of Chennai Petro
Chennai Petro reported a quarterly net profit of Rs 923.5 crore against a loss of Rs 364.6 crore during the same period last year. Total income grew 2.6 percent to Rs 9,053 crore.
Gross refining margin (GRM) for the quarter was USD 10.09 per barrel. Ashok told CNBC-TV18 that profits will remain in same range if the crude price remains same in coming quarters.
The parent company, IOC, will be raising Rs 1,000 crore via redeemable preference shares. Ashok says this capital will be used to repay debts and finance future projects pf Chennai Petro.
Ashoks says there are no plans to merge Chennai Petro with IOC in the near future.
Below is the transcript of B Ashok's interview with Sonia Shenoy & Anuj Singhal on CNBC-TV18.
Sonia: It has been a very good set of numbers that the company has reported, take us through the quarter and what the expectation is as far as margins are concerned going ahead?
A: Basically Chennai Petroleum Corporation Ltd (CPCL) has done extremely well during the quarter essentially because the physical performance has been extremely good, the throughput has been almost high for quite a while now.
It has been the best, 2.84 million tonnes whereas the previous best was 2.841 million tonnes which was in Q4 of 2010-2011. Last year it was 2.819 million tonne -- last year same quarter. It is also the distillate yield has been extremely good, 74.3 percent against the previous best of 71.9 percent which was achieved in Q4 of 2013-2014 and last year same period was only 70.2 percent.
There has been a dip in the turnover naturally because of the fall in crude prices but the profit has been Rs 924 crore in the current quarter compared to a loss of Rs 193 crore in the previous period and mainly because of extremely good gross refining margins (GRM) of USD 10.09 per barrel as compared to USD 1.88 per barrel in the previous year. This translates to a GRM increase of almost Rs 1,110 crore.
Anuj: I want to quiz you on that GRM front. this USD 10 GRM, how did you manage to achieve that? I think it is the best in the industry and is that sustainable?
A: Let me say that GRM performance has been extremely good because of three main reasons - first is the good operational performance. There has also been a gain on crude because of the inventory gains of about Rs 404 crore out of Rs 1,110 crore.
There has been a lower impact of fuel and loss because of the lower prices of fuel for the refinery, so this impact has almost been Rs 408 crore and of course the higher distillate yields of 74.3 percent as compared to 70.2 percent last year. So these three factors combined with the general improvement in operations have helped maintaining a very high GRM.
The second part of your question, whether this sort of a GRM is sustainable -- in terms of operational performance, we certainly do hope that we will be able to sustain the operational performance but things which have happened beyond the environment of the organization which is on global prices etc, we will have to hope for the best.
Anuj: What is happening to the merger between Indian Oil Corporation (IOC) and Chennai Petro considering that you will be putting in another Rs 1,000 crore in Chennai Petro. Could you tell us what would be IOC's stake in Chennai Petro and secondly, is the merger plan still on between IOC and Chennai Petro?
A: At the moment, we are not considering any merger plans. What we are doing is because of the losses suffered by the Chennai Petro during the year 2012-2013, 2013-2014 and also 2014-2015 marginal losses, the net worth has been eroded of the company by more than 50 percent. Thanks to the good performance during the current year the networth has substantially improved to Rs 2,519 crore. So while there was a problem cropping up, but because of the good performance networth has improved.
The second thing which has happened is IOC is issuing a preference capital of Rs 1,000 crore, which is not going to increase or make any difference to the equity holding because it is repayable capital, which we are giving over a 10 year term. This we think will help CPCL in terms of reducing their debt and they can also focus on some of the projects which are very crucial to the future of CPCL.
Anuj: Earlier there were reports and as of now since we had Bongaigaon and Kochi refineries which will merge with their parent companies. As of now, is there no plan for something like this with Chennai Petro and IOC?
A: No, as of now there is no plan.
Sonia: You did mention a while back that you would use some of the funds to reduce debt for Chennai Petro, what does the debt exactly stand at this point in time and how much would you be able to bring down on the interest cost in the quarters to come?
A: Overall if you look at borrowings of CPCL -- they were at Rs 4,711 crore as of 30th June 2015 against Rs 5,399 crore as of 31st March 2015 registering a decrease of Rs 688 crore.
This has certainly helped the CPCL. Debt equity ratio as of 30th June 2015 is 1.83:1 and with the infusion of this capital certainly the position should improve much better.The Great Diwali Discount!
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First Published on Aug 10, 2015 04:47 pm