IOC, Bharat Petro, HPCL: Whose financials are better?
The sharp rise in the price of crude oil has impacted most individuals as well as oil marketing companies that are operating in the country. With the oil marketing companies holding their prices for quite some time in the earlier part of 2011 their finances were impacted.
June 08, 2011 / 13:44 IST
By Arnav Pandya, Financial Planner
The sharp rise in the price of crude oil has impacted most individuals as well as oil marketing companies that are operating in the country. With the oil marketing companies holding their prices for quite some time in the earlier part of 2011 their finances were impacted. Oil prices still continue to rule high makes it essential to consider how their financial position stacks up on different parameters.ImpactWhen there is a deficit that is run by the oil companies and they are not immediately reimbursed for these amounts one of the direct impacts is on the bottom line of the company. At the same time there is an increase in the borrowing amount as the companies have to borrow more for the purpose of meeting the cash requirement. This will also push up the interest that is paid for the borrowings impacting profits. A higher figure is a negative for the stock while containing this aspect will ensure that the bounce back for the company will be strong as well as quick. At the same time a look at the debt service coverage ratio and interest service coverage ratio shows the leeway available for the company for repayment of loans and interest. The debt service coverage ratio shows the amount of profit available before deductions like depreciation, interest and tax that will cover interest expenses and long term loan repayments during the year. The interest service coverage ratio shows the profit available to cover only interest payments. A higher figure is better for both the ratio as it shows the safety element for the company to cover payments. Interest costIn the case of Bharat Petroleum (BPCL) there has been a sharp rise in the interest cost that the company has had to bear for the last three months of the financial year 2010-11. The interest cost has jumped from Rs 206 crore in Q4 of 2010-11 to Rs 316 crore which is a rise of nearly 53%. Even after this sharp rise in the last quarter the company has managed to rein in the audited annual figure on the interest cost front from Rs 1,125 crore in 2009-10 to Rs 1,247 crore in 2010-11 a rise of just over 10%. This was mainly on account of the control of this expense in the earlier part of the year and at the end of September 2010 the interest cost was actually down from Rs 553 to Rs 510 crore for the first six months of the year. The company was comfortable on the interest service coverage ratio at 4.7 times at the end of March 2011. Hindustan Petroleum (HPCL) also suffered in the last quarter of 2010-11 as the interest cost jumped to Rs 225 crore from Rs 164 crore in the fourth quarter of 2009-10. The rise of around 37% in the last quarter went against the trend of the earlier months. For the entire year the interest cost actually came down from Rs 932 crore to Rs 910 crore for the consolidated entity and this controlled the situation as a whole. It has an interest service coverage ratio of 4.5 times at the end of March 2011 for the standalone entity.Indian Oil Corporation (IOC) who has suffered significantly on the financial front as its interest cost in the last quarter of 2010-11 jumped to a massive Rs 865 crore from Rs 435 crore in Q4 of 2009-10. This rise of nearly 100% in the cost actually pushed the overall interest cost for 2010-11 to Rs 2,980 crore from Rs 1,726 crore in the previous year for the consolidated entity. The annual figure is also 72% higher and the only good news is that the company has a higher cushion in the form of the interest service coverage ratio at 5.5 times even though this figure is deterioration since a year ago.Debt burdenThe interest cost along with the debt burden will show the overall position for the company because a rise in both can signal tough times ahead if there is little room for manoeuvre and the situation does not improve soon. For BPCL the loans outstanding for the standalone entity have come down from 22,195 crore last year to Rs 18,971 crore at the end of March 2011 while the consolidated figure is also down from Rs 26,692 crore to Rs 25,185 crore. The debt to equity ratio is around 1.35:1 but what is worrying is that the debt service coverage ratio is just 1.5 times.HPCL managed to control its interest cost but the outstanding loans on its books at the end of March 2011 stood at Rs 25,021 crore as against Rs 21,302 crore which is a rise of 17%. Even for the consolidated entity the debt rose to Rs 31,124 crore from Rs 24,336 crore. The debt equity ratio for the company stands at nearly 2: 1 but its debt service coverage ratio is at 3.5 times.IOC saw its overall borrowing rise significantly from Rs 44,566 crore as on 31 March 2010 to Rs 52,734 crore on March 31, 2011 which is a gain of nearly 18 per cent for the standalone entity. The position was not much better for the consolidated entity as the right here at Rs 49,472 crore to Rs 57,837 crore. The only relief for the company is that its debt to equity ratio is around 1:1 due to the large reserves and surplus and its debt service coverage ratio is 2.9 times.Disclosure:The writer does not hold any shares in the above mentioned companiesDisclaimer:This does not represent any recommendation to buy or sell shares in the companies mentioned above. Readers are requested to consult their financial advisor before taking any financial decision. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
