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Good morning, ladies and gentlemen. Welcome to Bharat Petroleum Corporation Limited Q1 FY '24 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Harshavardhan Dole from IIFL Securities Limited. Thank you, and over to you, sir.
Thank you. Good evening, everyone. On behalf of IIFL Securities, I welcome you all to the First Quarter FY '24 Earnings Call of BPCL to discuss the performance of the quarter gone by, we have the senior management team of BPCL, represented by Director Finance, Mr. V.R.K Gupta; ED-Corporate Finance, Mr. Pankaj Kumar; CGM-Corporate Revenue, Mrs. Srividya V.; DGM Pricing and Insurance, Chanda Negi and Senior Manager, Pricing and Insurance, Rahul Agrawal.
I will hand over the call to Rahul for the opening statements, subsequent to which the call will be open for Q&A. Over to you, Rahul.
Thank you, Mr. Harsh. On behalf of the BPCL team, I welcome you all to this Post Q1 Results Con Call. Before we begin, I would like to mention that some of the statements that we make during this con call, are based on our assessments of the matters, and we believe that these statements are reasonable. However, their nature involves number of risks and uncertainties that may lead to different results. Since this is a quarterly results review, please restrict your questions to the Q1 results. I now request our Director Finance; Mr. V.R.K. Gupta, who is leading the BPCL's team for this call to make his opening remarks. Thank you, and over to you, sir.
Good morning, everyone. Welcome. Hope you were able to go through our results for the quarter gone by. We are pleased to share that BPCL has registered highest ever quarterly EBITDA, highest ever profit after tax, excluding the exceptional items, and highest ever total equity during quarter 1. The data of economic indicator shows that almost all sectors have required and are in line with -- are already crossing the pre-pandemic levels. World Bank and OECD have nudged up the global growth forecast '23. India's economic growth is expected to raise between 5.5% to 6.5% for financial year '23, '24. In the recent S&P Global Ratings outlook, India is projected to grow at an average of 6.7% for the next 3 years. And gross forecast unchanged at 6% for this fiscal year. projecting a sharp bounce back to 6.9% in '24/'25 and '25/'26.
Sales of automobile recorded a massive growth of 10% year-on-year. Passenger vehicle sales grew by 9.4% and crossed pre-pandemic level. Commercial vehicle sales dropped by 3.3%. However, the same is above 2019 levels. Coming to BPCL's performance for the last quarter, we recorded a stellar performance on both physical and financial parameters during this quarter. The throughput for refinery stood at 10.36 MMT for the quarter 1 compared to earlier quarter, it is significantly higher than the nameplate capacity, which was around 115% of capacity utilization. The distillate yield was 84.09% during this quarter compared to quarter with 83.87%.
During this quarter, we could process high sulphur crude of around 76% of the total crude throughput against 73% in the last quarter of previous year. The capacity utilization for PDPP, Derivatives Petrochemical Complex at Kochi refinery, which was around 70% during this quarter. BPCL GRM for quarter 1 is $12.64 per barrel, all 3 refineries put together as compared to $20.58 per barrel in Q4 of FY '23. On a sequential basis, there is a reduction of GRM due to the mainly reduction of the tracks. The drop in GRM is mainly [indiscernible] [ fuel threats ] with higher supplies and global macro adverse during Q1.
The HIG Singapore [indiscernible] fell down to $15.5 per barrel in Q1 and $28.2 per barrel in Q4 of FY '23 and Singapore [indiscernible] were at $12 per barrel in Q1 from $15 per barrel in Q4 of FY '23. And when compare quarter 1 of current year vis-a-vis quarter 4 of last financial year on sequential basis, the Indian basket of crude oil has decreased to $77.7 per barrel from $80.52 per barrel, and the rupee has been hovering around $82 per dollar. During the quarter, BPCL had registered a healthy growth in core retail sales by gaining a market share of 0.20 and 1.82 in MSME respectively, among PSUs. Consequently, the main products [indiscernible], ATF, CNG registered a growth of 6.1% in MS, 6% in HAC, 14.2% growth in ATF and 19.7% growth in CNG during this quarter as compared to Q1 of '22-'23
We estimate that retail demand growth is in similar lines for the entire June '23-'24 financial year. [indiscernible] demand in upper markets likely to witness relatively slower demand than the rural and high way markets due to a little bit transition happening towards CNG. We plan to add around 1,000 new retail outlets during FY '23-'24. And during quarter 1, we have added 111 new retail outlets. We have recently approved major projects with a capital outlay of almost INR 50,000 crores during this quarter, mainly [indiscernible] Bina refineries, some pure efficiency [indiscernible], and there are some wind power projects around 50 megawatts into 2 in Madhya Pradesh and Maharashtra. [indiscernible] BPCL commitment for net 0 has scope 1 scope level emissions by 2040. Our renewables team has taken multiple projects. BPCL has a total installed renewable energy capacity of 46 megawatt as of date. We have projects in progress of around 60 megawatts and recently, we have announced 2 major projects of 50-megawatt each in wind.
We have signed multiple MoUs with Solar Energy Corporation of India, and with state governments for development of RV projects. In keeping with this vision of comprehensive energy provider, BPC intends to turn all ROs into complete energy stations with provision of charging stations at its 7,000 ROs by '24 December. Currently, we have 747 EV charging stations and 13 battery charging stations. The thrust is to provide charging stations at highways and cities prioritized by Government of India. BPCL has adopted a highway fast charging corridor model with the provision of fast charges is a 30-kilowatt per hour or 60-kilowatt per hour at every 100 kilometers and both ends of the highway corridor. 80 such corridors are operational till date. We plan to set up around 400 such highway corridors.
Under gas business, BPCL has emerged as a successful bidder in 25 years. We along with our JVs hold 29.1% market share in terms of sales in the CGD sector of the country, and would be investing approximately INR 48,000 crores over the life of this JV. And around INR 15,000 crores, we are going to spend in the next 5 years for making it operationally viable in the next 5 years for the CGD sector.
Construction in our [ GSG ] is in full stream, and we have completed almost a 13,740 kilometers of steel pipeline in our geographical areas, where we got authorization under various CGD bid rounds. Commercial sales have been started in 16 [ GS ]. We currently dispense CNG in 1,607 retail outlets and further by the financial year end, we aim to add another 500 CNG stations in our existing MS and HSD retail outlets. We have recently issued advertisement for 14,273 new retail outlets spread across the country for capturing more markets and increase our presence.
On a non-fuel consumer retailing, currently, we have around 300 in [ store ] in line with our focus to expand non-fuel consumer retailing in urban and rural markets and setup in an organizer retailing ecosystem, we have commissioned around 120 retail rural stores in June -- till June, and we'll be increasing 1,000 stores over a period of time.
In terms of petrochemicals, recently, we have announced a largest petrochemical complex at Bina with additional impetus to the petrochemical segment in the future. We plan to set up ethylene cracker HDPE, LLDPE units, polypropylene units, along with other downstream petchem units at Bina refinery, and undertake refinery expansion from 7.8 MMTPA to 11 MMTPA. The refinery expansion is mainly for availability of [ fuel stock ] for petrochemicals. On account of this project, additional petchem facilities of approximately 2.2 KTPA will come on stream by 2028.
Gross capital expenditure of the project is INR 49,000 crores, including the GST. If we remove the GST component, the net project cost would be around INR 43,000 crores. For Q1, the revenue from operations stood at INR 1,28,257 crores. The profit after tax stood at INR 10,551 crores. During this year, we have a CapEx target of around INR 10,000 crores for the financial year 2024. We have spent about INR 1,464 crores in Q1.
Our gross borrowings have significantly improved compared to INR 35,855 crores as on 31 March '23 to INR 27,939 crores, which is only gross borrowing. We are excluding the lease obligations amounting to around INR 8,800 crores. The debt-to-equity ratio as on 30 June is at 0.45 as compared to 0.69 at the end of Q4 of FY '23 on gross borrowing basis. On consolidated basis, with respect to Q1 revenue from operations stood at INR 1,28,264 crores, while profit after tax stood at INR 10,644 crores.
Recently, our Board had approved the proposal of raising capital up to an amount of not exceeding INR 18,000 crores for achieving energy transition, net zero and energy security objectives. This capital will be raised by way of issue of equity shares and rights issue basis to eligible equity shareholders of the Corporation [indiscernible]. I now invite for questions and for any clarification. Thank you.
[Operator Instructions] The first question is from the line of Rajesh from ITI Limited.
Am i audible?
Yes, you are audible.
Sir, my question is around retail fuel prices and our approach for the same because last more than 1 year has been an extraordinary timing in the history and we have seen a lot of ups and downs, more downs on the oil prices, shorter time, and we couldn't raise proportionately because of consumer interest. Now that a large part of the recoupment of whatever losses we have made earlier has been done, what's your take on the [indiscernible], fuel prices and many would [indiscernible] normalization will start, how is the company [ looking ]?
Yes, I agree. Some of the losses -- what we have incurred in the marketing of last year, some of the losses we have recouped during this quarter. But we cannot -- entire losses of marketing we could not recover in this quarter. That said, secondly, the market trends if you see, the prices of crude is not yet stabilized. When we see the crude prices will hover around $75, then for a long-term basis, if we foresee the crude is at around $75 level, still, we can think of anything. But otherwise, still the crude prices have started going up recently in the last couple of days, crude has gone up to $82, $83 levels. We have to wait and see how the crude prices will stabilize, and we can take a call on the pricing side. But as on date, whatever losses of under recoveries of last year, oil companies actually for BPCL, we are not fully recovered 100%. We have to wait and see how the crude prices will move, how the cracks will more accordingly, we can take a call in the future.
Sir, any possibility to give any [indiscernible] all losses have been recouped, but a large part of it would have been done and even the refining margins have been strong and supportive for us for the refining dividend. So to some extent, there will be some compensation from that side as well?
That is what I'm trying to say, we have to wait and see how the crude prices will move. Just it has started moving up. Now it is around $82, $83 level, the Brent crude is there. So we have to wait and see for some more time if you get a full clarity on the crude price payment, then we can take a call.
The next question is from the line of Sabri Hazarika from Emkay Global.
Yes. Thank you for this call, and congratulations on good set of numbers. So I have 1 question. This is pertaining to this rights issue of INR 18,000 crores. So this INR 18,000 crores is part of the -- I think it's like somewhat influenced by the INR 30,000 crores of capital support, which the government has announced during the budget. So it's been mentioned, it's both for energy security as well as energy transition. So we feel like raising -- I mean the objective of this right, given the details, but can you give us some sense on how the allocation would be on energy transition versus energy security?
Yes. Two parts in your question. One is whether it is a part of INR 30,000 crores or not. Yes, definitely, it is from the budgetary support what they have announced. So the money from the Government of India infusion comes from that budget support only. Secondly, this particular rights issue, we are proposing 2 or 3 objectives. One is our net zero ambitions and net zero aspiration. But secondly, the energy transition-related and third one is energy security. Energy security, mainly wherever we have exploration blocks. India as a country, we are short in terms of energy related crude oil and other things. So definitely, we need some more investments for getting this energy security of putting more money in exploration side.
Secondly, the energy transition is our investments towards energy transition is mainly for CBG business. And secondly, to put some more money in the electric vehicle charging stations, and mainly for alternative fuels, for example, bio fuels, CBG and related investments, so we need this particular money.
Accordingly, locations, individual project-wise, when you see our total ambitious CapEx target for the next 5 years will be around INR 1.4 crores to INR 1.5 lakh crores, [indiscernible] the CapEx requirements are for these 3 objectives. One is net zero and energy transition and energy security related. Most of the INR 18,000 crores rights issue proceeds will be allocated towards these objectives. Individual project wise, we are working on it, how much money we have to allocate to individual projects. We'll come back and we'll announce at the time of filing our application what allocation for what type of projects we are going to do.
Right, -- so just a small follow-up. So energy security means it is like the normal CapEx only, it includes everything, right?
Right, right.
The next question is from the line of Amit [indiscernible] from UBS.
Sir, congratulation on a good set of numbers. My question relates to BPCL refining margin and from refinery, why the margins were so low versus Bina and Kochi?
If you see our Mumbai refinery configuration, they are a high sulphur passenger will be lower. They can process low sulphur grades will be on a higher quantum and high sulphur grades will be at a lower quantum. Second, even if we see the combination of crude processing in Mumbai refinery, the Russian crude composition will be lesser in Mumbai refinery as compared to Kochi refinery and Bina refinery. Another 2 refineries take a maximum of crude around 45% to 50% of Russian grades and high sulphur grades. So during this quarter, if you see the high sulphur grade, the commercial pricing side if we see, there is good benefiting in processing of high sulphur mainly for Russian grade. So that is 1 reason.
And second, during this quarter, we have a small technical reason of nonavailability of hydrogen supression, hydrogen, we could not process some quantity of production. That will have a small impact only, but otherwise, the major impact of Mumbai refinery margins are mainly processing of low sulphur grades than high sulphur grades.
Okay. So can we say that the majority of the difference is because of the Russian crude between the 2 set of refineries like Bina and Kochi?
Directionally. Directionally, the major contributor for the Russian grades.
Okay. And sir, could you explain us like the LPG mechanism because this 30th June, you have made a comment about LPG. So what exactly is the total -- is still recoverable on account of LPG from the government? Any numbers on that?
Yes. We have disclosed in the results, once again I will repeat. As on March '23, we have a negative book of around INR 850 crores. So during this quarter, entire INR 850 crores we have recovered and part of revenue from operation we have shown due to the good favorable pricing, good favorable prices of LPG. As on 30th June 2023, there is no negative buffer, whatever availability is positive buffer only, which we have not recognized in the revenue from operations. Otherwise on a cumulative basis, as of 30th June 2023, there is no negative buffer.
Okay. Okay. Got it. And sir, third comment on the CNG side. So I think we have...
Sorry to interrupts. Sir, may we request that you return to the question queue. Other participants waiting for their turn. The next question is from the line of Hemang Khanna from Nomura.
I hope I'm audible.
Yes, you are audible.
Firstly, for the Mumbai refinery, what would be the total share of the Russian crude sourcing, which was done in this quarter? And secondly, could you please reiterate what is the overall utilization for the petchem project in this quarter? And how much is the GRM benefit if any?
One is, Mumbai refinery, we cannot give exact number in terms of the Russian crude composition. In fact, the Russian crudes also, we have 2 grades, one is low sulphur as well as high sulphur. But overall, directionally compared to other refineries, the Mumbai refinery cannot process Russian crude much beyond around 20%. So out of 20%, a good amount of crude has been processed in Mumbai refinery. But compared to other refineries, the Mumbai refinery can process very significantly lower quantum of Russian crude. Secondly, in terms of PDPP performance, the particular units have been stabilized in large extent. During current quarter also, the units have been operated around 70% in physical parameters. And the GRM contribution this quarter, the petchem margins are not comparably high as compared to other previous periods. Roughly, the GRM contribution on account of PDPP will be around $0.4 to $0.5 per barrel this quarter.
The next question is from the line of Varatharajan Sivasankaran from Antique Limited.
[indiscernible]
Sir, your audio is not clear, may we request you to use...
Is it better now?
Much better, sir.
So I wanted the refining [ loss ] can you give us number?
Yes, we will provide. We'll provide separately.
We don't publish the refinery gain and loss. Marketing losses already we have provided. Refinery, we are not working out separately anything.
The next question is from the line of [ Sumit Rohra ] from Helios Capital.
I would like to congratulate you. I mean it's been absolutely a splendid quarter. In fact, I'll just take a few minutes, you've actually reported what annual profit you used to make. You reported in a quarter now we understand, of course, this has been you know for whatever happened last year. And sir, it's a very heartening to know that when you said that we have not recovered last year's losses, so see, I mean, my question is not to do about any refining or marketing. My question is more generic, right?
Because, I mean, today, as investors, obviously, it is completely disheartening to see the market cap of BPCL trading at where it is, right? So obviously, as you know, the market is basically lacking confidence and investors are not enthusiastic about the prospects, right? So if you can just spend a few minutes and basically reassure markets that profitability is a key focus of the government is concerned on oil marketing companies.
That will basically go to reemphasize confidence among all the investors, right, because we are also doing a right issue, which clearly goes to show that we are obviously interested in increasing our equity, et cetera, right? So I mean, overall, the -- what I see is the government has done is extremely positive. But unfortunately, it's not been recognized by market, right? And being management, you can give confidence to markets and reassure markets that the Government of India is obviously concerned on the profitability. And obviously, they want these companies to be very prosperous, right? So if you can just spend a bit on that, it will go a long way in reassuring markets and investors.
You may be aware, this quarter, [indiscernible], nothing but the reassurance to the market only for the shareholders, right? And the prospects, if we see, on 2 sides, one is the physical side how efficiently our company is running. From the refining side, we can see the refining capacity I think is much more than 115%. We are crossing the pre-pandemic levels. And all 3 refineries are running at full swing and 115% capacity is not a small thing.
Second, the yields have been included at 84% levels. And all the refineries, when low sulphur grade gives a good commercial sense, our refineries have taken a challenge and both the refineries, Kochi refinery and Bina refinery, their low sulphur production throughput is much, much higher compared to any other refinery. So these are the positive indicators in terms of the efficiencies of our operations. And secondly, on the marketing side, you see the volume growth is almost 8% compared to the previous quarter. So these are the good indicators and reassuring our operations ability to give good assurance to the shareholders.
Come to the pricing, it's all market environment. For example, it depends totally depends on what is the outlook of the crude, what is the outlook of the crack. Sometimes, yes, on temporary period upside, the margins may be a bit lower side. But one has to see on the longer period of time, and over a period of time, longer-term basis, because the company can make good amount of margins or not, yes, I'm sure. we can ensure for a long-term basis, the margin should be generated.
Okay. But sir, I mean, just 1 thing. I mean, if I can add in, earlier when you started, you said that we have not recovered because obviously, 1 thing is that we didn't make money last year. And Normally, we make about INR 10,000 crores annually, right? So if you see that way, we have a long way to go and catch it up. So is it safe to assume that there's going to be no price cut? Because I mean the only thing people talk about [indiscernible] because elections are round the corner. So that kind of thing has to change, right? So if you can just give some more clarity on the pricing, then that will go a long, long way.
But at this point of time, we cannot comment anything on the price cut. We have to wait and see how the crude prices will behave. If we feel the crude prices will stabilize at this level for a longer period of time, then we can take a call. But at this point of time, crude fluctuating from $75 to $85. We are not sure whether it will be stable at $85 level or it will go up to $90 level. We have to wait and see for a more period of time.
The next question is from the line of Probal Sen from ICC Securities.
Congratulations on a strong set of numbers. I just wanted to understand a little bit more on the petrochemical capacity and expansion that you have planned, if you can kindly give some details in terms of the exact capacities plan and the kind of inputs that will be used for this project, whether it will be based on naphtha or gas [indiscernible], any details on that front plus time line, that was my question.
First already, we have 1 petrochemical complex at Kochi refinery. The capacity is around 329 TMT per annum. And the recent announcement of petrochemical complex at Bina refinery, we see mainly commodity petrochemicals with a capacity of 2,200 KTPA consisting of 4 major product categories HDPE, LLDPE and polypropylene [indiscernible] other petrochemicals. The total capacity of output of total facility will be around 2.2 KTPA and a little bit of normal petroleum products, if we view along with the CapEx expansion of CDU from 7.8 to 11 MMT. So with this 2.2 KTPA plus existing capacity of 329, we'll be having around 2.5 MMT of petrochemical side in our basket. Completion of this project, our petrochemical basket will be around 2.5 MMT around that is what we are aspiring but [ 28 ] commission.
And what is the kind of inputs that we will be moving? Is it sort of a [ dual fuel ], if it has the flexibility to sort of switch between naphtha and gas? Any idea that you can provide.
It is a dual fuel only, but most of these configurations since we have a surplus naphtha available at some of the refineries. We want to take this naphtha to Bina refinery so that we will get a more value addition. That is the object with this background on this project has been initiated by using more naphtha from our intermediaries.
And the economics, the returns that we are sort of looking at, it's the standard kind of [indiscernible] that we have in terms of pressure? Or that study is still to be done, sir?
Generally, we don't take up any projects if the IRR not reasonable.
The next question is from the line of Siddharth Chauhan from B&K Securities.
Is it possible to give us information about what kind of plant shutdowns you have planned this year?
I'll share it with you. So currently, Bina refinery has been shut down for the month of July. Then we will have some units of Kochi refinery going for shutdown in the month of August for 15 days. And then Mumbai refinery, 1 of the CDU will go for shutdown at the fag end of September for a month.
We will move on to the next question, that is from the line of Vidyadhar Ginde from Sohum Asset Managers.
So my question was, there were press reports suggesting that you were trying to sign up a contract with [ Rosneft ] one of the Russian companies for crude supply. And the discount mentioned there was about 8% to the Middle Eastern benchmark. So could you give us some color on whether the discounts on Russian crudes have come down and whether the kind of volumes you were able to proportion of Russian crude you are able to use in Q1, will it remain at that level? Or is it likely to go down, because there are reports of Russia cutting their seaborne exports? So if you could give us some color on that.
So we are always open for any signing of term contracts with any of the suppliers provided if commercially, they give a good terms to BPCL. Yes, there were discussions are happening with Rosneft but not yet concluded. In terms of the Russian crude dispose as a trend wage you compare to earlier quarter sequential basis. The discounts have been lesser during this quarter and current times. But we are not sure how the discounts will behave and we said discounts will increase, discounts will come down. But at this point of time, comparatively, based on the sequential quarter, the Russian crude discounts are on the lower side compared to previous quarter.
So has it also -- so what June less then -- so is every month or so lower or it's quarter was roughly similar? And what was the rough discount in Q1, some range? And what's the proportion of Russian crude used in this -- in Q1?
No, it all depends on the cargo to cargo. For example, respect to companies, whenever there is a need of Spark cargoes, [indiscernible], they will go to the market. A particular point of time, if there is no demand for the cargo, the discounts can go up. For example, if there a good demand from the buyer side, the discounts will be on a lower side. So we cannot comment what exactly direction is what will be the discount -- so definitely, it will be cheaper than the other crude, so where we are getting from on the gulf side.
But did the proportion of Russian crude go up in Q1 compared to Q4?
Nick, you were saying Russian crude procurement?
Yes. As a proportion of your throughput.
As of date, so till June, our procurement is a good number only, a percentage of Russian crude production. If the discount continues at this level, still we can manage to take more Russian crude. In fact, if the crude discount comes down, there is no good advantage of commercial advantage of taking Russian crudes.
The next question is from the line of Yogesh Patil from Dolat Capital.
News flow suggests that India has been strongly considering the regulation of oil product pipelines and planning to allow third party to transport the oil products through the pipeline. My question is how it will impact on our marketing of oil products, mostly on the petrol, diesel or HSD? Do you see any kind of impact on our market share in these products? Is the decision taken by [ CNGRE ]?
We have not studied what is the impact of the market share. We have to -- we will come back. We have not studied what will be the impact.
The next question is from the line of S. Ramesh from Nirmal Bang Equities.
The first thought is what is your sense in terms of the impact of Chinese refining throughput increasing and surplus exports on the refining spreads? And do you see the Chinese demand recovery supporting higher spreads in the coming quarters? And secondly, if you can give some color in terms of when you expect PDPP as well as CGD business to generate the expected return on capital employed in terms of time line and the kind of profits we can generate over 2 to 3 years from CGD and the petrochemical business?
Yes. One is for Kochi refinery, petrochemicals, already, we have shared. It has contributed around $0.4 to $0.5 per barrel for refining margins. The only reason for lower GRM addition on account of quicker complete, is that during this quarter, in fact, last couple of quarters due to the lower demand of petrochemicals in China, the import parity prices have been on the lower side. We are expecting this trend will continue for a couple of quarters more.
Once the Chinese economy reverse and if the Chinese demand comes back, once the petrochemical prices goes to the normal level, definitely, the margins of PDPP will go up. We are not sure how much time it will take. But definitely, once the China demand goes up, the petrochemical prices will be stabilized and the margins will be improved further. Second -- what is your second question?
It was on the CGD business in terms of the investments you're planning over the next 5 years. You said 16 of these years are in commercial operations. So yes, what is the time line to generate, say, 10%, 15% ROCE on this investment? And is there any cash loss on this as of now?
So as of now, we have already retailing our retail outlets around 1,607 retail outlets, we have started selling CNG so where we are getting a good margins. In terms of the return on investment, we have to wait for the completion of the total project, then we'll come to know what is the total CapEx we have invested there and then we can work out. As of date, we are not foreseeing any cash losses for this business.
Okay. And 1 last thought if I may ask. In terms of your capital allocation, especially from the rights issue and the long-term investments in petrochemicals, when do you expect to be able to indicate what are the kind of commercial returns you will get on the investment, especially in the rights issue because there was a timing issue in terms of at what price you issue, and to that extent, there will be a dilution of earnings. So how do you expect to offset the dilution of earnings from the rights issue, if you can just give us thoughts on that?
Yes. It's a process, we are in the process of appointing the merchant bankers cum transaction advisor. Within the next couple of days, we will conclude an appointment of transaction advisors on a regular basis. After that, we'll come up with the calendar by what time we can come to the market for this rights issue.
In terms of the capital allocation, already I have explained. We are working on it which type of projects, how much capital we have to allocate from this proceed. But definitely, this entire INR 18,000 crores proceeds are meant for mainly for net zero ambitions, energy security and energy transition. In terms of the energy security, energy transition, definitively the returns will be in the normal course of business only. Only in terms of net zero ambitions, we may have to see what amount we have to allocate because 1 is on the obligation side, we want to go for net zero. Returns point of view, at this point of time, we are not sure what projects you have to take it up. Then once we complete this allocation, then we'll come back and we'll share what allocation will keep it to the net zero and for energy transition and energy security.
The next question is from the line of Kirtan Mehta from BOB Capital Markets.
First question is in terms of the Russian crude usage, if the Russian crude prices crosses USD 60 per barrel, would we be able to continue to make payments using the current mechanism? And would -- or is there a risk at that, that could reduce the usage of Russian crude in our refinery?
So based on our experience, once the price is crossing beyond the threshold, we have faced a little bit payment issues earlier. Now we have to wait and see for the next cargoes when the payment dues are happening. At least for the time being, we are not foreseeing any problem because now more banks are ready for making the settlement. You have to wait and see. As of date, there is no payments were pending for settlement. We have to wait and see in case really if there is a [indiscernible] beyond the price gap is there any issues or not.
Right, sir. Understood. Second question was about the E&P business, where could you share more detail about the status of Mozambique? Is there any reassessment of CapEx done? And when is basically force majeure likely to lift off. And also on the Russia side, are we sort of started to receiving the dividends? Or are there any payment spending there?
Only on Mozambique side, there are some positive discussions are happening. In fact, recently, 2 operational level committee meetings have happened. So most probably, we are expecting in next 1 or 2 quarters the work may restart. But officially, the main operator, lead operator, TotalEnergies, they have to announce after taking consensus from the operators. Yes, definitely there will be a small -- there will be an increase of the project cost because there was a delay of around 3.5 years in the project, there will be an increase. But how much and what extent, what are the timelines, not yet decided, not yet finalized. Once the operator level committee if they finalize project cost increase and revenue timelines so we can share that.
And second, in terms of the Russia, yes, whatever proceedings around for BPCL portion around $130 million pending at Russia, they are not in a position to declare the dividend but proceedings have not moved out of Russia. Our stake will be around $120 million to $150 million.
The next question is from the line of Vikash from CLSA.
I wanted to understand and confirm the accounting for LPG margins from here on. So since there is this surplus mechanism. Is it correct to assume that from here on, the accounting will not be more than whatever is the fair margin and whatever is the surplus will not figure in the income statement, but will be simply take into reserves as -- and may be used sometime later whenever there is a shortfall? That is first. Secondly, I also wanted to ask some -- get a little bit more details on Mozambique. Maybe if you can answer this, and then I can ask the Mozambique bit?
Yes. As an accounting practice, there is no change of accounting practice. Whenever there is a positive buffer, we never take it to the revenue from operations. As the government scheme, current scheme whenever there is a [ 42 ] buffer, for example, if we are recovering more than the price, the price we never take it as a revenue from operations. This is the accounting convention we are following in the last couple of years. There is no change, and this will continue also. But the current scheme of things for LPG, so if the revision is positive buffer, it will be outside the P&L, it will be kept outside.
Okay. And that will be used to offset whenever there is a negative comment then that will come inside the P&L?
Yes, right. That is the current mechanism.
Okay. And the other thing that I wanted to check on Mozambique, so could you just remind us where were we in terms of financing in terms of certain agreements, initial heads of agreements in terms of offtake. With all of those be valid or you'll have to kind of redo all of that work whenever a project kind of -- when the project development restarts?
One is on the project financing side, whatever project financing, it happens for $15.4 billion as of date, it is valid. These are the time extension. Now question is, on the revised project cost, what would be the number? Again, we have to approach all the lenders community. But positively, they got good assurance of the lender community. The revised project cost, they may get the approval. So the project financing side, as updated, it is valid. Whatever required money for the project from our share, it will be drawn from the project financing side. Second is sales [indiscernible] offtake agreements, whatever offtake agreements, they are getting valid. Whatever we have signed the agreement that is valid.
Okay. And if you could remind us roughly, were -- was each partner doing his own share of agreements? Or was it being done as a consortium?
It's a consortium, consortium with respect to buyers, they will go to the consortium, and they will take that agreement.
And this was 2 trains, right? So that's roughly...
Yes, as of date 2 trains. It's positive for the 2 trains, the current project.
A little less than 10 million tonnes, right? I mean, so you were looking for...
Around 11 million, 12 million ....
This is around 11 million tonnes. Okay.
6.44x2.
And the duration, as you understand, once you get to, say, day 0 start of the project development, is it 3 years? Or is it a little more than that?
We are hopeful for 4 years, 3.5 to 4 years.
3.5 to 4 years. Okay. Okay. But there has not yet been any formal announcement by Total, right?
Not yet. Not yet. But we are hopeful. We are hopeful in the next couple of months some kind of announcement can come.
The next question is from the line of Bhaskar Chakraborty from Jefferies.
You had indicated that you are looking at INR 1.4 lakh crores to INR 1.5 lakh crores of CapEx over the next 5 years. Does it mean that from next fiscal, we are likely to see INR 25,000 crores to INR 30,000 crores of annual CapEx?
Yes. The major peak CapEx will start now from the next year, but '25, '26 onwards, you can see new CapEx. Current year, our target is INR 10,000 crores, but we are expecting it will cross beyond INR 10,000 crores. But next year also, it is not at that level of INR 25,000 crores, somewhere around INR 15,000 crores to INR 17,000 crores, that is what our expectation. But '25, '26 onwards, the peak CapEx is going to start. Mainly for the petrochemical complex, the [ ESG ] the major CapEx we have to incur. This year or next year, the CapEx allocation will be lesser only [indiscernible] projects. But year 3 will be the major CapEx we are going to incur, year 3 and 4 onwards.
So does that mean that there will be a large acquisition in debt coinciding with this because this is almost 3x the annual CapEx run rate you have had in the past?
Yes. So that is the reason, some portion of our requirement, we are planning for the rights issue. Definitely, we have to go for the borrowings, and I'm not saying that we cannot go for the borrowing but the debt levels, our aspiration should be keep it a less than they were, not crossing beyond certain level. Maybe our aspiration will be around 0.8, 0.9 level of debt equity, even after completing of these projects on a stand-alone basis.
The next question is from the line of Vivekanand Subbaraman from Ambit Capital Private Limited.
I just had 1 question with respect to the dividend payout or the philosophy with respect to dividend payouts. Last year, I understand the profitability was depressed due to dividend -- due to the fuel prices being frozen and abnormal energy situation. So how should we think about the dividends, considering your CapEx plans, which are substantially elevated, especially from year 2 and 3?
Yes. We have a dividend issued in the policy, that is, I say, 30% of the -- our endeavor always is to 30% of the profit should be distributed as dividend or 35% of the net worth. That is our endeavor every year. We try to give returns to the shareholders in terms of dividend distribution, I think a minimum of 30%. Even by taking up this much of large CapEx for the next 5 years around INR 1.5 lakh crores. We are still hopeful we can distribute that level as per the dividend policy. If there is any change in the policy, then we can communicate. As of date, our endeavor is always to comply with our policy.
Okay. Just 1 last from my end. As far as your CapEx is concerned, because it is spread out, would it mean that the rights issue money collection will also be spread out? Or has that not yet been decided?
As of date, the entire exercise is yet to start. We have to get in the process of finding our transaction advisors and merchant bankers. So once they -- based on their working, then currently, we can work out whether what is the timelines, whether it is a single time or multiple times we have to receive. We have not yet concluded anything now.
The next question is from the line of Vipul Kumar Shah from Sumangal Investments.
Can you give the exact percentage of Russian crude used in all 3 refineries and the discount which we have got to the reference prices?
Once again, I'm saying the same thing, because we cannot give any exact numbers. I can give what percentage of crude, our refineries can process. Because everything depends on what is the availability of Russian crude based on the timelines. For example, for an x period of time for example particular month, if I need some ex-cargo because the market mix available, then I can take x cargos and process. So many of the times, our requirement and market supply may not match. So we cannot give exactly what would be the Russian crude we can process. But on an average, directionally, we can take around 30% to 40%, all 3 refineries put together we can process Russian crude.
But at least you can give what you have done in last quarter, sir? No, that is my point.
No. I'm giving you the range. So this particular segment we can work on.
And what was the discount?
Discount is the commercial terms. So generally, we don't disclose what our discounts we got.
Ladies and gentlemen, we'll be taking the last question. That is from the line of Vishnu Kumar from Spark Capital.
A few questions surrounding the rights issue. I mean when this INR 30,000 crores was allocated in the budget, it appeared that probably some part of the losses was indirectly getting funded through the rights issue, at least on the government provider. Now that we have indirectly recovered a good amount of the losses that is last year. Can there be a rethink whether this money is required. That is one.
Second is that while we have shed 3, 4 focus -- I mean, a couple of purposes which these rights issues, which is energy, net zero energy transition and energy security, is that -- can you give us a specific split of amounts that you already have in mind for this because also because why this question I am asking, the energy security, in the past, we have not really had great successes in terms of our exploratory investments -- though, we have -- exploratory we had, but at least in terms of the capital returns that favor from Mozambique, which is supposed to come in '17, '18 or even Wahoo. We cannot add much of investment. So trying to understand rather, we have focused more on the downstream and probably [indiscernible] do the energy security part? So just some thoughts on this point would be helpful.
Yes. This is INR 18,000 crores rights issue whether we need it or not, to answer your question, definitely, we need because such a large CapEx investment projects we are having expecting around INR 1.5 lakh crores. We don't want to leverage ourselves to a large extent. So we want to moderate our leverage. That is the reason we need money. Secondly, in terms of the capital allocation, whether exploration main, where do you want to put more money, we are not going for any new blocks or new investments. We have 2 major investment blocks, 1 is in Brazil and 1 is in Mozambique, that has crossed the exploration stage to development stage. So we are continuing these projects only. It requires a large amount of investments. That is one reason some part of capital allocation will happen for these 2 blocks under energy security.
Energy transition, almost 25 years we got the licensing. This requires a new capital requirements. So under energy transition, some amount of capital definitely we need to allocate for the CGD business. In terms of Scope 1, Scope 2 emission reductions, we have a plan by 2040 how much capital outlay required, somewhere roughly, we need around INR 90, 000 crores to INR 1 lakh crores. We have not yet finalized what is the exact amount, what type of projects. But the timelines are around next 15 years, you have to work towards. We have to start the journey in terms of the net zero, Scope 1 and Scope 2, some amount, definitely, we have to allocate for these projects. At just project-wide allocation, we are in the process of working on it, there up for rights issue application, we will share that information.
Can there be a fungibility of the funds that you'll raise for your petrochemical plants also? Or is it necessarily going to only those that you will mention in the rights issue?
We have not yet concluded whether how much amount we can give it to petrochemical project also, or do we need to go for the project financing. We have yet to conclude on that, which route we have to go.
Rough timeline for the raise? I mean, next couple of quarters, you want to conclude or...
Shortly we will communicate whatever the timelines.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Harshavardhan Dole for his closing comments.
Firstly, I'd like to thank BPCL management for giving us an opportunity to host a call. We really appreciate, sir. Also, ladies and gentlemen, I sincerely thank you for participating in this call. In case any of your questions are unanswered, you can either talk on the line to me or to the BPCL Investor Relations team, and I'm sure they will look forward to address your issue. Sir, any last remarks that you would like to make?
Thank you, Mr. Harsh. On behalf of the BPCL team, I thank all the investors for taking part in this con call. Also, I thank IIFL Securities for organizing this call. We look forward to meeting after the next quarter's results. Thank you, everyone.
Thank you.
Thanks, sir.
Thank you, members of the management team. Ladies and gentlemen, on behalf of IIFL Securities Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.