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Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Earnings Conference Call of Bharat Petroleum Corporation Limited, hosted by IIFL Securities Limited. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [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.
Thank you, moderator. Good morning and greetings. On behalf of IIFL Securities, I welcome you all for the third quarter earnings call of BPCL. To help us understand the quarter gone by and share performance outlook for the subsequent quarter, we have the senior management team of BPCL, represented by Mr. Vijayagopal, Director, Finance; Mrs. Teresa Naidu, EV, Corporate Treasury; Mr. V.R.K. Gupta, CGM Corporate Finance; Ms. Jenny, CFM Pricing and Insurance; Girwar Bhattad, Senior Manager, Pricing and Insurance; and Piyush Borania, manager -- Senior Manager, Pricing and Insurance. I'd first hand over the line to Piyush, who will make the opening remarks; and hand the call to Director Finance, who will share his perspective. After which, the session will be opened for Q&A.Over to you, Piyush.
Thanks, Harsh. On behalf of the BPCL team, I welcome you, one and all, to this post Q3 results con call.Before we begin, I would like to mention that some of the statements that we would make during this con call may be forward-looking in nature, and we believe that the expectations contained in such statements are reasonable. However, their nature involves number of risks and uncertainties that may lead to different results. These forward-looking statements represent only the current expectations and beliefs, and we do not provide any assurance that such expectation will prove correct.Since this is a quarterly result review, please restrict your questions to Q3 results only.I now request our Director of Finance, Mr. N. Vijayagopal, who is leading the BPCL team for this call, to make his opening remarks. Thank you, and over to you, sir.
Yes. Thank you. Good morning, everyone. Welcome once again to the Q3 post-results con call. You would have got the handout giving the quarter results. I would like to touch upon a few points on the quarter gone by. The easing of COVID restrictions, rollout of vaccination and festival season has helped us to boost demand towards the end of the last calendar year. The agriculture sector is now on a growth trajectory after a good monsoon. Kharif growth has turned positive in near terms for the first time in the fiscal year. Power demand is up by 14%, and all major states had improved GST collection in December as compared to last year.BPCL has recorded 24% growth in domestic sales volume from 8.94 million metric tonnes in Q2 to 11.10 million metric tonnes in Q3 of the current financial year. MS has grown up by 15%, HSD by over 31% and LPG by 9% in Q3 over the Q2 of the current fiscal year. Apart from the urban centers and major towns where we are traditionally strong, we have started registering better growth from rural and small town areas due to the aggressive retail outlet expansion during the year. We registered a growth in market share in MS and HSD of 0.62% and 1.05% in Q3 as against 0.12% and 0.50% in Q2 of the current fiscal year. In highway market during Q3, we secured highest growth in PSUs in view of the faster recovery of volumes due to transport movements and acquiring high-volume customers through continuous engagement. I'm happy to tell you that we recorded the best performance for HSD and MS in market sales among PSUs in Q3 of 2021. Particularly in MS, we grew by 6.76%; and HSD, by 2% for Q3 as compared to the Q3 of the previous year. However, public transport is not back to normal levels yet. Schools and education institutions continue to remain shut in most parts of the country. Further, due to the steep decline in tourism, entertainment, et cetera, slow recovery in services sector still remains a concern in case of demand for transportation fuels.As scheduled international flights are yet to commence and with various restrictions still in place around the world, our ATF sales is at around 54% less as compared to Q3 sales of the previous year. However, there is a 34% increase in the Q3 as compared to Q2 of the current fiscal year.With multiple virus strains still posing a threat and lockdowns continuing in various parts of the globe, the product tax remains subdued. MS tax declined from an average of about $8.19 to a barrel in Q3 of the previous year to check about $2.97 to a barrel in Q3 of the current financial year. HSD tax declined from $15.41 to just over $4.34 to a barrel. When we compare Q3 to Q3 of the previous fiscal year, the Indian basket of crude has declined from $63 to $45. The rupee has depreciated from INR 71.23 to INR 73.34. BPCL GRM stood at $2.47 to a barrel in Q3 of the current fiscal year as compared to the $3.23 to a barrel in Q3 of the previous year. However, BPCL has the highest GRM amongst the OMC peers. Product tax has slightly improved further in the month of Jan '21 over the Q3 numbers. Our refinery throughput, which was around 76% during the quarter 2, has increased to 105% of the nameplate capacity in the Q3 of this year. The oil throughput for the third quarter is 7.24 million metric tonnes as compared to over 5.63 million metric tonnes during the Q2. Refinery throughput, which was moderated earlier due to lower demand, has considerably improved. Our distillate yield has improved to 86% as compared to third quarter of the previous year at 84%.Our EBITDA has improved by over 68% from INR 3,221 crores to INR 5,401 crores for the third quarter when compared to the year-on-year. Profit after tax has more than doubled from INR 1,261 crores for the quarter 3 of the previous fiscal year to INR 2,778 crores for the third quarter of the current year. Profit after tax for the 9 months has increased from INR 4,044 crores to INR 7,102 crores year-on-year. This is after taking into account expenditure on ESPS scheme amounted to INR 544 crores and cost of the VRS scheme amounting to INR 706 crores.With the easing of lockdowns, we have revised our CapEx targets to INR 9,000 crores from the earlier target of INR 8,000 crores. We have already spent INR 5,688 crores during the 9-month period ended December 31, 2020. With just over INR 900 crores being spent in the first quarter, we are very confident of surpassing the target of INR 9,000 crores as we close the year.During the quarter passed by, we have added 730 retail outlets. During the current financial year, we have already added 1,692 new retail outlets. Last year, we had 1,447 new outlets. And we hope to have 2,000 more outlets in this financial year overall.A new jetty, Jetty 5 has been commissioned in Jan 2021 for receipt of crude oil by Mumbai refinery. This will enable them more to receive fully loaded Suez Max vessels, leading to considerable savings in crude freight costs.Our borrowings as on December 31, 2020, was at INR 24,674 crores, which has further eased from INR 27,849 crores at close of Q2 and a peak level of about INR 41,800 crores at the end of March 2020. These are excluding the lease obligations amounting to about INR 6,228 crores at the end of the third quarter of current financial year.The debt equity ratio as at the end of Q3 is 0.60 as compared to 0.63 when compared on year-on-year. The debt equity ratio has thus come down substantially from the level of 1.26 at the end of the financial year 2020. As on March 31, 2020, we had around INR 6,200 crores outstanding receivables from the Government of India on account of subsidies, which has been steadily coming down. As on date, the dues amount to about INR 2,200 crores. There is no under-recovery on SKO PDS and minimal subsidy on LPG.I now invite questions and for clarifications. Thank you.
[Operator Instructions] The first question is from the line of Vijay Sarda from Crescita Investment.
Yes. Sir, just 2 question. One is on how is the progress on divestment happening? We have got this interim dividend of INR 16 now, and we were expected a news on Numaligarh Refinery high hope or basically sale up to some company. So what is the progress there? And last, what is going to be status on the investment which is lying on our book? So that we separated or carved out as a one vehicle and the share will be distributed in the proportion? So this is the one question. Second, just wanted to understand, sir, we have declared interim dividend of INR 16. So have we declared dates for the same, interim dividend date? And secondly, sir, if the date is before like this expiry, I think many of our investor in the industry they do invest through these futures also. So if the due date is within this month, then they will get affected by this kind of dividend outflow or dividend investment. So if it can be kept after this expiry, that will be quite helpful for the investor who invest through future routes.
Yes. You are asking too many questions in one question. To answer your last question, the record date for interim dividend is 19th of February. I don't want to answer other connected questions because I don't understand that side. As far as the Numaligarh divestment is concerned, BPCL has a 61.65% stake in NRL, which will be divested to a consortium led by Oil India, in which Engineers India is also a member. And out of the 61.65%, 13.65% of the stake will be given to the Government of Assam, who has a right of first refusal. And they have actually taken that right and told that they are prepared to take at the price at which the deal is closed with Oil India.So we are on the job, and we are very serious about it. The sale purchase agreement for this deal has been approved by the BPCL Board yesterday. We have shared that with Oil India. And we are also doing the valuation exercise to our transaction adviser, which is Deloitte, and the legal adviser and the asset valuer. We are very confident that, barring unforeseen circumstances, if the government approvals are coming in time, we should be able to close this deal as we close the financial year.For the BPCL divestment, as I -- data remains ready for -- from our side, the investor data remains ready. We are waiting for the transaction adviser and legal advisers to whom this facility should be made available. Yes.
The next question is from the line of [ Avdhut Sabnis from InCred Capital ].
Sir, my first question relates to your E&P operations, and I'm sure you're going to accuse me of quite a bit of sub-questions there as well. So in the last 6 months, you have impaired around 9 E&P blocks. Firstly, I want to know whatever is impaired, I presume all those blocks will be relinquished. Secondly, the extent of impairment, which is around INR 15.8 billion, is broadly around half of the net worth as on March of BPRL. So would it imply any additional -- has there been any additional equity infusion into BPRL at this point of time? And a related question on that is if you could share what was the consolidated debt number, including these as on end of December.Then in terms of the actual accounting of that INR 15.8 billion, which is hedged, is it going up? And because there are some parts which is you have said it's exceptional. If you could share, out of the INR 15.8 billion, how has it accounted, which line item in the accounts?And lastly, in terms of is the clean-up over? I mean I just specifically wanted to ask this on Bahu, which was discovered 8 years back, is it still, let's say, standing in the books at book value?
Okay. Can I answer E&P questions first, and then we'll take that extra exceptional items. On the E&P side, if you see the world oil measures are all impaired substantial amounts. If we take Chevron, Exxon, Shell, anyone, have done that. And we have followed the best practices in our exploration subsidiary of BPRL. The major impairment has happened in investment we have an asset in Brazil, CAL, where based on the prospects and recoverable reserves, and -- they have taken a certain crude oil price assumptions, which required an impairment portion to be created. Nothing to worry about that. It is in BPRL books. It has not spread to BPCL because, overall, BPCL investment continues to remain intact at this stage. And this impairment will be probably reversed if the position improves later. We have taken a very conservative approach to creating the impairment following the best global practices. The other 9 small blocks where we have impaired, Indian blocks namely, are all insignificant for BPRL. I don't know the exact details of write-off impairment has been made because these are 9 small blocks. We can share the data with you subsequently. Then...
Accounting impact, where we are going.
Yes. Can you?
Yes. On the aspect of this impairment to some portion, we have presented in exceptional item around INR 266 crore because that is the impairment [indiscernible]. And some other cases of impairment, it is routed through equity accounted investees. There is separate line equity accounted investees, there is a negative values there. So that is where actually the presentation of entire INR 1,500 crore has gone into financial value.
In the consolidated.
In the consolidation.
And last part of your question, our total debt as at December is INR 24,674 crores. This is excluding the lease liability, which is amounting to INR 6,228 crores.
And has there been any additional equity infusion in BPRL in the first 9 months?
In this year, we have infused INR 650 crores equity into BPRL. And we are committed to invest in BPRL further because as per the CCE approval for the Mozambique development, we have taken the permission from CCE, the Government of India, to increase the equity capital of BPRL from INR 5,000 crores to INR 15,000 crores. So we are committed to stand by BPRL during the period when they develop the Mozambique yards, which is a marquee project.
But this INR 650 crores is not related to Mozambique expansion, right?
Sorry? Yes, it is because that is where they need money. They have a project where they need to spend about $2 billion. So they have a 70-30 debt equity ratio. The equity has to come from BPCL, right? So it is linked to Mozambique essentially. And as the Brazil development happens, we may need to go to CCE again and there will be further equity infusion if required.
Great. Sorry, if I may squeeze 2 more separate questions. One is, given the extent of VRS that has taken place, could you give us some sense of what is the normal staff cost that would be in stand-alone accounts in FY '22?And second question is, are there any update on the petchem in Kochi refineries? I think you have said in the last call that would be done by March '21. Is that date still valid?
Yes. Actually, our strategy has been to reduce the manpower numbers. It is not only the VRS announcement of the year 2020, which has evoked very good response. At the organization, we believe in optimizing the number of manpower. We have reduced steadily over the years. If you take the last 10 years, in spite of massive expansion of BPCL, the manpower numbers has come down considerably over the last 10 years. It is our policy to continue to do that. We are not recruiting people only for the purpose of empowering employment. That is the first part. And if you say the employee expenditure for the year, it is about INR 869 crores for the quarter. And overall, last year, the total was about 3,000...
9 months.
Yes, 9 months, it is INR 3,344 crores. And the whole year is INR 3,691 crores. So manpower constitutes a significant part of our total operating expenditure. And therefore, we are committed to continue to rationalize the manpower going forward. That is the first part of your question. And second was?
Number of employees.
Number of employees is today around 9,600. I don't have the number of HPCL, please. Yes. Then there was another question?
No.
Okay.
The next question is from the line of Nafeesa Gupta from BofA securities.
Sir, my first question was regarding the other income in the third quarter. Is it possible to give the split of the other income because it was substantially higher?
Yes. The other income has gone up substantially because of dividends from NRL which amounts to around INR 612 crores.
All right. And the second question is regarding the deal with BORL. Any update on that and the time line for that all?
Yes. As far as BORL, the Omani stake, we have been negotiating. We have reached a certain understanding with them already. And we are -- reached the stage where we can confidently say that a disclosure and regulatory filing is expected anytime soon, maybe in the next 10 days from today.
[Operator Instructions] The next question is from the line of Anubhav Aggarwal from Crédit Suisse.
My question is on other expenses. This quarter run rate of INR 3,900 crores, would you say this had some COVID related benefit in terms of lesser extra travel, et cetera? Or no, this is the new base for us? Can you just explain, is this a new base or this had some saving?
No. Actually, that is not COVID related, the other expenditure mainly was higher because of 2 specific reasons. We are a VRS debit, and VRS was announced, and it has -- actually, the entire amount was debited, which is about INR 700-plus crores and about INR 540 crores on account of the ESPS, which is that discount which we give to the employees. The total amount of discount will be around INR 1,000 crores. And as per the accounting conventions, we have done it in phases. First quarter and second quarter together had -- second and third quarter together has taken about INR 544 crores. These are not going to continue. These are one-off events.
No, sir, actually, I was asking adjusted for all this, is our other expenses was INR 3,900 crore in this quarter, which is lower than what our usual run rate has been. So I'm asking this adjusted number of INR 3,900 crores, did this have some amount of savings because of lesser travels during the COVID period? Or is this a new base for us?
No, no, actually, you see this particular quarter, the throughput is also lower as Gopalji said. And there is a small savings in respect of operating expenditure. The savings may not be repeated in the subsequent year. So because this year, on account of travel and various low initiatives, the expenditure is low. The onetime expenditure this quarter is only ESPS around INR 440 crore. But otherwise, this may not be the new normal. A little bit lower expenditures year, but it may not repeat in the subsequent year.
And my second question was on the personnel cost. So INR 800 crores this quarter, what is the extent, right? For example, you mentioned about reducing manpower in future also. But what is the scope available in the sense that the same work can be done by, let's say, 5% more -- let's say workforce, 10% lesser of workforce? Give some indication there.
We are today the leanest organization in the oil space in the country. There is always hope for improvement. As also, you must understand that we are expanding very rapidly. We have actually added about 1,500 outlets last year, 2,000 outlets will go up next this year. Our petchem is getting expanded. We on an average spend about INR 10,000 crores CapEx. So therefore, it is difficult to put a number as to how much number will come down on absolute terms. But if you see our track record of the last 10 years manpower reduction, it's an indication that we are very serious about manpower cost. So I will not be able to tell you how many more numbers will go away in this fashion. But ideally, we are trying to reduce the manpower by not recruiting and replacing people who are retiring on a normal basis. But it is impossible for us to reduce manpower just for the sake of it. Our idea is to optimize manpower to ensure that whoever is available is the best available in the country.
The next question is from the line of Pinakin from JPMorgan.
Yes. Sir, my question is on the Mozambique LNG project. We saw LNG prices surge. And even though now while they are coming off, they still are at elevated levels. Now sir, 2 questions related to Mozambique LNG. One is, sir, can you give us a sense of when is the first gas expected at this point of time? We have seen external consultants talk about 2026. Second is, sir, can you give us an update as to how BPCL has tied up to its share of the Mozambique LNG? Has it kept it open to consume it internally? Or has it entered into contracts to sell it down?
Yes. The Mozambique LNG project is expected to provide the first gas to the consumers in the second half of calendar year 2024. That is the announcement from the operator's side. And Total is a very renowned operator. They are known to actually deliver on their promises. We have no reasons to doubt their conviction and the confidence that the first gas will come out in the second half of the year 2024. Regarding our commitment, it's 1 million tonnes of gas per year coming from Mozambique starting from the year 2026. We have already 2 million base of customers, and we have certain commitments to the Qatar Gas and also the Ras Gas apart from our commitment to go for both gases to fill the demand. We are very confident of absorbing this gas. And our ambition in the gas in the next 5 years is to go up from 2 million tonnes to 5 million tonnes. So we find a huge opportunity for expanding the gas base in the country, and we are committed to ensure that we will capture the gas market as it increases in this country from 6% of the MS, that is 15% as per the government this year.
The next question is from the line of Sabri Hazarika from Emkay Global.
Yes. I have 2 questions. The first one is relating to your CapEx guidance for FY '22. And there has been some reports that -- in media report that certain projects like polyol and all has been deferred or maybe canceled. So any comment on that and the CapEx guidance?
For the year 2021, we have actually enhanced our number from INR 8,000 crores to INR 9,00 crores. We have actually delivered INR 5,600 crores in spite of a suppressing number of only INR 900 crores in the first quarter. We are going to exceed INR 9,000 crores as we close year 2021. For '21, '22, we have a target of INR 10,000 crores CapEx, roughly. And we are not coming out of any of the commitments. We are actually conscious of the need to take a relook at some of our expansion and clients like, for example, MR had a residue upgradation project. So which we are now taking a look at it because -- especially because of the disinvestment in the horizon. But all the approved projects by BPCL, we are seriously pursuing as it is.
Okay, sir. And second question is on BORL and NRL Q3 GRM and profits.
BORL GRM is around $2, and NRL GRM is $37.
And profits?
Profit, NRL is around INR 830 crores. And BORL, it's a loss of INR 210 crores.
For Q3?
For Q3.
The next question is from the line of S. Ramesh from Nirmal Bang.
The first thought is now in your margins, as we have seen that you're able to increase your marketing margins, whether you take it in absolute numbers or per tonne margins. And overall, if you see the total EBITDA turning to about $4 a barrel or INR 2,000 a tonne. So in terms of your own commentary in the past that you're looking at it on an integrated basis, is there any scope in future to improve on this margin per unit or per tonne? Or would you depend on volume growth for your earnings growth say in fourth quarter specifically and going forward in FY '22? That's the first question.
Yes. Our marketing margins has to be seen on a long-term basis. If you see the marketing margins of the last 3 quarters, our margins were higher in the first quarter, but it has moderated slightly to second quarter. And the marketing margin between second and third quarter remains almost at the same levels. We are confident to sustain these levels of margins going forward.
Okay. So in terms of the upstream business, now you have mentioned that you have provided for the impairment in Bharat PetroResources. So what is the current net worth in Bharat PetroResources in your consolidated balance sheet? And how do you see this moving, say, in the next couple of years?
[ 650 ]?
We can take that question offline. You can -- yes, we'll answer that offline.
We'll get back to you on that.
Okay. Yes. So just one last thought. Now in terms of the petrochemical project is on the implementation for your [indiscernible] project, so what is the latest time line in terms of when you'll be able to get it commissioned and started?
Two of the units of PDPP is slated to be commissioned in March, and one unit will take some more time. It is essentially because of the licenses experts to come down to India to actually be part of this commissioning exercise. So we have been trying to do our level best to see how far it is possible to do a remote inspection and presence by the licenses authorities. So we are taking all the efforts possible to see how fast we can take these units onstream. As of now, we are fairly confident of commissioning 2 of the 3 units by March of this year and the third unit by May.
The next question is from the line of Reena Shah from Ashika Stock Broking.
Can you hear me?
Yes, please.
Yes. Sir, my first question is on the jetty that you have commissioned in Mumbai Refinery, you're saying that you are expected to save a lot of crude freight cost. So I just wanted to understand where you are targeting your refining the operating expenses sir going forward and how much this particular unit will add to the benefit?
Crude freight costs are not accounted as part of the operating expenditure it accounts for the crude cost. It is one of the elements of the landed cost of the crude oil. And the benefit which we are getting is that we will be able to use a fully loaded Suez Max for the purpose of transportation of crude oil into Mumbai, which is expected to have a huge benefit for MS operations.
Sir, can you just specify how much can it be like? Because ultimately, I believe freight cost would be not related to the crude cost, and it would be somewhat fixed. So just wanted to understand how much it can improve your GRM?
Yes. Freight cost is not -- definitely not straightforward. The correlation is not there with the crude cost. Freight has its own logics of moving up and coming down Baltic Index based. So freight is, again, a matter of changing very, very drastically because it is also not a static thing. And we expect a substantial reduction. It can be about $1 to a barrel once crude oil landed cost coming down in terms of transportation roughly in the current levels, it can change.
Okay. Okay. That helps. And another question is how much crude oil product inventory and at what cost do you have at the end of the third quarter.
Can you repeat that?
Crude and oil -- crude product inventory.
Crude and product inventory and crude cost at the end of this particular quarter.
Crude we had 1.89 million metric tonnes of crude. And sawdust, we had around 3 million metric tonnes as at the end of December 2020.
Okay. And crude cost?
Crude cost average rate was $53 a barrel.
Your next question is from the line of Vidyadhar Ginde from ICICI Securities.
Yes. Some of my questions have been answered. So one is on if you could share your petrol and diesel volume growth in January for...
January?
Yes, Jan '21, how is it Y-o-Y, petrol and diesel?
So the growth for MS is -- for January '21 versus January '20 is 6.83%, while for diesel, it is a negative of 1.05%. And also, I'd like to take that in petrol, we are the highest among all the OMC peers.
This is for January isn't it?
Yes. Yes.
And the second question was on the -- what is your subsidies growth from government as of December?
It was over INR 200 crores.
It is the current outstanding.
And what was it in March?
INR 6,600 crores.
Okay. One last thing, I just wanted to confirm in response to one of the earlier questions, you appear to have stated that though the marketing margins may not be very relatively low in the current quarter, you expect it to be next year and full period like FY '22. I think in one of the earlier calls, you had said INR 2 to INR 2.5. Do you -- so is that what we said that next year you expect marketing margins to be in line with that?
Okay. We have not stated any specific numbers of marketing margins. What we said was that marketing margin has to be seen on a long term basis. And what we stated was that second quarter and third quarter of this financial year represents normalized marketing margins. And we also stated that this trend is expected to continue around '22.
The next question is from the line of Varatharajan from Systematix.
Sir, can you give us some breakups on the CapEx, which division and what end use for current year and next year and maybe, if possible, for the following year as well?
Yes. So we are -- we have a plan of spending around INR 9,000 crores in the current year. So out of that, around INR 2,000 crores we will be spending refinery, around INR 800 crores in petchem. Then marketing, which includes our expansion and depot expansions and renovations, is around INR 3,600 crore. And the other portion goes to our gas BPRL equity investments and pipeline. For the next year, the plan is of INR 10,000 crores. And this is a broad breakup which we are giving. So refineries will be spending around INR 2,600 crores. That came around -- again, around INR 970 crore. And marketing would be around INR 3,200 crore.
The next question is from the line of Amit from UBS Securities.
Sir, why there has been so much delay in deciding the interested parties and opening up the books for the deal? Because 17 November, I remember, was the last date for expression of interest. So what has held up this kind of delay?
We really do not know.
Okay. And sir, what will be the process from here going forward? Like you mentioned that in the current financial year, we were looking to complete this deal. But now I think it seems very clear that it will be pushed to next financial year. Like how much sure we are that these kind of delays on the government part of the transaction adviser part and the deal would be completed in the next financial year? And what are the steps involved from there?
So this investment of NRL, we are trying to aggressively pursue and complete if possible by the end of this financial year. That is before March 31, 2021. BPCL, this investment, this [indiscernible] processes has to be fully complied with. It is driven by the Finance Ministry and Department of Investment and Public Asset Management. BPCL is only facilitating the completion of the formalities and opening the data room and providing clarification for investors' doubts and clarification. Beyond that, our role is very limited. So it is not possible for us to answer your questions about when it is going to be completed. I also have read like you the budget speech in which Honorable Finance Minister has mentioned that this will be completed in the year '21, '22.
Okay. And sir, just last question. This would require CCI and other approvals for the deal to be completed and money to be paid to the shareholders?
It's the NRL or BPCL?
Sir, BPCL.
BPCL deal will not require a CCI approval it is -- because it is 2 government companies are transacting this business. As far as I understand, it does not require a competition commission approval. It will require approvals at the government levels. And as far as we understand that the government level is what is called a alternate mechanism, which consists of the Honorable Finance Minister, our Petroleum Minister and Road and Transport Minister.
The next question is from the line of Mayank Maheshwari from Morgan Stanley.
Two questions from my end. The first was regarding the PDP project. You talked about 2 units starting up by March. So can you just talk to us about the entire process of ramping up this project. And how are you kind of thinking up in terms of positive EBITDA contribution from this coming through now?
No ramping up is in the set. This is actually a capacity which is only designed, and we are confident of using this capacity potential. Our industrial and commercial section of BPCL has only test market these products. These are in both substitutes. And the prices fluctuate because -- like in the case of petroleum products. And therefore, it will be difficult for me to put a value into the EBITDA. We don't expect a huge benefit which is going to come in the year 2021 or even '21, '22 in terms of profit before tax. It's a lower percent. Yes.
Okay, sir. But the exports that you were doing of propylene, will that come down and that should help at least reduce the losses?
Propylene, we are not exporting. And we have a production capacity of 500 TMT of propylene in Kochi, which is petrograde. And half of it will be consumed in the PDPP. Other half will continue to be sold as propylene in the Western part of the country. And we have a project for the folios, which was mentioned in one of the questions, which is going to take the other 250 TMT of propylene which comes out of our FCC project.
Got it. And sir, the second question was more related to the refining itself. I think your jet fuel sales are still obviously lower compared to the normal levels, while refinery utilization rates have ramped up. Can you just talk to us about your product slate now in terms of how much has that still getting converted to diesel or gasoline?
No. Aviation, we were basically because we are predominantly catering to the global markets in the sense that international flights are a major customer base because of the same liberty. So about 60% of our customers are international flights. And as we know, international flights are not open up yet. Domestic has almost is about 80% of the pre COVID levels. International flights are very, very few, and there's -- a lot of restrictions are there. That is the reason why our aviation turbine fuel sales have not picked up as much as it was in the case of MS or HSD. So we have a flexibility to use aviation fuel or convert that into diesel. Just recently, our subsidiary, BORL, has also completed a KSVS. So we aren't very worried about aviation fuel sales are happening because it is not going to affect our throughput at all. And our MS, HSD production will not be impacted by the reduction in the sales volume of aviation fuel.
The next question is from the line of Vipul Shah from Sumangal Investment. [Operator Instructions]As there is no response, we'll move to the next question, which is from the line of Sumeet Rohra from Smartsun Private Limited.
Yes. My company name is Smartsun Capital Private Limited. Sir, just a couple of points. As an investor, I wanted to ask you, sir, you mentioned that in Numaligarh we hope to complete it by March. So sir, can you give a broad sense of valuation? I mean the kind of reports which the media talks about is about INR 7,000 crores. Is that, I mean, something which is correct? Secondly, sir, you mentioned that you added about 1,500 outlets. So what's our total outlets currently? The other point I wanted to check with you is on the government bonds. Sir, do we have any government bonds? And are those bonds going to be repaid before the strategic stake sale and investors can expect a big dividend payout? Because, sir, the point I'm trying to highlight here is that as an investor, the more clarity there is, the higher the valuation of BPCL the government will realize. But one thing which I'm noticing is that after 17th of November when the expression of interest date has closed, there's been no official communication. So that kind of is keeping a very big gap on the share price of BPCL. I mean just to highlight this to you, sir, the share price of BPCL was INR 480 when the NIFTY was INR 10,000. Today, we are at INR 15,000, and the share price of BPCL in spite of strategic sale is at INR 425. So it's completely absurd, right, because we know that the intrinsic value for Bharat Petroleum is well above of the 4-figure mark. So sir, if there is clarity on the various vertical, they can be huge value unlocking for all stakeholders. And frankly, the biggest beneficiary of this will be the Government of India. So sir, it's my humble request, if the more clarity you can give, the higher value the company will command, which in turn will result in the government of India maximizing its potential of revenue. So that's my request to you, sir.
I agree with you. Thanks for the comments. And the easiest question to answer is number of retail outlets at the period end. As of December, we had 17,841 retail outlets. To your other questions, some of them are statements. We also feel as management of BPCL that the current share prices of BPCL do not reflect it's true potential. It is based on various factors because if you see this not BPCL alone, all the oil companies and -- why oil companies, all the PSU space itself has not gone up the way other companies have gone up. So I don't know about the fair market, but we are very confident that the potential of BPCL is not fully reflected in the current share prices, that much I know. Your lack of clarity on the disinvestment process, it's a question that can be answered only by the government officials because we don't handle sale of BPCL. It is handled by the government of India, by the Department of Public Investment Asset Management. For the NRL, I already mentioned that it is our intention to complete this deal if possible, subject to government approvals coming in time by the 31st of March of this year.
Sure. So on the question of Numaligarh, can we assume that about...
No, we are in the process of -- we have engaged a transaction adviser and an asset valuer for the purpose of values of NRL. It's a growing concern and operating company and having a steady profit growth. And also, they get a substantial amount of incentive in the form of access to the concessions. So valuation will be done using the known methods of valuation like DC or asset valuation multiples and such things. So it is too premature for me to comment on the valuation of NRL at this stage. It will be made once deal is completed, which is for about another 1.5 months, please.
Okay. Sure, sir. And just one follow-up, I mean, on the strategic sale. So Mr. Tuhin Kanta Pandey has basically categorically said that on Sunday that he expect the process to be completed, I use the word completed, by June -- by Q1 FY '22. So effectively, that means 30 June. Sir, for that to happen, the data room window would have to be given for how much period? Would it be 60 days? Would it be 45 days? Or I mean would it be 90 days? Just as a process to understand because this is what he categorically stated. So my only point is that the more clarity we get, the better it is for all stakeholders. That's the only point I'm driving it. And sir, just one feedback, which I shared with the Company Secretary as well. This process of giving dividend in the period when the settlement is on because so many hedge funds, so many investors come through the route of the future segment. And after highlighting this also to the Company Secretary last week, if this is ignored them, then, sir, it's not a very good thing from an investor angle, right? But we share honest feedback to the company, and it's completely ignored and not looked at. I mean it's not very professional for them to not look at our feedback. So it's my humble request to you to please have a look at it. And in future, such things will only...
Sumeet...
I request you to restrict the question style because you are actually hoarding the time of others.And second thing is that as far as Mr. Pandey's statements are concerned, I am not privy to that. I am not in a position to either contradict his statements or his confidence. We are ready with the data room today. It is for the DIPAM to tell us when to open and how many days it should be kept open. There is a natural data room available. How much time it takes to see all that we have is a matter of opinion of the potential bidders and the decision by DIPAM. We are ready from today. We are ready from the last 2 weeks as a matter of fact. So therefore, we are also eager and we are also equally supportive of our requirement of your suggestion. But more clarity on this disinvestment can possibly increase the share price of BPCL. Now about the dividend declaration, dividend declarations are Board call. We don't play the market. It is not our intention to help or harm the interest of people who invest in BPCL shares, about the timing of it. We have a consistent declaration of dividend policy. We are a very high dividend paying company. And if you have seen the DIPAM guidelines, now the DIPAM is expecting us to declare a dividend on completion of every quarter. So it is not a private information. This is available in the public domain. And it is our intention and it has been our concern to declare high dividend. We have closed the accounts of this quarter ended 31st December with the highest profits in the quarter in the financial year. And we found it fit to be rewarding our investors who were patiently waiting for this BPCL to perform consistently. We are interested in long time investors of BPCL. So we are actually committed with them, and we will continue to do that.
The next question is from the line of Pinakin from JPMorgan.
Yes, I'm sorry, I just missed, what were the BORL GRMs for the quarter, sir?
BORL GRM for the quarter is $2.14.
And NRL was $37, right, ma'am?
Correct. Correct.
The next question is from the line of [ Saket Kapoor from Kapoor & Company ].
[Foreign Language] Sir, firstly, about this Numaligarh Refinery disinvestment, sir, is it going to be a disinvestment type or, sir, we will see the interest from other PSUs also if, categorically, Engineers India have also highlighted, if I'm not wrong, about participating in the same?
Yes.
So is it going to be purely professionally bidding system or is an arrangement that is going to fructify going forward?
Okay. Can I answer this? NRL disinvestment is actually based on the Cabinet decision that before the BPCL stake is sold to a strategic investor NRL should be divested. And government also has decided that the stake has to be offered to a government company in the oil sector. And the interest has come from Oil India. It is a consortium in which Oil India and Engineers India Partners. Engineers India and Oil India will jointly actually acquire the shares, excepting about 13.65%, which will go to government of Assam because they have a right of first refusal. And they have immense even interest in acquiring this 13.65% to make its share to 26%. Now it will be a professional valuation, I can assure you of that. And the valuation assessment is now undergoing. It is done by very reputed [indiscernible] advisers and asset valuers. And it will be announcement basis. There is no arrangement for this. This is a commercial transaction.
Okay. And what is the kind of valuation, sir, we can look? Have you discussed it in the con call? I missed the part there.
No, we'll not be in a position to disclose a valuation because valuation is a matter of opinion from the sellers and buyers perspective. It requires some more time to get this disclosed. Too premature to tell the valuation at this stage.
The next question is from the line of S. Ramesh from Nirmal Bang.
Yes. I just had a follow-up question on your refining performance. So your distillate slate has improved if you see Y-o-Y, but your margins are lower. And your high sulfur crude has come down. So can you explain why your margins are? Or is it only because of the spreads going down? Or is that case happening on the refining side?
Yes. In this world today, there is no much difference whether low sulfur or high sulfur. So it makes more sense to buy high sulfur because processing high sulfur requires more energy, right? So therefore, it is better to reduce our dependence on very, very high sulfur because it doesn't make sense because [indiscernible] Brent differential basis $2.50 or around that. We have the facility to use the various crude oil in Kochi refinery. But the timing of the pricing is not supporting that. Distillate yield is not going to make much of a difference in a scenario where our diesel tax are less than $5 and MS tax are around $3. So the rest of the product only these cracks. So this is not a normal time. So we are expecting and believing that the cracks will improve to normal levels as soon as -- as soon as it is happening, it will be actually reflected in our better GRMs.
The next question is from the line of Manikantha Garre from Axis Capital.
Just a couple of questions. Can you please provide an update on the gas business in terms of how many CNG stations were added in Q3? And now specifically, if you can give the CapEx which we are spending towards the gas business in FY '21 and '22? That's the first question. And the second question is, post this petchem project that we are targeted to complete at Kochi refinery, just wanted to understand over a 3- to 5-year perspective, if we have any target to -- targeted crude to chemicals conversion ratio for the refineries? Because it looks like all the other refiners in India, including your peers in OMCs, also are targeting some crude to chemicals conversion ratio.
I'll take that. I will answer just crude to chemicals, we have no intention to go from crude to chemicals the way Reliance has announced, because we are predominantly a domestic player, and we see a good potential for the liquid fields to remain here in this country at least for the next 15 years. And though the growth rate may feel safer, there is enough potential for us to make money out of the finance recovery. And therefore, it is not our intention to convert everything into chemicals. Let me make that very clear. And secondly, we also have clients ahead for increasing in the basket petrochem per share from about -- some about less than 1% to almost about maybe 10% in the next 10 years. So that's the petchem side. Because petchem, again, it's a product which has fought fluctuating, fortunately, the prices very widely. There's a risk inherent in it. And it has got environmental impact also much more than what is caused by the petroleum products. So we are very conscious of the potential of petchem, but we are not hungry about converting all the crude 100% into chemicals. And the gas side, if you can supplement this.
Yes, to answer the gas question, so as on 31 December, in 527 ROs CNG facility was there. And about the CapEx in gas business, so our BGRL, which is 100% subsidiary, we have a total of 13 GS. 4 GS is in our books. So total CapEx of around INR 8,300 crores is planned over a period of 8 years.
Next question is from the line of Vidyadhar Ginde from ICICI Securities.
My question was on this PDP project. Can you give us some idea on what -- at current margins? And what kind of utilization level will you start making money?
We won't be able to give the answer to this at this stage. We can give an offline answer to you subsequently.
But basically, when you said '22, you don't expect much contribution. Is it got to do with the utilization?
It has nothing to do with the utilization. I'm saying that we are having a profit of about INR 8,000 crores on a consistent basis. On an INR 8,000 crores gross profit basis, any amount of PDPP in 2022 cannot make a significant impact. It is not a problem with the PDPP plan and the waste market. The sheer price of our profits are very huge. And PDPP is a very small segment in the whole BPCL ocean. So please don't be under the impression that PDPP is going to change the fortunes of BPCL. BPCL is a consistently performing company. It has with a profit after tax of more than $1 billion a year. So on that number, PDPP profitability cannot add a significant impact, but it will improve the Kochi Refinery's profitability in a significant way especially because of the [indiscernible] crack spreads which our refineries business is experiencing.
Okay. My second question was on Numaligarh. Earlier, you had been suggesting what you would like to the Numaligarh deal also to happen along with our -- at the same time as the BPCL privatization. So why this change, is it because of your own decision? Or is it because of government decision to finish it -- trying to finish it before 31 March?
No, actually it's making -- the deal should have happened almost simultaneously. It's not possible to handle that simultaneously because government decision is to sell BPCL, sign NRL. So NRL deal has to be completed. And then because the new order is not expected to get anything out of the narrow, right? Or ideally, that deal should have been having a gap of 1 or 2 or 3 months' time. But then since BPCL deal is -- this is an indication that the BPCL deal is actually processing. And that is one. And second is that we are also at the BPCL, from our side, we can say that we are actually ensured that we have entered into a product offtake agreement with NRL. The state agreement is there for 15 years for us to take the products of NRL on a best tender basis for 3 million tonnes of production capacity. And BPCL will not be affected at all in terms of product availability inside of the disinvestment of NRL happening. So we are pacing very pretty on NRL. And it is your decision to complete this sooner so that it can pave way for the government's decision to divest BPCL part.
The next question is from the line of Siddhant Dand from Goodwill.
Yes, sir, you mentioned in one of the previous questions that even you find the share price of the company quite low. So why not consider a buyback instead of so much dividend, where the government can also participate and get their share of revenue and investors can also be happy?
Yes, it's a good suggestion. I said because I'm the Director of Finance of Bharat Petroleum, and therefore, I feel personally that the share prices today does not reflect the potential of BPCL. It's an investor call, and it is for the market to decide and the price at each BPCL share should be stated. Now the earlier specific suggestion as a buyback, as a merger to increase in share prices. Difficulty is that the government figure is only 52.98% share. If I buy back the government shareholding, it will further come down. And we are anyway slated for disinvestment soon, and it will not be fortunate for us to change the capital sector at this stage.
Okay. Okay. But that would be a much -- because other PSUs have done a buyback recently, and it's worked very well for them, and their shareholders are much happier.
It is true.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to Mr. Harshavardhan Dole for closing comments.
Thank you. On behalf of IIFL Securities, I'd like to thank the management for giving us an opportunity to host the call. And I'd also like to thank all the participants for joining and asking active questions. Thank you very much. And over to you, sir, for any last comments.
We would like to thank IIFL Securities for organizing the conference. I would also like to thank all the investors and analysts for their active participation. Thank you. Thank you from our management.
Thank you. On behalf of IIFL Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.