Bharat Petroleum Corporation Ltd
NSE:BPCL
Earnings Call Analysis
Q3-2024 Analysis
Bharat Petroleum Corporation Ltd
The company has reported its highest ever nine-month profit at INR 22,449.32 crores, a stark contrast to the loss of INR 4,607 crores during the same period last year, showcasing a remarkable turnaround and a strong financial footing. With Q3 revenues reaching INR 129,976 crores and a quarterly profit after tax of INR 3,397 crores, the business demonstrates resilience. They are also on track with their strategic plan, Project Aspire, indicating sound operational execution and comfortable leverage levels.
A pivotal focus for the company is the expansion of electric vehicle (EV) charging infrastructure along highway corridors. Addressing the 'chicken and egg' challenge of EV adoption and charger availability, they are actively deploying chargers to alleviate range anxiety and encourage the transition to EVs, which bodes well for future growth as EV adoption increases.
India's transition to a larger economy and to cleaner fuel sources is a balancing act for the company. With a strong conviction that fossil fuels will remain vital for the next 10-15 years, the company is also actively developing its green energy business, expecting both domains to grow alongside each other. Renewable energies, being at an early stage, will take time to mature, which provides a substantial runway for continued fossil fuel production.
The company's marketing strategy includes diversifying infrastructure such as retail stations, plants, pipelines, and storage depots. This expansion will cater to growing consumer demand and reflects the management's prudent location selection and economic return evaluation for new outlets.
Despite fluctuations in crude oil prices, the company maintains steady refinery margins by optimizing operations and keeping inventory levels at an average of 20 days. This careful management has buffered the company against significant inventory losses or gains, ensuring a consistent financial performance despite volatility in the energy markets.
The net debt of the company stands at INR 6,025 crores after accounting for current investments and cash equivalents. This indicates a stable financial structure with manageable debt levels, providing the company with a solid foundation to drive future investments and strategic initiatives.
With an ongoing non-fuel retail expansion, a separate Strategic Business Unit (SBU) has been established to drive consumer retailing across the network. From the current 125 outlets, the company aspires to scale up to 3,000 stores in the next 5 years, focusing on convenience stores and grocery stores that cater to the needs of a growing electrified vehicle market and other consumer demographics.
The company is hopeful about resuming operations in Mozambique, with expectations of lifting the force majeure by mid-year. This progress points to an optimistic outlook for international operations, which are critical for long-term growth and diversification of the company's portfolio.
A revision in post-retirement medical benefits resulted in an incurred cost of around INR 200 crores for the company. However, the overall employee cost run rate is around INR 3,000 crores, indicating that this is a one-off adjustment rather than an ongoing increase in staff expenses.
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Ladies and gentlemen, good day, and welcome to Q3 FY '24 Earnings Conference Call of Bharat Petroleum Corporation Limited, hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Harsh Dole from IIFL Securities. Thank you, and over to you.
Thanks, moderator. Greetings, everyone. I'm Harsh Dole. On behalf of IIFL Securities, I welcome you all for the third quarter FY '24 earnings call of BPCL. To discuss the earnings in detail and share performance outlook, we have the entire senior management team of BPCL. Significantly, it's my pleasure to welcome and introduce Mr. G. Krishnakumar, CMD, BPCL, who will address the investors for the first time during the earnings call. We also have Mr. V.R.K. Gupta, Director, Finance; Mr. Pankaj Kumar, ED, Corporate Finance; Ms. Srividya V., ED, Corporate Treasury; Ms. Chanda Negi, DGM, Pricing & Insurance; and Rahul Agrawal, Senior Manager, Pricing & Insurance. Subsequent to the management remarks and presentation, we have a Q&A. Without further delay, I'd like to hand over the proceedings to Ms. Chanda Negi. Over to you, madam.
Thank you, Mr. Harsh. Good afternoon, everyone. On behalf of the BPCL team, I welcome you all to this post Q3 results con call. Before we begin, I would like to mention that some of the statements that we would be making during this con call are based on our assessment of the matter, and we believe that these statements are reasonable. However, the nature involves a number of risks and uncertainties that may lead to different results.
I now request our Chairman and Managing Director, Mr. G. Krishnakumar, who is leading the BPCL team for this call, to make his opening remarks. Thank you, and over to you, sir.
Thank you, Chanda. Good afternoon, everyone. Thank you for joining us on this call today. If you recall, at our Annual General Meeting in August '23, we had introduced our strategic intent, Project Aspire, which was essentially anchored on 2 cornerstones, nurturing the core, that is essentially refining, upstream, marketing of petroleum products, and investing in Future Big Bets, largely petrochemicals, gas, consumer retailing, green energy, and the digital ventures. Since that pivotal moment, we have been actively working towards implementing the strategy within the defined timelines. With our existing diverse portfolio of products and services and our strategic aspirations, the company, we feel, is well positioned to play a critical role in the energy landscape of India and to increase its global footprint. The strategy aligns with the company's plan to achieve net zero emissions by 2040, both Scope 1 and Scope 2.
The aspirations, with a planned CapEx outlay of around INR 1.5 lakh crores to INR 1.7 lakh crores in the next 5 years, will enable us to create long-term value for our shareholders while preserving our planet for future generations. Of this INR 1.5 lakh crores to INR 1.7 lakh crores, INR 75,000 crores we have earmarked for refineries and petchem ventures; about INR 32,000 crores in the upstream business; INR 25,000 crores each in gas as well as in marketing infrastructures; INR 10,000 crores is the initial outlay, which we have laid out for renewables and alternate fuels. A portion of this capital outlay will remain flexible and shall be deployed based on economic viability and performance of each project.
At the heart of our ambitious goals are our people, cutting-edge technology, strategic partnerships and robust R&D. These, we believe, are the foundations on which our aspirations are going to be built. Before we get to our performance this quarter and the near-term outlook, let me give you an overview of the operating environment.
Amidst the fiscal challenges faced by major economies, India continued to be an oasis of growth and stability. The country grew by 7.6% in Q2 of '23-'24. And as per Standard & Poor's global report, India is set to become the third largest economy by 2030. Today's press reports say we'll be a INR 7 trillion economy by 2030.
India's ambitious goals of attaining net zero emissions by 2070 is set to accelerate the adoption of cleaner and more efficient solutions. This is opening up significant economic opportunity for the companies in the energy sector. Concurrently, as the Indian economy experiences rapid expansions, the surge in energy demand becomes inevitable, prompting our continued resilient reliance on fossil fuels at least for a couple of decades. So the game will be on how well or how responsibly we will be using fossil fuels, while at the same time balancing the newer green energy.
The crude oil prices have remained well below $90 in the last 3 months, notwithstanding announcements of crude oil supply cut by major suppliers. This resilience is attributed to lackluster growth in major world economies, influencing downward revisions in global oil demand projections. However, the ongoing Russian-Ukraine war, conflict in the Middle East, tensions in the Red Sea, all point to negative impacts on the global supply chains. These continued uncertainties are anticipated to contribute to the volatility of crude oil prices throughout the year.
While these are broader factors that may drive volatility, we remain focused on things we can control, that is, operating efficiently in a safe and reliable and environmentally responsible manner, maintaining capital discipline by adhering to minimum return threshold on growth projects, and honoring our commitments to create long-term value for our shareholders.
Let me now specifically move on to the performance this quarter. Our refineries continued their stellar performance on both physical and financial parameters during this quarter. Although we had a planned shutdown of our Mumbai refinery in the month of October/November, despite all the odds, we achieved a combined throughput of 9.86 million metric tons this quarter, which is more than 100% of the nameplate capacity.
Distillate yield was at 84.21%, one of the highest amongst Indian refineries. This quarter evidenced a sharp fall in international product cracks as compared to previous quarter. Despite this, the refineries recorded robust GRM of $13.35 per barrel. The GRM for the 9 months works out to $14.72 per barrel. Our current GRMs have been at a premium to Singapore GRMs, mainly on account of continuous optimization of refinery production, product distribution and crude procurement, use of advanced processing capabilities of Bina and Kochi refineries, allowing for efficient handling of up to 100% high sulfur crude and 50% Russian crude.
During the quarter, the 3 refineries together processed nearly 83% high sulfur crude. Russian crude accounted for almost 40% of our crude imports during the quarter. Our flexible crude sourcing mechanism, which we have strategically secured 50% to 55% of our requirements through long-term agreements. The remaining is on spot basis from diverse sources, allowing us to enhance flexibility and capitalize on price economies.
On the marketing side, our domestic market sales during the period April to December '23 grew at 5.1% to about 37.86 million metric tons during this period. Our market share in petrol and diesel segments, among the retail segment, among OMCs have increased over time. In this period, April to December '23, our market share was 29.62 for petrol and 29.71 for diesel.
In line with the stated objectives of reducing environmental pollution, we have now achieved 11.53% ethanol blending during the same period. We have about 1,800 ROs, where 20% ethanol fuel is dispensed. Further augmenting our strong marketing networks, we have an approved pipeline project from Mumbai refinery to Rasayani, which will help evacuate products from Mumbai refinery to further across the country. This is even we have got the clearance from the High Court recently for the project. Two more pipelines, Irugur-Devanagonthi pipeline passing through Tamil Nadu, Karnataka; and Krishnapatnam-Hyderabad pipeline passing through Andhra Pradesh, Telangana are under construction. These pipelines will optimize our product placement costs in the Southern part of the country. We are pleased to announce that we are putting up 3 new depots in the Northeast part of the country, for which we have just recently acquired land. We have come with an advertisement for new retail outlets, and also we've got excellent response for that.
In the EV space, BPCL has entered into MOU with Tata Motors subsidiary for setting up charging stations, and also with Trinity Cleantech for setting up EV charging ecosystem for the 3-wheeler autos. In a positive development for BPCL, India has imposed restriction on import of butyl acrylate only to those cargoes that meet Bureau of Indian Standards norms. This requirement in India has prevented the import of non-BI certified cargoes, which were more competitively priced. As BPCL is the only Indian company manufacturing BI certified product, this is expected to positively impact BPCL.
Let me now touch upon a couple of major projects which are currently underway. We've conveyed that in addition to the INR 49,000 crores ethylene cracker and refinery expansion project at Bina, we were evaluating other petchem projects, including polypropylene in Kochi in August '23. A decision on which has now been taken. Board has subsequently approved 400 KTPA polypropylene project, unit project at Kochi refinery at a total cost of INR 5,044 crores. This project will benefit from the propylene feedstock available in the refinery. We believe that there is strong demand to meet that petchem supply from Bina and Kochi.
With regard to Mozambique, the project suffered a setback due to security issues, resulting in force majeure. However, the security situation has substantially improved and we are well-positioned for restart in the near term. One important point to be noted is that despite the 3-year force majeure period, all major contracts of Mozambique, including EPC, EPCL, LNG sales, project finance are closed out.
As briefed earlier, our growth aspirations under Project Aspire will involve a total capital outlay of about INR 1.7 lakh crores. Let me share some perspective around this capital outlay. These investments, some of which are long gestation, are critical for diversification and derisking our company in this transformative era. Successfully navigating transition demands a commitment to long-term solutions. As mentioned in the previous call, we are investing with discipline on growth projects by adhering to a minimum return threshold. We are enhancing our capabilities in executing and delivering petchem projects by strategically engaging experts and recruiting fresh and lateral talent to build up competencies required for the future.
This capital outlay, whether it will put a strain on the balance sheet, was a question which we pondered. On a standalone basis, we are at fairly low levels of net debt and significantly deleveraged. Our borrowings, net of cash, bank, and liquid instruments at standalone level is about INR 6,025 crores. At a consolidated level, our debt-to-equity is about 0.6. We anticipate that in the next 5 years, our peak level debt-to-equity on a consolidated basis will be about 1, considering that the current margins level continue.
As we embark on this growth journey, our disciplined dividend payment trend remains unchanged. During the quarter gone by, we had given an interim dividend of INR 21 per share. That is 210% for the financial year '23-'24. Let me also brief you on the proposed rights issue. Pursuant to union budget announcement '23-'24 regarding capital infusion in OMCs towards energy transition, net zero objectives, energy security, and the corresponding intent of Government of India, BPCL Board has granted approval for rights issue of capital. Though there are certain formal requirements which we are awaiting to be done from MoPNG, we are working on the offer document for the proposed issues. I'm happy to share that we have recorded our highest ever 9-month profit of INR 22,449.32 crores as compared to a loss of INR 4,607 crores in the corresponding 9 months. For Q3, the revenue from operations stood at INR 129,976 crores. The profit after tax stood at INR 3,397 crores. As on 31/12/23, we continue to have a positive buffer in LPG.
Against the CapEx target of INR 10,000 crores for the year, we have spent about INR 8,017 crores until December '23. Our standalone net worth as on 31/12/23 is INR 69,477 crores with a book value per share of INR 326.27. The earnings per share for the first 9 months is a stupendous INR 105.42. Wrapping up, I can say that we continue to deliver resilient operational and financial performance and see good momentum through the balance part of the year. We are actively working towards implementing our strategy, Project Aspire, within the set timelines and are fairly comfortable with the peak leverage.
The key to this will be consistent execution and said timelines. Importantly, we are investing with discipline of adhering to minimum return thresholds. I think I have concluded. Thank you very much. We are open for questions.
[Operator Instructions] We have our first question from the line of Probal Sen from ICICI Securities.
Congrats on the strong sets of numbers. Just firstly on the Bina refinery and expansion, the big project that we are doing. Is it possible to get a little bit more granularity on what kind of refinery configuration will we look at post the expansion? And what kind of product the petchem part of it will actually be? Any sense you can give us would be helpful.
So on the refinery side, we will be moving from 7.8 million metric tons to 11 million metric tons. As far as product portfolio is, we at least will produce HDPE, LLDPE, polypropylene, benzene toluene, and a little bit of bitumen.
Sorry, HDPE, LLDPE, polypropylene, benzene toluene, and a little bit of what, sir?
Bitumen.
Bitumen. And sir, just on the refining part, from 7.8 to 11, will that also be accommodated by any upgradation in the product in the sense that are we looking to up our distillate yield as well along with the refinery expansion?
Sorry, come again?
Will the distillate yield of Kochi also expand post the expansion to 11 MTPA?
0.8 million metric tons, about that will be product expansion, too.
How much, sir?
0.8.
0.8 million tons?
Yes.
Okay. Okay. And just your thoughts on how the margins outlook is shaping up, both on the GRM front and on the marketing front. You mentioned thankfully that the Russian crude was at roughly about 40%. Our understanding is that, that proportion, at least on a country level, seems to have gone down. So any indications you can give on FY '25, what we should be sort of penciling in, in terms of Russian crude, because the discount seems to have narrowed from what my understanding is?
Actually, your guess is as good as mine, but we believe it's going to be stable unless the Red Sea situation worsens a bit. Right now, we feel there is not going to be much of a downside.
Sir, the Russian crude requirement, has it come under the 50% to 55% already secured that you mentioned, and this is part of the spot and adventitious thing?
Yes, it's largely part of the spot. We don't have a long-term arrangement with Russia.
We have our next question from the line of Vivekanand Subbaraman from AMBIT.
I have 2 questions. So the first 1 is on the Red Sea disruptions. So one of your fellow PSUs, the OMC, they said that they have not been impacted by the dislocation and they have already tied up until the first 2 weeks of April. What about you, sir?
And secondly, on the Russian crude itself, I believe most of it is coming from the Red Sea. Are the shipments coming? And how is that impacting the -- I mean, we are also reading reports on the shipping rates being much higher because of the disruptions. So how is this impacting your strategy on crude sourcing? That's question one.
The second one is on the experience that you've had in the highway corridors on the EV side. What's the charging monetization model until now? Can this be a meaningful monetization source given that the EV adoption continues and more and more models are coming up?
Okay. So in response to your first question, right now, we are not impacted by the Red Sea issue. We are waiting and watching, right? Until about April, we too are covered. We don't have any worries. But these things can play out, so we'll be on the watch for that. So right now, there's no issue on the Red Sea issue. . As regards to the EV, on the highway corridors, it's a chicken and egg story. So unless there is a proliferation of EV chargers, the traffic won't pick up, the consumers won't. So unless they get a confidence -- so we believe there is a strong case for EV charging going forward, and we are going ahead and covering up corridors, so that the range anxiety is limited and people are encouraged to adapt to EV vehicles.
Just 1 follow-up. So you mentioned that there's no impact on your sourcing. But what about the shipping costs and the implications as far as the discounts are concerned in sourcing crude from Russia? Is this really resulting in narrowing discounts? Because we are reading media reports that shipping rates have surged.
You are right. We are also reading the same reports. But right now, the Russian cargoes are on delivered basis. So we don't have anything to worry right away. And discounts are more or less on a very stable moderate number.
We have our next question from the line of Puneet Gulati from HSBC.
My first question is if you can talk about how much of Russian crude you used in the previous quarter? And what is the run rate in the current quarter.
Current usage is about 40%. And in the previous quarter also, it was around 40% to 44%.
Okay. So no major change. And you said the pricing also is not too different?
Not too different, yes.
Okay. Secondly, you commented on the EV charging tie-up with Tata Motors. Is it Tata Motors or is it Tata Power?
No, no, it's a subsidiary of Tata Motors, which we have tied up.
Okay. And thirdly, if you can comment on your projections on how you're viewing growth of petrol and diesel in India? December saw a bit of weakness. Last few years also has been a little slow. How are you looking at the demand here?
See, we believe strongly, India is going through a double transition. One, there is a transition of the economy, and one, transition of the environment for cleaner fuels. With this, 50% of India still needs development, the energy needs are going to surge. So we strongly believe for another 10 to 15 years, the fossil fuels will remain. While we'll be responsible in producing the emissions, we'll also be simultaneously developing the green energy business. Probably by 2070, we will reach our transition stage.
One thing to note is the renewable energies are at very early stages of technology. There is a cost curve and learning curve, and it will take some time before it matures. Till such time, energy needs cannot wait for a developing economy like India. So to continue that fossil fuels will continue at least until 2040, if not longer, while simultaneously, the green business will be -- they'll be balancing and both of them will run concurrently for years to come. So there will be growth in MS and HSD as we predict.
Right. Understood. And you also talked about INR 2,500 crores of CapEx that you intend to do as a part of your 1.7 lakh crores CapEx towards gas and marketing. So can you say marketing, does that include fuel stations as well for petrol and diesel, or is it pure gas fuel stations?
Marketing infrastructure will include a mix of retail petrol stations. There will be plants, there will be pipelines, and storage depots.
We have our next question from the line of Sabri Hazarika from Emkay Global.
Sorry, I actually joined in a bit late, so I'm not sure whether it has been covered in the opening remarks or not. But your GRMs have been like quite steady. So just wanted to know were there any specific factors during Q3? And was there directionally any inventory gain impact as one of your peers have reported?
See, we can't comment on the inventory gains right now. Margins are stable. And we have been continuously working on optimization of the refinery. So these are giving us steady results. And Bina and Kochi have done extremely well.
Any specific factor during this quarter, during Q3?
No, no specific factor. Mumbai refinery throughput was lower because of the shutdown, we had a 40-day shutdown. Otherwise, more or less it's been the same as in the previous quarter.
Right. So if you look at the crude oil movement, so it has come down from around $90 to less than $80. So technically, there should be inventory losses, right? Do you agree with that, I mean, conceptually?
No, generally, we keep around 15 to 20 days average inventory only. So even month-on-month basis if the crude inventory prices have come down, there is not much impact on the refinery margins here on account of inventory losses. That is the reason we never calculate inventory loss gains on the refining side. Because our overall inventory levels will be on an average around 20 days only. It will not have any big impact on the inventory loss gains.
Okay, sir. Fair enough. And secondly, you mentioned your net debt is currently INR 6,000 crores?
Yes, around INR 6,000 crores.
So this is across your current investment and cash and cash equivalents from the gross debt that you reported, right?
Yes, yes.
We have our next question from the line of Mayank Maheshwari from Morgan Stanley.
A couple of questions. First was in terms of on the Kochi side, can you just talk to us in terms of the contribution on the petrochemical side and the chemical side? And how has been the operations looking like now going forward?
In Kochi, we have a propylene derivative petchem plant with a capacity of 329 TMT per annum. The production in '22-'23 was about 60% capacity utilization. It's about 197 TMT. In Q1, it was 57 TMT. That's about 70% utilization. And Q3, it was again 57 TMT, which is 70%. The PDPP margins are included in the refinery reported GRMs. So gross margin in Q3 was about INR 120 crores and a loss of INR 145 crores. It's about $0.43 per barrel gross margin, net loss of $0.52.
Okay. And sir, can you just talk to us in terms of, is it the industry which is leading to this losses still after multiple years? Or it's something more related to your exports of propylene that you have to do?
No, it's not exports. If you see the cracks compared to the propylene prices, it is ranging between $250 to $530 in the last 9 months. Only in 2 months, actually, the prices have peaked. But subsequently, after the Chinese demand reduction, the cracks are hovering around $250 to $300 only beyond the propylene prices. That is the reason net margins are on the negative side. Otherwise, on the operating performance side, the planned units are operating at 70%. Maybe once the Chinese demand picks up, the margins will improve. And second one, good positive thing for BPCL is, now the imports have stopped if it not a BIS product. Only in India, because it is producing butyl acrylate with BI standard. So with stoppage of imports, the margins will improve.
Got it. And will that also result in higher utilization rates now that it's a BIS product and we can't import from outside?
Right, right. It improves the utilization.
Any targeted production utilization levels for fiscal '25 that you have in your mind after all the changes?
Generally, our target should be for PDPP because it's a complex technology, 80% to 85% of target utilization rates. We are hovering at 70%. If the pricing is good, if the imports are stopped, then definitely, we can look at it 80%, 85% utilization rates.
Sir, the second question was more related to refining operations for fiscal '25. Anything in terms of planned shutdowns that you have in any of the refineries for next year?
Kochi and Bina have planned 15 days' shutdowns of plants. The exact times are being worked out.
We have our next question from the line of Varatharajan Sivasankaran from Antique Limited.
On the Bina expansion, do you see a significant improvement in the complexity of the refinery as a result of this expansion?
Petchem itself will increase the complexity, but otherwise, refining complexity, no.
Secondly on Kochi, the propylene balances, now that you are going for polypropylene, if you can give us an insight into what is the current volume. And I mean, do we have to really push to achieve higher propylene output to meet polypropylene plant requirement. How does that stand?
The current output will be sufficient for the small revamp we are doing in the [indiscernible] (00:33:22). So that will take care of the requirement for this plant. .
And that doesn't constrain you in terms of usage of crude varieties, does it?
No, no, no, it doesn't make a difference.
And finally, on the retail outlets, you said you have put out some advertisement. Do you still see a requirement for adding outlets, sir? How does that work in terms of proposition, in terms of volumes for throughput for outlet, and the economics of additional outlets which you would be setting?
We can say very proudly that we have the highest throughput of petrol across the industry. Throughput, I mean, monthly sales per station, okay?
So we very judiciously choose locations. And with the growth, India is growing, more and more urbanization happening, more and more people buying vehicles, there is a need. So although we have advertised for locations, we will be putting up these outlets based on economics and returns, which we normally have threshold on.
We have our next question from the line of Sumeet Rohra from Helios.
Firstly, sir, I would like to welcome you on this call, and it's a real honor and privilege, Chairman sir, to have you, and we look forward to having much more of you on all future calls. So thank you very much for that, sir. Firstly sir, I would like to start by congratulating you on a wonderful performance. You have actually reported INR 105 EPS, which is truly exemplary. So very well on that performance. And good luck on that, sir.
Now coming to just a few questions which I wanted to understand from you. Sir, firstly, when you said that we are going to maintain a capital discipline, can you please help understand, when you say a minimum threshold return ratios, if you can quantify a bit of that, so we kind of get what you're thinking?
Secondly, sir, on the debt point of view, you said that INR 16,000 crores was our gross debt and about INR 6,000 was net. So sir, does that also include all the liquid investments, what we have? Thirdly, on Mozambique, you made some very important point where you said that things are progressing on that front. So if you can just very quickly give a little bit of color on Mozambique. And sir, lastly, on the retail network, how many fuel outlets do we have today? How many do you plan to add? And sir, just on that point, on non-fuel retailing, is there any plan we have, sir?
Thank you. So I will respond one by one. To your question of returns, we have a threshold level of approving projects which are between 12 and 15 -- 12 to 15. If there is an economic case for going down, we look at it case-by-case basis. But otherwise, the threshold levels are 12% to 15%. The second question on debt levels, net debt levels, it includes all liquid investments. After netting off everything, it's INR 6,025 crores. So the third question on Mozambique. We are very optimistic that the force majeure will be pulled back and work will commence shortly maybe by June or July. And every effort is being made by the operator to get the work started.
The fourth question was on non-fuel retail expansion. We have taken it as a very imperative for us that we need to do when we're going on the EV front and other businesses to mitigate our margins. we have gone big on non-fuel. A separate SBU has been formed to do consumer retailing across the network. And it's early days, but we already have about 125 stores going on. So the main game will be on supply chain. We are consolidating the supply chain.
So sir, sorry, I mean when you say that you have 125 stores. So sir on that, can you help us understand then what's our plan on that, because that can be a very big portion of the business going ahead, because since we have nearly 30,000 fuel outlets. So what's the thought on that, sir?
These are early days. Like I mentioned, these are convenience stores and a small set of grocery stores across the network. We have 21,000 outlets. We have about 100 -- we have made small baby steps, so we may scale up to 3,000 -- we want to scale up to 3,000 stations.
Though not all our stations are viable to have in and out of these consumer stores, where they need a parking, so many other factors. For example, if you put a charging station, that is where we are looking at such stores, so that we can engage the consumer through such time he's charging the vehicle. There are many factors where we -- and there also should be a populant which will cater to these stores. So we plan right now about 125. In the next 5 years, we plan to go up to 3,000 stores.
[Operator Instructions] We'll take the next question from the line of Vikash Jain from CLSA.
I had a question regarding staff expenses. So last couple of quarters, it's kind of been a bit higher. So what is the annual run rate that we are looking at on this? Is there any one-off provision or something that is there? Or just want to understand, like, for example, 9 months is tracking at almost 41% higher Y-o-Y. And so this quarter is about 44% higher Y-o-Y. So where should we see this settle on a normal basis for this year and next?
Yes. Current quarter, actually, employee benefits is a little bit on a higher side, because we have taken a small hit in terms of post-retirement medical benefits. There are certain changes in the scheme, around INR 200 crores we have taken a hit. Otherwise, our run rate will be around INR 3,000 crores to INR 3,100 crores for full year. Every quarter, around INR 750 crores of employee cost.
And our employee size is around 9,000. Every year, around 300, 400 retirements and resignations happen and recruitment size also will be around 500, 600. So the employee cost range will be around INR 3,000 crores to INR 3,200 crores, that is what we are estimating.
Okay, okay. Yes. And the other thing was on rights issue, sir. So the rights issue that you said you are preparing -- doing the work on preparing the documents for it. So is it something since the budget was for this fiscal, and we are just like 2 months away for the fiscal ending, that there is a good chance that it comes pretty much within this fiscal in terms of the rights issue?
Your assessment is right.
Sir, I just want to understand why we keep paying dividends and also doing the rights issue? I mean, for a year, we could have just held back on the dividends. I mean, from a simple capital structure perspective, it's pretax inefficient for the end receiver of the dividend. Because he has to pay tax on that. Then he puts in money into the rights issue post that tax. Isn't that something which could have been avoided? Or what is the thought on that?
No. Actually, we plan whatever need for funds on a long-term requirement basis, because we have a larger capital outlay of INR 1.5 lakh crores, mainly for green side, green venue, we said investments are there. That was the reason actually we have planned for rights issue. But we plan it at a minimum level. Whatever exactly we need the funds only, we go for only that much of amounts only. But dividend distribution, you know, as a dividend-paying company, we continuously -- our endeavor is at least 30% of our dividends we have to distribute as -- 30% of profit share as dividends. So that is the reason we have declared the dividend. But this rights issue, for a long-term equity requirement. Of course, that is the reason we are planning.
We have our next question from the line of Yogesh Patil from Dolat Capital.
Sir, as you mentioned, during the quarter, BPCL processed 40% Russian crude. How much this has benefited to your GRM for this quarter? And basically, we wanted to understand that if the discounts narrow going forward on the Russian crude, then the impact on the GRM. This is my first question.
Generally, we procure crude from various sources. We never calculate GRM impact on the source of the crude oil. Like you know, the market conditions compared to earlier year, the Russian crude discounts have moderated. And we hope the Russian crude supplies will continue, but they are moderated discounts. So we cannot calculate separately what would be the impact on the GRMs separately. Because different sources of crude will have different benefits, and the different crudes will have a different value in terms of output. So we don't calculate individual source of crude oil, what is the benefit. But overall GRMs only we can calculate.
Sir, in last few quarters, you have reported a premium GRM over Singapore. So my question, will you be confident to maintain this kind of a premium over Singapore GRM in coming periods? Anything add to your guidance you wanted to give?
It depends on the cracks of diesel mainly. In case of cracks of diesel, if it is hovering around at least -- as of date, the forwards are looking good. But how long it will continue above the 20 level? If it is continuing above 20 level of diesel cracks, definitely, BPCL, we have a product portfolio in the throughput, the bigger component is high compared to MS. So definitely, we hope we can generate good amount of GRMs.
Sir, last question on the capital expenditure side. Till date, the capital expenditure on the Mozambique block by BPCL, can you provide some details on that side?
Roughly around INR 900 million we have spent on the development side, and around INR 729 million we have spent on exploration side. As of that, these are the numbers we have already incurred.
Okay. And sir, our capital expenditure till 9-month FY '24 and plans for FY '25. If you could provide some breakup among the segments, it will be helpful.
CapEx is about INR 8,000 crores as of December 31. The outlay was INR 10,000 crores for this year. Next year around will be INR 15,000 crores will be for next year.
And sir, any breakup among the segments like the refining, marketing for the next year?
We'll share it separately. We don't have the details on hand.
We have our next question from the line of S. Ramesh from Nirmal Bang Equities.
So if you look at the current international refining demand and supply, what do you see in terms of capacity addition? And how much of that will go towards petrochemical integration? To what extent will that insulate the volatility in the refining margins? Because the demand growth may not match the supply growth. That's the first one.
Similarly in petrochemicals, while you're investing sizable amount of CapEx on petrochemicals, what is your reading on the regional demand and supply? Because a lot of the refineries like you are getting into downstream oil to chemical projects. So isn't there a risk of supply growth exceeding demand growth? So if you can just address these 2 thoughts, I'll be grateful.
We are very upbeat of the Indian demand. We also feel there will be opportunities in the Western markets where increasingly refineries are shutting down. So we feel there will be an opportunity for processed products in the West as well. As regards to petchem, while the per capita consumption in India is very low, so we feel there is an opportunity for everyone to equally distribute. Prices may be a challenge, but we'll have to work around that.
Okay. And the next one is on your long-term CapEx. There could be a phase of your ROCE coming down. So when do you see the CapEx progressively generating cash flows and improving your [indiscernible] (00:47:13) by FY '27 or '28? Or can we expect it earlier somewhere in the second half of FY '26?
So in our capital outlay, major CapEx is going for a petrochemical complex and Mozambique. These 2 projects actually -- almost around INR 90,000 crores funding is going there. The cash flows, what we are expecting, around '27, '28, the Mozambique cash flows can start. Petchem, it will be, the commissioning we are expecting around 48 months from the data of issuing licensure. Maybe probably '28, '29, mid '28, '29, the cash flow will start from petchem projects, whatever new announcing projects.
On one of your earlier question, our feedstock is going to be a bigger differentiator of petchem. Because since we are integrating it with the refineries, it will be a game changer for us we believe. And we will be competitive in the local market.
Okay. So one last thought on the gas business, what is the progress on this bigger distribution geographic areas? Any thoughts you can share on when you will see visible cash flows from that and when you'll breakeven on EBITDA?
We have about 50 GAs with us allotted to us, 25 GAs to BPCL and 25 to our joint venture company, out of which 19 GAs, which is allotted of the 50, 19 have commenced business.
Okay. And when do you expect them to start generating cash flows or breakeven?
It takes time to cross the breakeven. But otherwise, the volumes have started picking up in the 19 GAs. Maybe in terms of PNG corrections, it takes a little bit more time. But cash part goes, maybe in the CNG business immediately it will start. But for PNG, it will take a longer period of time. We are expecting next 1 or 2 years actually significant CapEx will be deployed there and good amount of volumes should come.
We have our next question from the line of Sangeeta P. from Cogito.
This is Andrey, Sangeeta's partner. I just want to understand as to what is your outlook on crude oil prices for the next 6 months? I know this is a difficult question, but I'm also given to understand that at about $85 a barrel, the marketing margins start turning negative. Is my understanding correct? And what is your assessment of the range within which crude oil prices are likely to hover in the next 6 months, your best educated guess?
See, it will be range bound between $80 to $90 in the near term. And looking at $85, I don't think -- it's quite myopic. We should look at over a longer period of time because in this game, you cannot look at when you make money at $85 or $86, but you should look at over a period of time. .
So would you say that if it's range bound within $80 and $90, you are reasonably safe on making some kind of positive returns from your marketing margin business?
Yes, you're right.
All right. And what is the extent of discount on the Russian crude at this point of time?
I don't think we can share those numbers.
Okay. There was another point of view which said that even if for any reason the Ukraine war were to end, let's say, Trump comes to power and he strikes a deal with Putin or some such thing happens. The point of view was that the discount from the Russian crude are likely to continue pretty much taking the cue from what has happened to the gas situation. Since Europe and the rest have not gone back to buying gas from the U.S., what was being projected is that the same thing will happen in petrol, and therefore, the discounts will continue. Is that your assessment as well?
It's speculative. I don't think we can comment on that. We'll have to wait and watch.
We have our next question from the line of Harsh Dole from IIFL.
I'm actually asking these questions on a couple of investors who have not been able to log on to the call. So actually 3 questions. A, assuming that the Mozambique project starts sometime in June, by what timelines can it end? And in terms of gas marketing, what arrangements do we have? That's point #1.
You want an answer right now? Or I'll wait for the second...
No problem. The second one is while you have planned the expansion of refinery, what is the sustainable growth outlook on petrol and diesel particularly over the next 3 to 5 years that you envisage within the country? And do you anticipate that emergence of EV or you yourself are rolling out large number of CGD projects. This growth may be at risk if not in 3, but surely in 5 years' time. And thirdly, essentially some timeline in terms of the rights issue. By when would you like to approach the market? Any broad timelines for that?
I'll take the last question first. Rights issue, we will tell you shortly. But our endeavor is to try and finish in this current financial year. That's the first question.
The second question as regards to MS and HSD growth, we believe MS will grow -- even assuming that EV picks up, we believe there will be a growth of 4% to 5% in the next 5 years, and petrol will -- I mean, diesel will grow about 1.5% to 2%. And the first question regarding Mozambique. Can you repeat that question?
We expect that force majeure to be lifted around July. '27, '28 is early when gas will start flowing in. We have done our bit of tying up for marketing of these gas, 1 million metric tons we have tied up. Sorry, 11 million, the consortium has already tied up. Marketing is in place for these gas.
Very helpful. I think we have completely run out of time. I really appreciate BPCL management, the Chairman, as well as the Director of Finance for sparing the time discussing the numbers in detail and also sharing the outlook for next few years. Really appreciate, sir, and thank you very much for giving IIFL an opportunity.
Ladies and gentlemen, I also thank you all for logging on to the call. In case any of your question is unanswered, do drop me a line. We'll see that the questions are passed on to BPCL management and you get a timely answer. Thank you very much. And moderator, please dismiss the call.
Thank you, Harsh. Thank you.
On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.