Hindustan Petroleum Corp Ltd
NSE:HINDPETRO
Earnings Call Analysis
Q2-2024 Analysis
Hindustan Petroleum Corp Ltd
The company has been undertaking significant capital expenditures. With a total project cost of INR 23,000 crores for a particular refinery, capital spend to date stands at INR 37,000 crores across projects. A refinery segment initiated physical programming with 22% completion, with further commissioning anticipated. The funding encompasses INR 7,000 crores from loans and HPCL equity contributions anticipated to be around INR 18,000 crores, of which INR 9,500 crores have already been disbursed.
The company asserts a strong financial performance with a 25% return on equity (ROE) but notes an unusually low trading multiple of just 2x, suggesting a disconnect between the financial robustness and market valuation.
The Barmer Refinery Project, conceived years ago when diesel cracks were below 10%, is expected to benefit from the current average diesel cracks of around 20%. Its high-petrochemical integration is seen as a step to enhance product security and provide an inroad into the petrochemical business. A 26% petrochemical intensity is aimed to better product margins significantly. Additionally, ventures into Over The Top (OTT) and specialty chemicals are forecasted to boost the company's bottom line and overall growth.
In the coming five years, CapEx is projected at INR 35,000 crores, with plans for renewable energy and gas businesses occupying 25% to 30%, refining 20%, and downstream marketing the remaining 50%.
The HP LNG Limited subsidiary aims to hire out capacity for liquefied natural gas (LNG) storage and has received positive responses for capacity booking, suggesting a diversification into this market is underway.
With the commissioning of the bottom operation unit, the company anticipates product yield optimizations, including an incremental yield of $3 to $4 per ton. The distillate yield at a specific refinery, currently at 75%, is projected to improve to 85%-86% once the unit is commissioned. The upgrade will mainly impact High-Speed Diesel (HSD), with yields expected to increase from around 48%-50% to 60%.
The company indicated an approximate operating expense of around 50 barrels, a pertinent metric for assessing refinery margins and efficiency. Despite initiating solar power strategies and efficiencies, direct solar production had not begun at the time of the call.
Despite the rise of electric vehicles and alternative energies, the company observes a consistent growth in petrol and diesel consumption, growing by an average of 5% to 6% per annum, with diesel growing at about 2%. This underlines the sustained demand for traditional fuels in spite of the energy transition.
The Government of India's announcement of a capital infusion amounting to INR 30,000 crores into the company is a positive development, though finality had yet to be achieved at the time of reporting.
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Ladies and gentlemen, good day, and welcome to Hindustan Petroleum Corporation Limited Q2 FY '24 Results Conference Call hosted by Antique Stock Broking. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Varatharajan Sivasankaran from Antique Stock Broking. Thank you, and over to you, sir.
Thank you, operator, good morning, everyone. I'd like to extend a very warm welcome to all the participants and the top management of HPCL. We have with us Mr. Pushp Kumar Joshi, Managing Director; Mr. Rajneesh Narang, Executive Director Finance; Mr. Kay Vila, Executive Director of Corporate Finance; Mr. Lokesh Sabra, Real Manager Corporate Finance. Without much ado, I would like to hand over the floor to the CFO for the initial comments, followed by the Q&A over to you, sir.
Thank you, Sir. Good morning, everyone. I'm Rajneesh Narang, Director Finance, HPCL. On behalf of HPCL team, we welcome you all to post Q2 results con call. Some of the statements that we'll be making during the con call are based on management assessment, and we believe that these management assessment and statements thereupon, are reasonable. However, considering that the future is uncertain and oil being a geopolitically sensitive commodity, management assessments might not pan out in an exactly similar manner. Further, this is a quarterly result con call we request that you may kindly restrict your questions to quarterly results. I now request Mr. Pushp Kumar Joshi, our Chairman and Managing Director, who is chairing this call to make his opening remarks and take the context for the [indiscernible].
A very good day to all the friends present here. First of all, let me begin by expressing our gratitude to all of you for participating in this con call. I'm grateful to all of you. During this con call, our attempt would be to share as much detail as possible and as Director Finance has mentioned, this would be our assessment of the situation. And we would also like to share with you the details of where we are, what exactly our plans going forward. So let me begin by saying that we have had a very good H1. And as all of you may be aware by now that this was the record profit HPCL has made in its history. And this is even higher than our annual profit in the past few years or in the past years. So therefore, this is a good thing, and we thank everybody for the support which we have got for this. Now looking at the international situation going forward, all of us understand the geopolitical situation, which is playing out and which is impacting our operations in terms of our food procurement, in terms of product cracks. Nevertheless, our attempt has been threefold in the past few years. Number one is strengthening the quality and both the capacity of our assets, and I'm very happy to share with you that whatever CapEx which we have done in the past five years has started easing results. And at the outset, I also want to share with you that in the past few days, we have very successfully commissioned our new hydrocracker unit at Visakhapatnam, which would help us in enhancing our diesel production. It will help us in improving our distillate yields. And this is one of the largest facility, most energy-efficient facility in the country and possibly in top five in the world. So that is one in terms of enhancing the capacity for assets and the quality of our refining assets. So in that, one is our Visakha Refinery expansion, where we are going from 8.3 million tons to 15 million tons. We have already expanded our Mumbai refinery from 7.5 metric million tons to 9.5 metric million tons. And I'm happy to share again that, that unit has stabilized, and we are refining our throughput is higher than 9.5% if you have to calculate on an annual basis. Third is in terms of our pipeline infrastructure. In last year, we have commissioned two major pipeline projects. One is our pipeline connectivity from Bangalore or Hassan in Bangalore to Cherlapally that is in Hyderabad. So now we have seamless connectivity from our import terminal at Bangalore to Hyderabad. This pipeline is going to help us in optimizing our logistics cost. Similarly, post our Vizag refinery expansion for the project product evacuation, we have expanded our pipeline network from Vijayawada to Danube in Tamil Nadu. Both these pipelines are successfully commissioned and are operating at optimal level. That is as regards to the core assets, as I said. The second recent is that in order to provide stability to our balance sheet, we have also forayed and ventured into new areas or the areas which we were not having significant presence. One area of that is petrochemical we have started marketing of petrochemicals, our own brand name. And after our Ganesan refinery commissioning, we will have substantial presence in petrochemical arena also. And bite, I mean our Rajasthan refinery project is on track. We have already completed 72% of physical facilities there. Some of the major refining units are in advanced stage of mechanical completion, and we expect that we would start commissioning of the refinery in the phases in the next calendar year. So that could give us significant presence in petrochemical. Second area is natural gas. We've already commissioned our five metric million tons in gasification and storage terminal at Cara, which would give us a significant presence in natural gas value chain. So we will have presence in storage and regasification. We already have shares in pipeline in terms of transportation of natural gas. And at the customer end, we have presence in 23 geographies across the country in city gas distribution. And also we are marketing gas to industrial customers therapy. So that is the second facet after petrochemical. Third is in terms of biofuels. We are the largest blenders of petroleum in the country in MS, and we have touched 30% blending targets and blending we are doing across the country with a robust infrastructure for transportation of ethanol through rail wagons, through our pipeline, through road. So that is the third area. We already, as you are aware, we already have two sugar mills operating in Bihar. And from there, we are getting it at all. And from various certain places, we are getting ethanol. We've also bought into CBG compressed biogas. We have commissioned one of our first plant in Uttar Pradesh in Budaun where we have started working. We are in the advanced stage of commissioning of our CBG facilities there also. So this will be third area. So we will have petrochemicals, we will have natural gas, and we will have biofuels. And for this, as you are aware, we've already made plans to have a wholly-owned subsidiary looking after the green business of the company. And the formation of that wholly owned subsidiary is in a very advanced stage of its formation. So that would give us that kind of stability to our balance sheet. The third area is in terms of renewables, in terms of EDs and in terms of hydrogen and fourth asset bars from crude to chemicals. So all these areas we are working on. For next five years, investment is going to be around enhanced facilities in renewables, in gas, in biofuels and also in terms of certain value-added products in our refineries for and things like that. So these are the assets.Now we are over the last years absent for challenges, which we were having. And you would notice that our financials have improved substantially. Our debt-to-equity ratio is in excellent range now. So these are the plans. And as I said in the beginning, the focus was on CapEx, and that CapEx has started yielding results. Our major CapEx now is in our Rajasthan Refinery, and I'm very happy to share, as I mentioned, the progress of that. We've already completed 72% of physical progress. All the orders have been placed the work is going on, on war footing, and as I said earlier, that during the next calendar year, we will be progressively commissioning some of those facilities also. As regards to the results of the H1, on the few points I want to mention that our physical performance has been off record levels, both in terms of our refining. However, refining throughput, not only we have increased the throughput, we have been able to optimize and our fuel loss has come down drastically. In terms of marketing, we have gained market share amongst the industry, including the challenges which we face in terms of private players coming in, but there also, company has been successful in ensuring that we gain market share. And also, a concentration is there on nonfuel retails in exploiting our retail network, where we have today close to 22,000 retail outlets across the country. Similarly, in the face of LPG, we have close to INR 9.3 crores LPG customers, and we have been growing in the asset of LPG. What I would be more interested in is answering your queries after I've given this very brief detail as we go forward and we enlist your questions as we address your feedback, we would be trying to exemplify and give more details on whatever I have mentioned. So thank you very much. This is the initial brief I wanted to be. Thank you very much. The floor is open to questions now.
Thank you very much. We'll now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Amit Rustagi from UBS.
Sir, congratulations for posting super events in the first and second quarter. I have two questions. One is relating to the demerger or relating to the news of lubes business. Give us more details to what is the update on that? What is the format we are going to follow in terms of lubes going forward and where are we in terms of approval? Then I will come back to my second question.
Yes. As regards to the progress as regards to the new oval, which we had announced along with the Board meeting in the annual results. The formation of a new company for the PSU requires a certain regulatory approval from the government of India. So we have already started and we are awaiting the final approval from the respective regulatory authorities for the new companies. But nevertheless, the objective of we are having at the company was to ensure that this new business, which is an independent unit free from all controls and all and having very fair pricing. This is one which will enable HPCL to utilize the assets of lubricants and the market reach, which we haven't. We are the market leader as regards to loans is concerned. And we sell almost 670 50 MT of lubricant products in the country. So we intend to cover this company into a separate unit. We have various options which we can follow, either we can lift this company come out with an IPO or we can get in a strategic partner. So currently, the discussions are on and on the various options and at the most appropriate time, the decision will be taken on this further.
But sir, when are we going to a clarity on the cargo process, like are you going for the IPO or listing or any joint venture? When will we get the clarity because it is almost now seven, eight months since we discussed last time?
This financial year, it will. And in the meantime, you see that we have various process as regards increasing the market reach for lubricants, we are tied up with CapEx. We are manufacturing and marketing their products also here, and we have also set up to a fully owned subsidiary in Dubai, JASCO, they are marketing their products into MENA region with East and Africa region, and we see the company is having performing well and new volume angiographies are being added.
Okay. And sir, my second question relates to Rajasthan. So how much CapEx has been incurred? What has been our entry contribution to that? And how much equity contribution is yet to be contributed? And then are we expecting the project mechanical completion and commissioning? Both time lines if you can provide us.
The total project cost of this refinery is INR 23,000 crores. As regards to capital expenditure, as on date, we have done almost INR 37,000 crores of capital expense. And as regarding commissioning of the progress on the projects segment has already commenced as regard the physical program, 22% of the ore as. Several units are in advanced stage of commissioning, maybe in near future with aggressive manner, the units will start to commission. We are hopeful that the refinery portion of the foundry would start we mechanically completed in March and the petrochemical may follow thereafter. So the next calendar year would be the year where we start getting some product out of this refinery. As regards to total equity contribution in total projects of INR 7,000 crores would be funded INR 4,600 from loans and the balance is from DCP. And the total equity contribution from HPCL would be around INR 18,000 crores. Out of that, we have already contributed INR 9,500 crores and in addition to this, around 26% has been contributed by the financial side.
The next question is from the line of Somaiah from Avendus Spark.
Sir, why is that currently on a run rate basis, you are 11 million tons? So how would the progress be of reaching 5 million tons, and how much of ramp up this year and how much of ramp up in the next a couple of months?
In the month of March '23, we had commissioned the CDU 4. That is the line 9 million tons credit. So since then, we have been operating the facility at 11 million metric tons. Now in the opening remarks, our Chairman had stated that we have commissioned the FCCU that is fully convertible hydrocracking unit. Now with the commissioning of this unit, our secondary processing capacity will increase further. Now we'll be ramping up this refinery and the family would be running around 13.5 million to 13.7 million metric tons. And once the RUS unit, that is the bottom agitation unit is commissioned, then it will go beyond 15 million metric tons.
The 13.7 million metric tons, will we be able to achieve next year, sir?
No. This quarter itself will be operating at that facility, at that level.
And also in terms of [indiscernible]
So I can only say that as I speak today, even now also we have started accruing the increased capacity of this new unit. And that will get additional 2 million tons on an annual basis for it we can calculate.
And also in terms of our marketing volumes, so of the diesel petrol that we sell in terms of what we take from our own Visakh in Mumbai, apart from the rest of the source you can just give a breakup, so where do we take it from? And those are adjusted for export duties. So we'll be getting at a relatively lower price?
Yes. I have to give you a current mix of the sourcing of the product, like in case of Ness currently, almost 43% is from my own two refineries. I get around 24% from HMS, which is again our JV wherein we have about 3% share. And 34% is what we source it from outside. And similarly, as regard HSD is concerned, it is 47%, 31% and 21% is what we take in from outside. Now subsequent to the enhanced capacity of Visakh Refinery, once the Visakh and our U.S. facilities are also completed. This would become 61% would be in-house. That is our 2 refineries for HLD and 16% from HML. So balance 23% is what we are going to source from outside. But once the Rajasthan Refinery comes in, the entire HLD would be internal only between HPCL or HBC JV company. As regard MS is concerned, after Rajasthan Refinery is there, 49% would be from both our refineries and 10% would be from HMA and 12% from HR. So what is left out is around 29% would be sourcing it from other refiners. That is stand-alone refiners. It includes both Reliance, Niara, MRPL, NRL and all also.
Just one last question from my side. So on the Barmer refinery, utilization by when we'll probably be around, say, 80% or so? What is your expectation?
You are talking about the progress of the capital?
Ramping up of the facility and reaching close to 80% of utilization. So when --
Between three, four months. Barmer is right now around 72%. Utilization. That may be after one year, we'll be reaching that after commissioning.
So we expect commissioning by March of next year some mechanical completion in March of next year and maybe saying FY '25 end or FY '26, or is there something that we can get to 80%, is the right?
Yes.
The next question is from the line of Sumit Rohan from Helios.
Firstly, I wish you a very, very happy Diwali to you, Chairman, sir, to the Director Finance and the entire team at HPCL and all your families as well, sir. Sir, firstly, I would like to congratulate you. You have done an incredible job at HPCL and clearly, the physical performance of HPCL has actually doubled virtually in the last maybe four to five years where we've grown from basically 15 million, 16 million tons to today, 36 million tons and maybe even after adestan, you'll go to 45 million tons. So excellent work on the company point of view, excellent work you did for the nation as well last year by whatever we did cumulatively as the oil marketing companies. So very good stuff on that. So sir, I would like to now just touch upon, I would take about two minutes of the time. So sir, I would just like to touch upon now we're on the investors, right? Because ultimately, the objective of all our investors is to make healthy returns. And one thing, sir, we clearly see is that the performance of the return of the shares is clearly disproportionate to the infrastructure created, the financials delivered. I mean, today, I mean, let's come to think of it. We are a 25% ROE company, okay? And we are trading at 2x multiple. I mean, I don't find any company in the world, you can ship this on Bloomberg or router or any financial medium, a company of having a 25% ROE would trade at 2x multiple. I mean it's absolutely absurd, right? So there's clearly something which is not connecting between the investor confidence, but the reality of life is that you guys are doing a splendid job and not many companies in the world can deliver what you people are doing. So it's extremely commendable and it's clearly showing in the throughput and in the capacity enhancement, et cetera.Sir, I just had a few sessions here, which if you could take on board and a few questions as well. So sir, firstly, because of the fact that last year, we had a normal period of losses or whatever. So as far historically, HPCL always plays out about 30%, 35% dividend. So can we expect that because last year, we've not paid dividend. So this year, we can actually expect a significantly higher payout than the 30%, 35%, which means that can we do like 40%, 50% dividend payout ratio? Secondly, sir, today, as you said that our CapEx is, I mean, is now virtually finished and we are now basically entering a feedback period. So my humble thought process was, and can you correct me if I'm right on this, that our incremental EBITDA is now going to be sharply higher than our CapEx because all companies always talk about CapEx, but nobody ever talks about how much are we going to generate as EBITDA. So I would humbly request that can you please also talk about what EBITDA are we going to generate because CapEx is obviously always taken very negatively by analysts and the investors.So if you can just talk about how much EBITDA as well are we looking to generate. Sir, thirdly, you spoke about Barmer refinery. So I have a very interesting thought process here. I mean, Barmer refinery is a project which was conceived maybe seven, eight years ago. And at that point of time, diesel cracks in the world were never about 10%. It was always sub 10% right? So now the matter of fact is that diesel cracks are hovering around, I would not say, 30% and all that, but say 20% as an average. So can Barmer Refinery be a very profitable project for HPCL, which today has been construed negatively? So can you please clarify a bit on Barmer and how do you see numbers shaping up on that front? And sir, just one last thing I would want to ask you before I end. Is that, sir, for the lubricant part of the business. I mean today, you are #1 player in India. You also sources that you're manufacturing for Caritas well today. And sir, so we are about nearly 40% then Castrol today is about INR 15,000 crores, INR 18,000 crore market cap. So for our lubricant business itself is worth about INR 22,000 crores, INR 25,000 crores. So this once resins that why not shares are given to shareholders and you know our shareholders of HPCL get shares of the lubricant, which actually will start the processing of unlocking of this great giant, which you have built? Because ultimately, so market cap also should translate into reality, right? Because I mean, INR 35,000 crore market cap is absolutely not fair to the good work which you are doing for. Because if you said that INR 70,000 crores is to set up Barmer refinery, today 45 million tons of HPCL be fading a INR 35,000 crore market cap. So I just want that your good work should also translate into investors rewarding sir.
Yes. Thank you, Sumit. The full end of what we are saying is the market is not giving us the right value which HPCL is. But nevertheless, I can only say that yes, last year was a good, and those situations were different testing times, and fortunately, our company could move up with. And right now, we are again setting up robust performances. And I'm sure the consistent robust performance market will start valuing these shares, and we will get the right valuation that we legitimately deserve. And from the management side, I can only say that we are making the right now, we are taking the right steps, right investments are being made. And strategically, we are getting into various value enrichment areas, which definitely would show up in our results. And accordingly, the shareholders would also inventory benefit in terms of dividend as well as the improvement. As regards to your question on the Barmer refinery, yes, what we indicated when the project was conceived and the current tax, yes, the diesel cracks currently are higher than what has been considered in the project captains. But these things will keep on changing. But yes, the Rajasthan Refinery is going to amend value to HPCL, it would give us the product security, plus it will give us an entry into petrochemical business. This is a refinery is the first integrated refinery, which is being centenarian India, with highest pet intensity, almost 26% of the betterment. Plus is the product which will come out of this refinery, they are building of products, which we can use it for further enhancement and give us a further leeway into OTT and other specialty chemicals, which should also contribute to the overall growth of the company as well as growth in the bottom line of the company. Now as regards to loop and the dividend is concerned, yes, we have noticed what we have shaped but are being quite sensitive information, I cannot be making any comment at the time.
The next question is from the line of Manikantha Garre from Franklin Templeton India.
Yes. Just wanted to understand on the Barmer Refinery side, how much of the --
Manikantha, can you please come closer to this handset or speak loudly?
I hope it is clear now?
Yes, please go ahead.
Yes. Sir, I wanted to understand how much it has been used up in the Barmer recently so far?
It's almost INR 22,000 crores.
Okay. And can you give me some understanding on why that is not getting elected in the consolidated?
That is because of the Indian requirements. Although 74% of the shareholding is with us, but various provisions of the savings agreement and all and the provisions regarding control is there are 1 or 2 cases, which after the saturates and the accounting provisions. For the purpose of financial consolidation, this will not be considered in the subsidiary. That is the case with several other companies also like CTCL and in IOCs that's primarily that.
Okay. So does that also mean that we'll not have the cost debt we do take on the power --
Sorry, I'm not able to hear your voice.
Sir. So does it also mean that BPCL will -- sorry, so will not have recourse to the debt which is being taken at Barmer Refinery?
Reporting on this, it is -- the debt has been taken on our book of balance sheet of HRS and HPCL and the government of agita are sponsors for the debt. So we have given sponsor-support undertaking for those.
So sir, I just wanted to understand that to an extent, is that project win priced is what I was trying to understand.
Yes, it is intense what all products will be manufactured by that marketing would be done by HPCL. That is what the lenders have seen that the -- although they have landed into this new company and whatever is the output from the foundry would be taken by HPCL. So the optic guarantees are there in the facility. So accordingly, as the loan had.
The next question is from the line of Probal Sen from ICICI Securities.
So I have two or three questions. One, if I can get a sense of what will be the product team of gasoline, diesel and APS? And I mention these with these three are fairly significant products in the overall state by the end of FY '25 when Visakh and Mumbai expansions are completely done by the commission. Can we get a sense of what the product deal would be for diesel MSAP?
If I had to give the product yield for our refineries, Saman refineries almost 18% would be the yield of MS. As regard HSD is concerned, the yield would be around between 50% to 55%. [indiscernible] Tostines book together. If I take only Visakh, maybe the year would be. And balance would be the in Visakh be part of it.
Understood, sir. The second question was with respect to the gas business. You mentioned about the Cara terminal having been commissioned. Can we get a sense of what kind of offtake arrangements are already in place for Cara? Are we going to internally consume the whole of 5 million, but I think that's unlikely. So can we get a sense about the marketing arrangement at placing these 5 million tons and whether we also have sourcing arrangements for those volumes as of now.
This HR, this China terminal. This is a separate value on subsidiary we have called HP LNG Limited. Now this company would be running on a falling model whereby the capacity would be hired out. Anyone who is interested in booking the capacity, they can put the capacity. We are already in the market for building the capacity. We have got encouraging response from prospective people who want to book capacity and once it is done, we'll let you know. And as regard HPCL is concerned, stations also already there in this line of business, yes, HPCL will also be booking capacity in this seen. And as regard to sourcing is concerned, the sourcing of gas would be done by HPCL because HPCL would be marketing it. And as regards storing that product is concerned, that would be sold in Cara terminal or any other chemical is economic over.
All right. And the third question, sir, if I may, was with respect to the CapEx. You mentioned about the plan over the next five years for the focus will be on enhancing our renewable portfolio, the gas business as well as focusing on value-added products in your downstream. Can we get a broad breakup in terms of what is the 5-year CapEx in envisaged and broken down into downstream petroleum renewables as well as the gas is?
Yes. If I could give you for next five years, the CapEx would be around INR 35,000 crores. Around 25% to 13% of the CapEx would be for the renewables and the gas segment. Then the refinery would take another 20% and the balance would be the other marketing projects which will be.
Sorry, refining will be how much, sir? I didn't get the percentage.
20%.
Refining will be 20%, refining renewable energy plus gas would be around 30%, and the balance would be on the downstream marketing segment, 50%. Is that what you're saying?
Yes, yes.
The next question is from the line of Sabri Hazarika from Emkay Global.
Congratulations on good set of numbers. So I have two questions. The first one is with respect to this CapEx. You've mentioned INR 75,000 crores for the next five years. So does it mean that the annual CapEx would be something like more than INR 75,000 crores?
Yes, that's the average that will be around INR 14,000 crores.
For the next five years, right?
Yes.
And how do you see the debt outlook right now, you've got like almost like INR 51,000 crores of stand-alone debt. So do you have any debt target in your mind? Or it will be like a resultant of whatever the scenario is one.
I can only say that looking at the current levels, we are -- the peak that is behind us. We'll not be adding debt to it. Most of it moving into our future financial performance would be funded out of winter. So we'll not be adding more debt on the books.
So you're saying the net debt of INR 46,000 crores could be the peak level in terms of the stand-alone business?
INR 46,000 would be the peak.
Okay. And sir, second part of the question is relating to your EV value chain. So you've done some deals with Gogoro regarding what you call [indiscernible] and you also have got new changing stations. So what are the initial findings and what kind of profits are you making or do you have any numbers in mind we just trying to reassess maybe 10 years down the line as a separate segment, how much this will contribute? Any idea on that?
Right now, we are engaging with different service providers and all that primarily is to see that if power reach is reached, it's an ecosystem for EVs up there. And currently, we have more than 2,500 starting stations were which is there on account we want to be in that space to go out when the numbers will take up. So we have been tying up with several of them. Dover is one of them. We have also tied up with Honda for battery swapping. And there are other agencies also where we have tied up for charging at all. So we'll see as to what the opportunities are coming into this and accordingly, then we will dementor segment that we chose a fair market share in this page.
On the existing business, can you give us some unit economics, any returns [indiscernible] of that? Or is it premature, right?
If it will mature, we'll put numbers to that.
The next question is from the line of Yogesh Patil from Dolat Capital.
Can you throw some light on the bottom gray unit cost, which will improve your wide overall gross refining margins? And how much GRM improvement can be expected post completion of this event?
So once the bottom operation unit would be commissioned. Now this would be upgrading the bottom of the product, and that will not only happen on the enhanced capacity, but it will happen on the full capacity. That is full 15 million tons of product, which will be there at the shaft refinery, the bottom upgradation will happen. And secondly, as regard what would be the incremental are on discount. The incremental year-end will be between $3 to $4 per ton on counter basis. And we are hopeful currently, the activities, the progress as regards is going on in full swing. And we expect that by January, February, the mechanical completion will be complete.
So can we expect in FY '25 onwards, this kind of distance to get number per barrel can be expected -- so second question, can you update us on the capital infusion in terms of the right issues. When can we expect the ambitus for the FTC or the situation allotment?
The Government of India had in their budget document stated that INR 30,000 crores would be two. So although there were initial discussions on the things, finality has not yet been reached as and when there is a development of that truck will definitely.
So from your estimate will it happen in FY '24? Or will it be postponed for the FY '25.
Just built by the intention of the government, that was for the current financial year. So it should be continued in this financial year.
Okay. And the last one is if possible, can you please share the operating expenses in per barrel terms for the refineries, all refineries?
It would be around 50 barrels.
The next question is from the line of Sanjay Kumar Damani from SKD Consultancy.
My first question is regarding the mixing of bio agro-based ethanol, et cetera, with our products. So how we are economizing in the sense that, I mean, most of the producers are located at one place and our distribution is in the entire country. So the mixing plants are being set up close to the source of ethanol or how we are doing it, sir?. Can you kindly explain?
Yes. The solar is being procured and it has been transported to various locations. And at the location when the product is being spent through the pet funds, that is a premixed product, which is...
So procurement is not necessarily done at the refinery point only. It is deals that facilities are created for mixing it along with petrol.
Yes.
And sir, we are not missing anything with diesel so far or RV.
Now, there's no big thing which has happened.
Okay. Another question is regarding Barmer Refinery. Are we putting up some solar facilities also there, that being a very area where a lot of solar plants are being designed into the plant. So are we also putting up as part of our capital expenditure? And have we started producing solar power there so far?
No. As of now, we have not set up, but there are other active consideration. But yes, we will be sourcing green power because of operating verified.
Okay. One more thing, sir, how you are viewing the use of petrol and diesel in coming days. And are you seeing any reduction in the consumption because alternative electric is available, gases are available. So are you seeing any less demand right now for these products?
If you see the convention pattern of various products, it MS or HSD, you are saying, you can see that there has been a consistent growth and has been growing around 5% to 6% per annum. And in case of HSC is around 2% growth, which is there. While yes, in terms of the new sales, the proportion, there has been marginal increase in the EV mobile, the cars and scooters and on. But yes, as of now, we have not seen any significant impact on MS and HSD. The growth continues to be seen in these products also.
The next question is from the line of Kirtan Mehta from BOB Capital Markets.
Would you be able to share the financial highlights for HME and refinery in terms of the Q2 and H1 performance as well as the another related question is, how is the petrochemical expansion project is doing there? Has it achieved the full utilization? And what is the contribution to the margin that it is accruing to? And one more related question is whether the HME and refinery is now able to access the natural gas as it was being planned.
Yes, first coming to the performance of Asami add during the quarter, net profit of almost INR 1,700 crores. And during this period, the good foot was around 6.5 million effect, and the GRM was $18 a barrel. And what was the other question?
Performance of the petrochemical expansion project there?
The facility has got commissioned and the sale is currently operating at almost 70% capacity.
And another question related was we were planning to use natural gas upon completion of the [indiscernible] between the pipeline there. So has that natural gas excess has started for the HMEL?
Yes. They are started sourcing and HMEL will ping a contract up.
What would be the volume that they'll be receiving, natural gas?
I don't have the updated numbers right now.
The next question is from the line of Vidyadhar Ginde from Soy Asset Managers Private Limited.
So my question was that after the bottom of gradation unit is commissioned and starts operating efficiently, in which products or which are the products you've been preparing, where the production will go by how much percentage points in the product slate and which product the production will come down a bilingual is one of them. So you will give us some numbers there? So how much is the proportion now? How much will go after the [indiscernible] and now et cetera, whatever?
If you take the sharp refinery current split, the distillate yield is almost 75% over there.
No, I wanted specific products.
Yes, yes. And I'm coming to that. And some of the ones we at unit is commissioned, the distillate yield will improve from 75% to 85%, 86%. Now primarily, whatever is the increase, this is going to happen in HSD, where the distillate yield will go to almost 48%, 50% to 60%. MF would remain at around 18%. The net and naphtha LPG would be around 5%, naphtha would be 5% and further.
Okay. So basically, diesel will go up and funnel come down a little?
Yes. Nail is a product which doesn't add much value. It's off on the state.
And you don't produce even pet coke in what you are following?
Which is not there. It will be a pitch that it should be used for valorization.
Which will be what proportion?
That will be around -- I'm not having the exact number, but around 3% at moment.
Okay. So basically, you will have probably one of the best refineries in India in terms of the product. And anybody who produces doesn't produce product a substantial quantity of pet coke, which instead of that you are producing just 2%, 3% you are suggesting.
Yes.
And you said pitch you are using for the use for more?
It can be used for valorization, it can use for making bitumen or we can use it for other industrial applications we need. We are working out with various industries as to where we can add more value and have a better deration.
Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference. Please limit your question to one or two per participant. Should you have a follow-up question, we will request you to rejoin the queue. The next question is from the line of S. Ramesh from Nirmal Bang Equities.
So based on the information shared on HMVL, is it possible to indicate how much of the $18 is attributed to the petrochemical business? And how do you see the integrated margins from the HML refinery once the petrochemical business ramps up to, say, 90%, 100%. And secondly, similarly in the Rajasthan Refinery, what is the kind of margin you would expect from just the refinery? And what is the additional delta you can get from the covering of the petrochemical units.
Yes, where HME is concerned, the GRM number is up for the petroleum program.
So once you start making profits in petrochemicals, how will the profit be reported? Will it be true on the GRM or will you show it separately as a petrochemical segment?
We will separate the different segments accordingly.
Okay. And similarly, in the Rajasthan refinery, what is the kind of EBITDA per ton one can expect for the petrochemical business at current spreads? And what is the VRM you're working on as things stand today, once the font is commissioned?
In Rajasthan refinery, the GRM would be in the range of $20 per barrel.
Okay. And in terms of the petrochemical business, what is the kind of EBITDA or gross margin per ton?
That would depend upon the ruling prices of pet -- it keeps a very...
No. But I mean in terms of the evaluation of the project, assuming the average margins because there's a certain amount of CapEx you're incurring, right?
So for part of the evaluation of the project, the EBITDA levels were around INR 7,000 crores, INR 8,000 crores per year.
INR 8,000 crores per year from Petrochemicals?
The entire project.
Entire project, okay. So just one last thought, if I can squeeze in. What is the -- when do you expect the visibility on the cash flows from the stand-alone CGD units in that's about 14%, right? And what is the kind of volume we can expect from these big units, say, two or three years? And what is the kind of EBITDA per se or overall contribution to EBITDA you can expect from the CGD business?
Currently, we are selling almost 0.4 million metric tons of CNG. We expect that another four, five years, the same would be around -- we'll be touting around 1 million metric tons as regard to EGM
The next question is from the line of Rajesh nor from ITI Limited.
Sir, you briefly touch up on this. My question is around efficient marketing and refining products and currently, let's say, it's around 50% where we actually buy almost 50% of the products from other sources, including our and other things. So after the same completion and the current on expansion for the in that is that -- I just wanted to confirm that. I mean how much would be our capital pool and Rajasthan please.
Yes, after Rajasthan comes in, the entire diesel, it will be either from HPCL refinery or AV refineries of HPCL. And as regards is a major concern, almost 70% would be HPCL and HPCL, that is agenda. And around 30% of MS we will have to outsource.
Will it continue as it is because --
It's not going to be.
Okay. Understood. And sir, just one more small question, if you can issue what is the operating cost and -- currently? Roughly in dollars per barrel.
Can you repeat the question?
The operating cost from the $45 million per barrel in the room --
$3 to $4 per barrel.
The next question is from the line of Nitin Tiwari from Philip Capital.
My first question is a clarification. So if we can just break down the OpEx that you mentioned $3 per barrel and some for refinery-wise, OpEx. So how would it be for Mumbai, Visakh, and for HMS? And what is the kind of OpEx you are expecting in Barmer in dollars per barrel?
We'll separately let you know on this.
All right, sir. So then in that case, can we have, sir, the inventory levels in terms of either number of days or quantity for crude and product coming that we are holding as of September?
For crude, we are holding almost 23 days of inventory. And marketing inventory is almost.
Is across, right?
Yes.
And lastly, sir, please update on the pipeline for a carrier regulations, like are they implemented or like in process of implementation, your thoughts on that please, sir? And how would it impact our --
-- otherwise, as there is no option for the additional date.
So there is no -- I mean, like an implementation time line, et cetera, which has been given as such right now, right, sir?
Either there is a directive not an ad of that all.
Okay. But do you foresee something like that impacting our pipeline business in any way going ahead?
These things keep on coming for discussions. But as such, there is no regulatory -- that's still what changed as hopefully.
So for the refinery OpEx, I'll reach out to you separately.
The next question is from the line of Amit Murarka from Axis Capital.
Sir, is there any way you can provide an indicative number of the marketing inventory gains in the quarter?
Marketing inventory gain was almost INR 1,200 crores for the quarter.
For the quarter, okay. And on the refining side? I'm not sure. Also, the refinery OpEx that you mentioned, like will that go up post Visakh bottom of creation? Or will it remain the same?
It would be around that because the devisor would be there for increased units are also very energy appreciated.
Okay. And lastly, the CapEx INR 35,000 crores that you mentioned that excludes the Rajasthan Refinery, right? And it includes everything else, including the AGT, and everything else.
It would include the balance equity contribution.
Equity contribution.
INR 10,000 crores, the balance.
The next question is from the line of Mayank Maheshwari from Morgan Stanley.
Sir, two questions from my end. One was more related to crude sourcing. After the entire expansion projects are done, how do you see your crude sourcing change? And what are the advantages on the crude side that you can show up on the refining margins?
Primarily, crude sourcing would not go any material change. But yes, whilst the Rajasthan refinery would be capable of routing more every processing more heavy code. So with that, we will continue to be looking at opportunity group wherever they are available. And of course, which will definitely add more value to us considering our business model, that is utility, and more will be considered from processing.
So just an extension to that question because now there is market info for NBC, has that impacted you in any form of fraction in terms of sourcing domestically?
So we already have signed a contract with them for the next three years.
And sir, the final question was more related to the five-year CapEx plan. Can you just talk us through out of this INR 4,000 crores, INR 5,000 crores that you're kind of spending about almost 20% is going on the new energy side. Like is there a thinking process of how you kind of deploy it? Is it front-loaded, back-loaded? How are you thinking about all of that?
Most of the projects would be on the solar and was in hybrid model capacities. So there the effect cycle is not an on-run model. So this would happen more around the contest as regards the healable energies. So every year, we're taking up new projects to increase the capacity, the renewable trend and the expenditures would be more or less sensitive.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Varatharajan Sivasankaran for closing comments.
Thank you, Akshay. I see a few more questions in the queue. I will request them to send them in to the management. I would like you to send your questions to me, and I see how we can address that. And I wish to thank all the participants for taking their time now to participate on this call and thank our management for giving us this opportunity to host the call. Have a nice day.
Thank you. On behalf of Antique Stockbroking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you, and I wish all of you a happy season waiting and happy Diwali day. Thank you.