© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good evening, ladies and gentlemen. I'm Pavitra, moderator for the conference call. Welcome to the Indian Oil Corporation Limited 3Q FY '20 Post Results Conference call hosted by Batlivala & Karani Securities. [Operator Instructions] Please note, this conference is recorded.I would now like to hand over the floor to Mr. Bhavin Gandhi from Batlivala & Karani Securities. Thank you, and over to you, sir.
Thanks, Pavitra, and good afternoon, everybody. On behalf of Batlivala & Karani, I welcome you all to the Q3 FY '20 post results conference call with the management of Indian Oil Corporation. It gives us great pleasure to once again host the management of Indian Oil Corporation for the post results call. Without much ado, I would like to hand over the proceedings to the management, following which we'll open the floor to the Q&A session. Over to you, sir.
Yes. Good afternoon, dear investors and analysts. We have with us Director of Finance, Indian Oil, Mr. S. K. Gupta; and we have ED Corporate Finance, Mr. Matthew Thomas; we also have with us CGM Corporate Finance, Mr. R. K. Jain; we have with us GM Corporate Finance, Mr. Rohit Agrawala; we have with us DGM Treasury, Mr. Prabhat; and myself, Avinash.So I will request the Director of Finance, IOC to address investors.
Thank you, Avinash. Yes, good afternoon to all of you. I'm S. K. Gupta, Director of Finance, Indian Oil Corporation Limited. I take this opportunity to welcome you to the conference call post announcement of our third quarterly results for the year 2019/'20.I believe you would have gone through the results posted on the website and also through the updates sent by us. I would like to briefly dwell on the results to provide additional clarity and insights.Coming to the highlights first. As you would have perhaps read in the media, Indian Oil has debuted to the coveted Global 500 list of world's most valuable and strongest brands across sectors for the year 2020. The list was released at the World Economic Forum in Davos by Brand Finance, the world's leading independent brand valuation consultancy. There are only 11 Indian brands in this coveted list and Indian Oil is the only Indian brand in the oil and gas sector to feature there.Our INDMAX technology has been selected through global tender by NIS of Serbia, owned by Russian oil and gas conglomerate Gazprom Neft, for production of higher-value products. This is the first-ever agreement to license the refinery process technology overseas from India. Adding a few more feathers in the cap, Indian Oil introduced first ever indigenously developed wind turbine gear oil, lubricant for Indian Army's main battle tank and the extreme pressure lubricants for drilling applications, breaking the monopoly of a multinational in these segments.Climate change is a more pressing reality now than ever. A key question before all of us is whether we can reduce the greenhouse gas emissions and also, at the same time, cater to the fuel demand and perhaps continue the business. In order to realize this, year 2019 witnessed consolidation of our R&D efforts in the area of 2G and 3G biofuels. Our commercial projects for producing ethanol from bio residue and from waste gases are progressing in time. As part of setup the scheme of government of India, which is sustainable alternative towards affordable transportation, Indian Oil fuel stations in Pune and Kolhapur have commenced marketing of automotive-grade compressed biogas, or CBG, produced from agricultural, sewage and organic waste.Earlier during the year, Indian Oil also became the world's first company to transport ethanol blended MS through pipelines. Never -- nowhere in the world, ethanol blended MS is transported through pipelines. We also introduced first time winter-grade diesel in the areas of Ladakh. So earlier, the diesel which was sent there was not usable during the winter time, but we became the first company to supply winter-grade diesel to the area of Ladakh.Talking about numbers, the average crude price, which is Indian Basket, during this quarter was at $62.57 per barrel, a marginal increase of 1.43% from the average price of the immediate preceding quarter, that is Q2 FY '20.If we compare on a 9-month basis, the average price during the current 9 month has been $64.01 per barrel as against $72.05 per barrel in the corresponding 9 months of FY '19. With respect to the crack spreads, with reference to Indian Basket space of the crude, MS cracks have remained steady during this quarter as compared to the preceding quarter. When compared with Q3 FY '19, MS cracks have improved significantly. For HSD, the crack spreads during this quarter have been lower by about 15% as compared to the preceding quarter. It is also lower by about 9% in the corresponding quarter of FY '19. FO crack spreads during this quarter has been significantly lower as compared to the preceding quarter and corresponding quarter of FY '19.In the petrochemical space, the spreads have been on the declining trend over the last 1 year. Spreads for polymer in this quarter was 19% less than the previous quarter and 32% less than the corresponding quarter of FY '19. In case of PTA, the spreads during this quarter was about 36% less than the previous quarter, while comparing with the corresponding quarter of FY '19, it is 58% lower.With respect to MEG, the spread in the current quarter was about 29% less than the previous quarter. However, while comparing to the corresponding quarter of FY '19, the decline over the year is much more pronounced, which is about 73%.This quarter, we registered a profit after tax of INR 2,339 crores higher than the preceding quarter, which was only INR 563 crores. Although Q3 has witnessed a sharp fall in refining as well as petrochemical margins. However, the impact of the same has been mitigated by inventory gains in this quarter as compared to inventory loss in the earlier quarters. In the current quarter, there has been an inventory gain of INR 1,608 crores as compared to the inventory loss of INR 1,807 crores during the preceding quarter.From a 9-month perspective, the profit after tax is INR 6,499 crores as against INR 10,795 crores in 9 months of FY '19. The sharp fall in refining as well as spectrum margins have resulted into the fall in profits. Revenue from operations during this quarter is INR 144,820 crores as against INR 132,376 crores in the preceding quarter of this year.Now let me briefly touch upon the major verticals. Refineries first. The throughput during the quarter was 17.5 million metric tonne, which is the same as in the preceding quarter. But was lower than the corresponding quarter of FY '19, and the planned shutdowns in refineries for BS-VI upgradation have impacted the throughput to some extent. The distillate yield was steady at 79.8% during this quarter, which is marginally higher than the previous quarter, but lower than the corresponding quarter of FY '19.Fuel & Loss during this quarter was 8.8%, whereas during the preceding quarter, it was 8.9%. Our refineries registered a GRM of $4.09 per barrel during this quarter as compared to $1.28 per barrel during the previous quarter. The normalized GRMs for the quarter is $2.15 per barrel as against $4 per barrel for the previous quarter. If we compare on a 9-month basis, the normalized GRMs for the current 9 months is $2.8 per barrel as against $5.4 per barrel in the corresponding period of last year. The decline in product crack spreads has been the main reason behind fall in GRMs.Coming to pipelines, the cross-country pipelines are globally recognized as the safest, cost-effective, energy-efficient, reliable and environment-friendly mode of transportation for hydrocarbons. In order to maintain smooth placement of the supply of product across the country, our pipelines are being augmented. Indian Oil is now focused on LPG and natural gas pipeline infrastructure also, apart from conventional crude oil and product pipeline networks.The capacity utilization of our pipelines was about 88.7% during this quarter as compared to 92.2% in the previous quarter. The foreign capacity utilization is mainly attributable to fall in crude throughput because of refinery shutdowns. Our pipelines continued to generate stable returns, giving an EBITDA of about INR 1,545 crores during this quarter, which is about 3% lower than the preceding quarter and lower by 4% from the corresponding quarter of FY '19. The current EBITDA on a 9-month basis is lower by 2% from the corresponding period of last year.In marketing, the product sales during this quarter was 21.926 million metric tonnes as compared to 20.181 million metric tonnes in the preceding quarter. On a 9-month basis, they have remained almost same, that is 63.711 million metric tonnes in 9 months of FY '20 versus 63.649 million metric tonnes in 9 months of FY '19. Accordingly, the marketing EBITDA for this quarter stood at about INR 3,914 crores as against INR 3,813 crores of the previous quarter. While comparing the marketing EBITDA on 9-month basis, if you've seen that the EBITDA of 9 months of FY '20 is INR [ 12,292 ] crores as against the EBITDA of INR 8,184 crores in 9 months of FY '19, so marketing EBITDA continues to be stable.In petrochemicals, during this quarter, the petrochemical business reported an EBITDA of INR 742 crores and produced INR 774 crores in the previous quarter. However, while comparing with the current -- comparing the current 9-month performance with that of the corresponding period of the last year, there has been a sharp downside in EBITDA. The major reason is due to the shrinkage of petrochemical spreads in polymers, MEG as well as PTA. Moreover, the PTA unit was under shutdown during the first quarter of the current year. The PX/PTA plant has commenced production during the second quarter. We believe, as we go forward, the petchem will continue to contribute to the bottom line of the company handsomely.In borrowings, so this is a -- you must have observed that the borrowings as on December 31, 2019, have decreased by about INR 10,653 crores ended at about -- as at INR 75,706 crores level as compared to INR 86,359 crores as on March 31, 2019. The borrowing level as on September 30, 2019, was INR 80,382 crores.I will end my briefing here. We will now take your questions. Thank you very much.
[Operator Instructions] First question comes from Avadhoot Sabnis from CGS-CIMB.
So, sir, my question relates to dividends. I think for last 2, 3 years, obviously there has been some interim dividend for the first 9 months. So after quite a big gap, there has been no interim dividend in the first 9 months. So the board, in its wisdom, has decided not to give dividend for the first 9 months, would it be safe to assume that the dividend, if any, for FY '20 will now come only with the fourth quarter results? And secondly, again, last 3 years, we've had the higher payout of 40% to 50% dividend payout compared to the minimum level of 30%. Is there a possibility of going back to the minimum level of 30%? That's my first question.
So now you have observed that the profits during the current period, current -- for these 9 months in the current year were substantially lower. So we thought that it will be prudent to [ seize ] the view of the profits coming in the fourth quarter before we take any call on the interim dividend.
And secondly a related question, which is on CapEx. Firstly, I think you have given a guidance of CapEx of INR 25,000 crores for this year. I presume that still stands. Could you just -- is there a guidance for next year? Basically, where I'm coming from is that you have given a very aggressive CapEx guidance for the next 5 years, which would imply that the CapEx could actually accelerate going forward. FY '21, '22 might probably be of -- higher than FY '20. Would you be looking to look at reviewing that CapEx number given the lower profitability in refining?
So the indication perhaps was for a period of 5 years. So that, in any case, will not scale up to that level immediately. So that will happen gradually. Maybe you can expect some increase definitely next year as compared to the current year.
And the current year, 250 million required for internal growth stands, right?
Yes. So there can be a marginal increase from that level as immediately in the next year.
We have next question from Probal Sen from Centrum Broking.
I had 2 questions. Number one, sir, on the tax rate front, just wanted some more clarity. Is there -- has there been any clarity in terms of what -- whether you will be moving to the new lower tax rate of 25-odd percent as per the new rules or because of outstanding MAT provisions, you would stick to the normal margins tax rate of between 30% to 33% for this year and the next? And the second question was, has there been any clarity from the government or internally in terms of what premium you need to charge from April when Bharat VI fuel starts to be sold from a majority of your fuel pumps?
So on the first question, for the current year, we are not going to opt for the new rates, the lower rates. For next year, though at present it is not likely, but we will have to take a call depending upon the situation, profits and other things.And on the second question, the prices of auto fuels is decontrolled. So we do not need to or expect any guidance from the Government of India on this aspect. So we will take a suitable call. Definitely, there has to be some increase to compensate the refiners for the CapEx and the OpEx which they will be incurring. They have incurred or they will be incurring.
Okay. Is it not -- it's not possible to quantify at all any range of the price increase you'll need to take for that, given that it's 2 months away?
I think it is already in the media. Yesterday, our Chairman had taken the press conference. And I think we have indicated something, some range of maybe INR .5 to INR 1 per liter, which can be there. But then we attract workings because the investments of each refinery will be different. So we -- it will have to be calculated, actually, that what kind of increase is there for every refiner. And maybe because the prices cannot be diverse, at least for a company, so we will have to arrive at a sort of a weighted average rate [Technical Difficulty] [ on average ].
We have next question from Rakesh Sethia from HSBC.
Sir, 2 questions from my side. First, on the refining capacity expansion for Barauni, which you have announced. I think the press release mentioned a number of close to about INR 13,000 crores for a capacity of 3 million tonne. Could you just explain, is there any other economic benefit apart from those 3 million tonne? And what sort of economic benefits our investors should be looking [ off ] from this project because intuitively, INR 13,000 crores for 3 million tonne of capacity expansion that sounds not too much a number from an economic returns perspective. And secondly, if you could help us understand the -- where the Ennore project is right now? And what kind of volumes one should be expecting over next couple of years? And what is the company's plan to evacuate those volumes beyond the territory of Chennai?
Yes. On the first question, now any expansion of refinery -- refining capacity, which is happening anywhere is definitely coming out with some petrochemicals also. So is the case with our Barauni expansion also. So the cost is at this level because there is inclusion of some poly -- some PP also in this project. And definitely you can expect that our, say, cost of capital is about, say, 11%. So definitely, we are expecting returns of that order.On the second question, our present capacity utilization is to the extent of about 15%. We are doing about 0.7 MMT of gas from the terminal. And that is constrained only because of the connectivity by pipelines. But all the major anchor customers in that region are already being serviced, like CPCL, Madras Fertilizers, Tamil Nadu Petro Products and Manali Petrochemicals, et cetera. We expect the capacity to be ramped up shortly. And perhaps, we expect almost full utilization by, say, mid 2021, or maybe in the Q1 of calendar year '21 or next Q2 of calendar year '21.
Sir, just one clarification. To go to 100% utilization level, you would not need any separate pipeline? Or is there any pipeline under construction to evacuate those volumes?
Yes, we have presently only Ennore-Manali section, which is only 22 kilometer commissioned through which we are servicing these 4 major customers which I just mentioned. And we are commissioning -- we are working on Ramanathapuram, Tuticorin section, which is 143 kilometers perhaps expected to get commissioned by March '20. And Ennore, Ramanathapuram and Thiruvallur, Bangalore section, which is about 1,279 kilometers, by the time frame which I indicated earlier.
We have next question from Sabri Hazarika from Emkay Global.
I have 2 questions. The first one is on this BS-VI itself, like Chairman mentioned that the prices may go up by around INR 0.5 to INR 1 per liter. So this benefit will accrue to the refining division or the marketing division?
This -- definitely, the investments and the OpEx is done by the refining -- by the refinery vertical. So -- and within this company, within a company, it is -- doesn't matter to which vertical we assign it to. But then it is due to the refining divisions.
So it will be like whatever the BS-IV prices are, the benchmark prices, plus INR 0.50 or would you benchmark it to something like a Euro 6 benchmark itself?
No, as I said, we are -- we have to attain the finality on the price -- on the costs which we will be incurring, CapEx or in the OpEx. And today, the Euro 6 benchmark pricing is not available, at least for both the products. So we will have to see how to do that.
Okay, sir. And second question is on the -- few bookkeeping questions. What is the government subsidy outstanding at the end of December?
It is about, say, INR 11,000 -- INR 10,800 and some odd crores, so INR 10,859 crores to be precise is the outstanding as on 31st of December.
And of this, how much would be kerosene and LPG?
Outstanding? Kerosene, INR 1,755 crores is -- [Foreign Language]? How much? INR 1,750 crores for kerosene and balance is LPG.
Okay, sir. And one last question. You mentioned that your adjusted GRM was around $2.5 for the quarter, right?
We said $2.15.
$2.15. Okay, got it, sir.
We have next question from Pinakin Parekh from JPMorgan.
Sir, my first question is on refining. If we look at the throughput, basically in the second quarter of, I think, FY -- third quarter of FY '19 throughput touched 19 million tonnes on an annualized rate of 76 million metric tonnes. But since then, over the next 4 quarters, throughput has been on a quarterly basis below 17.5 million metric tonnes. So going forward, is this the run rate of throughput that we should expect? Or basically, there was a bunch of maintenance and refinery expansions which pulled back throughput, and going forward we can expect throughput to rise?
Yes, you are very correct. It is only because of the shutdowns in runup to BS-VI preparedness that the throughputs are down. And you can expect a higher, more than 100% capacity utilization in the next year when practically no shutdown will be there.
Sure, sir. And sir, my second question relates to the petchem expansion. Now the capacity has come on stream. But is it fully operational and profitable? Or are they still in the process of ramping up and, therefore, higher costs. So I just wanted to understand how will the profitability -- yes, market spreads are one thing, but from a plant perspective, should the operational profitability improve as it ramps up? Or now that is fully captured?
So I believe you are talking about PX/PTA no? Which was down?
Yes, yes.
So PX/PTA is now fully operational, and it is only constrained due to [ crude ] prices.
And the PP one, sir?
And the PP, at Paradip, the -- one train was commissioned earlier in July '19. The second train is mechanically complete and is being commissioned now.
Okay. And sir, lastly, are there any new petchem expansions or refining volume growth over the next 12 months? CapEx which has been spent over the last 6 to 8 quarters which could enter commercial production over the next 12 months?
So it is only the second chain of PP which have been talked about. Nothing beyond that.
Our next question is from Anubhav Aggarwal from Crédit Suisse.
One question was on the fuel oil sales. Right now, annually, we're doing about 3 million tonnes of sales. Over the next 2 years, will this quantum go down? Or will it largely stay here?
So this furnace oil, the height of the furnace oil, in any case, we are planning to sort of reduce year-over-year. Now our yield of FO is of the order of 3.5% to 4% only. With the production of about 1 million metric tonnes of IMO-compliant furnace oil at Gujarat refinery and perhaps some more quantity will come from Haldia Refinery. So the production of FO is not likely to increase, that high sale for FO, at least.
But is it likely to go down? So 1 million tonne is IMO-compliant, but what about the remaining 2 million tonnes? Would we continue with...
No, that is -- the reduction in the FO will be linked to, say, any upgrade in the refinery slate, refinery units. Okay? So since we have already completed our distillate yield improvement project at Haldia, no more further such facilities are having any sales in the near future. So this is likely to be at the same level.
Okay. My second question was on the marketing volume growth. Can you give some volume outlook over there? My specific question was with respect to the LPG penetration. Now that we're -- industry is already reaching a very high penetration rate for LPG, and that's one of the highest segment in terms of growth for us. Now let's say, for first 9 months, I see that our volume growth in the market segment is only 1%. Over the next 1 or 2 years, how do you see overall marketing volumes growth for us?
So 1%, you said about the total products, perhaps? Not LPG?
Yes, total products. Absolutely.
Yes. Not LPG.
I'm saying, it's 1% despite LPG growing at [ 18% ].
Okay. So now while we -- but then it will be mostly determined by the demand also or the demand remains. But some reduction in -- because you're saying 1%, that reduction is also because of the SKO volumes going up sharply, so what number should I give you for the demand.
I think we can come back on these demand numbers separately.
We have next question from Vishnu Kumar from Spark Capital.
Just wanted the actual debt numbers, that is excluding the lease and Ind AS adjustments out of the INR 75,000 crores?
It is INR 68,521 crores, 6-8-5-2-1.
Got it, sir. And comparable March, how much was the numbers?
8-2-8-4-8.
8-2-8-4-8. Got it, sir. And in terms of your OpEx costs for refining, the per barrel works out to almost $3.50 per barrel. Is there any one-off or something in that number? I mean, if I take the reported GRM against and back calculate my EBITDA, the balance is working out almost $3.50. Normally, I believe it's...
Only because the throughput was down as you -- some of the -- perhaps speakers also mentioned. So once the volume goes up in the next year because the shutdowns will not be there, we see this number coming down.
Steady-state, what would be your ideal OpEx cost, sir?
It should be about $3, considering all independent appreciation, et cetera.
I mean at OpEx operational level, I'm asking cash OpEx before EBITDA, in terms of dollar per barrel or...?
It can range between around $2.2 to $2.3, $2.4.
We have next question from Nafeesa Gupta from Bank of America.
My question is again on BS-VI. Any other refinery shutdowns planned for in the fourth quarter? And also, could you give us a breakup of the CapEx done on BS-VI transition?
Our total spend is likely to be of the order of about INR 17,000 crore for BS-VI project. And we have a few shutdowns in Q4 also. So what are you interested about?
Sir, any major ones? Any major ones in 4Q? Or all the major ones are done?
We will have Guwahati, Bongaigaon and Mathura coming up in Q4.
Okay. And sir, my other question is that in this quarter, the utilization of high sell-through is high at 60% relative to the previous quarters. Is that a one-off? Or should we see that trend to continue? And did that also contribute in your refining margins in terms of feedstock benefits?
So I think we were operating around this -- okay, so 60% high-sulfur utilization. We will come back on this separately.
And if I may, sir, can you also tell me the CapEx number for 3Q? And also, you mentioned that you expect the CapEx to go beyond 250 billion in FY '20, sir. Any particular reason why?
Yes. So CapEx for -- you wanted Q3, no? Q3 CapEx. Just a minute.
Yes.
So total CapEx for this period is INR 17,801 crore. And for Q3, it is INR 7,995 crores.
Got it. And the other follow-up question was, sir, is there any reason why you expect the full year CapEx to go beyond 250 billion as you mentioned in answers to your previous question?
Because we have ambitious CapEx plans, as the earlier question also mentioned. So there are lot of projects which are lined up in various verticals. So that is why I mentioned it will be a shade better in the next year.
We have next question from Rohit Ahuja from Bank of Baroda Capital Markets.
Sir, just going back to the question on dividend, I didn't hear that clearly. So as said you normally have a trend of paying interim dividend especially in Q3, and I think our profits for the 9 months are pretty good. So can you clarify why is the decision not to pay dividend this quarter?
So while you feel that it is pretty good, we feel it was perhaps not that good. It was much lower than the corresponding period of last year and definitely from full year. So we decided to have a better view of profitability before taking a decision. We did not want to pay multiple times also. So we will see. We will take a call in this quarter.
Okay. Sir, secondly, on the IMO, we haven't seen GRMs moving up rate, it was expected about a year back. And rather, we are seeing the new concern on wage rates being pretty high. Can you just clarify, sir, when do you think situation could normalize on the benchmark GRMs and your GRMs? And when do you see this turning around?
So despite these BS-VI shutdowns, our operational performance has been largely good. And it is only the factor of the prices that the GRMs are low. So now while we do not have any control, and perhaps the prices cannot be forecast very accurately. So with any correction in the prices, we expect the GRMs to be stronger.
We have next question from Manikantha Garre from Axis Capital.
I have 2 questions. [ One is, can you please guide us your view on the marketing margins going forward? That's my first question. And the second question would be, can you throw some light on the strategy going forward for the gas prices, especially what's happening with your LNG gas as well as CGD? What's the status there? ]
I'm sorry...
Manikantha, I think you should -- I mean, what you call, should repeat your question because you are not audible at all. I believe you did ask about -- first thing about is the marketing margins, going forward?
Yes.
Right? Let me tell you, you can see the EBITDA numbers of marketing and they have been quite steady. And I believe we'll continue to be steady over the year and over the quarter. Even in the last year, you found that these numbers were almost similar. So we are almost reaching to the same numbers. So we'll continue to have the marketing margins at the same levels. So there -- I think your second question, we have not heard it correctly. Can you just repeat that?
Yes, sir, on the first question itself, remember in your first quarter's conference call, you have mentioned that marketing margins would gradually trend down from there and onwards. So I was actually more asking towards...
You wanted to trend down?
I don't know.
So I believe that we are making good progress in marketing. So I think you should be appreciating the fact that we'll continue to make the progress.
Sure. And the second question is, with respect to your strategy going forward, for the gas space, especially with respect to the CGD and LNG terminals.
LNG terminals we just explained earlier on the Ennore terminal. And CGD, again, we are working on the 40 GAs which are allotted to Indian Oil as standalone or in the JVs. So I think a lot of work is still to be done. These will start -- we are only working on these GAs. On some of the GAs, the work is yet to start. So definitely, we are very bullish on the gas, and we will be availing any space which is available in the gas.
Sure, sir. Can you, if possible, would it be possible for you to throw some light on the open access policy?
Sir, sorry to interrupt, Mr. Manikantha, could you please join back the queue for further questions, sir.Next question comes from Mayank Maheshwari from Morgan Stanley.
I had one question related to your -- on the refining business. As you saw in fourth quarter, I think the overall spreads on GRM that you kind of did was about $2.2 and the operating cost is roughly around that similar level. So is there a plan that you're kind of thinking where some of the refineries are running below cash cost? Is there some plan to kind of take utilization routes lower in any of those refineries?
Utilization, lower utilization?
Yes, because as you are running just below cash cost, so I was just trying to see if there is any plans for the less complex refineries to be run at lower rates.
No, no, there is no such plan. And we believe that these -- this pricing scenario is perhaps temporary only. And this should correct it to sort of incentivize the refining. So we do not have any such plans of cutting down on the capacity of any refinery.
Okay. And sir, the second thing was on the crude side and the shipping side as well. You have seen the OSPs on the crude side, kind of, move up pretty materially in 4Q. Can you just talk about Italy subjectively in terms of your strategy on crude sourcing now for next year?
We are, as such -- besides this OSP hardening of OSP. As such, it is in the interest of the company as well as the country to diversify the supply sources. And we are also doing the same thing. Last year, we introduced the U.S. crudes, which we will continue in this year. Besides that, we are also looking through 4 or 5 different geographies and would try to include -- bear those crudes also in our basket.
Okay. And anything, sir, on the shipping side? Like, how much was the impact you saw on the margins in the last quarter because of shipping cost increases? And do you think things have normalized now for you?
No, the freight rates continue to be higher. They are, at least today also, they are about, I think, 25% to 30% higher than what levels they used to be in the previous year. And that definitely impacts the margins. One is perhaps because of IMO, and second is, perhaps because some companies were sanctioned and some of the ships were out of circulation. So we do not have any view on what will happen going forward. But definitely it is impacting to some extent, though not materially, but to some extent, definitely in refining margins.
We have next question from Vipul Shah from Sumangal Investments.
Can you repeat the inventory gains for marketing and refining for this quarter, please?
Just a minute. So for this quarter, the -- for refining, the -- so for refining, the inventory gain is same, INR 1,900 crores approximately. And marketing, say, about -- this price like is relevant for what? Refining?
Yes.
So for refining, you take about INR 1,700 crores, and marketing is negative INR 100 crores.
Negative INR 100 crores.
We have next question from Vinit Joshi from Goldman Sachs.
Sir, in terms of VLSFO, can you please tell us what kind of margins are you making when you're selling VLSFO? And what is your total capacity of VLSFO for next fiscal year?
So our capacity is going to be a 1.2 million metric tonnes, approximately, combined with Gujarat and Haldia. And margins, I'll not be able to share as of now.
Okay. And sir, I think you mentioned that this VLSFO is not, like, coming at a cost of HSFO. So this is like new production that you're doing. So is it like some new upgrades that you have taken, which is helping you produce this? Or is it like coming at the cost of, say, producing gasoline or some other refinery molecules, which you are diverting to produce VLSFO?
No, I perhaps -- I did not say it that way. I said my total pool of FO is about 3.5% to 4% in the refinery. And we have upgraded some of the plants to IMO compliant there.
And then how have you upgraded that? I mean, have you added any residual upgradization desulphurisation capacity? I just wanted to understand that how are you producing this.
You are welcome for a refinery visit.
All right. No worries. Sir, in terms of petchem, can you please tell us of your new capacity, like, at what utilization rates they are running at? Because the production volume right now is still 0.63 million tonnes. And in the past, you have done volumes as high as like 0.7 million tonnes in 4Q FY '17. So what sort of volumes should we expect for next fiscal year?
The numbers of -- you're talking about petrochemical as a whole, I believe?
Yes, yes. So overall volumes that you report in the PDF is around 630 Kt, right? And in the past, you have done as high as 700 Kt, right? But now you have capacity which has expanded as well. So I'm just trying to understand, like, what sort of volumes will you do in FY '21? And like what utilization rates are these new capacities running at right now?
See the new capacity is only about -- the Kt that you're talking about in -- that is around 680 Kt plant, and that too, because only one train is in operation. So from August to December, we had 116,000 metric tonnes capacity, utilization was around 82%. Once the second train is mechanically -- I mean, it's already mechanically completed, and it will be under commissioning. So once it is on track, probably our production numbers would be ramped up. As far as the existing petrochemical plants are concerned, we had mentioned earlier, Director of Finance also mentioned, that our PTA plant was under shutdown for quite some time, and that's the reason why we could not have the correct or any targeted numbers of production. And now that it has come back onstream, going forward our numbers will be up to the capacity that it has been designed for. So we are not envisaging any decrease in capacity going forward because the plants are up and running. And the new capacity, of course, as I mentioned, once the second train comes into play, the capacity will increase.
We have next question from Vikash Jain from CLSA India.
Just one, your -- could you please tell me the unit inventory carrying cost for crude that you have as at the end of the quarter?
You mean the inventory carrying cost?
In U.S. dollar per barrel.
No. So if you want the price, I can give you what is the closing price. I believe you can calculate the inventory carrying cost.
No, I mean -- what I mean is that you'll be carrying inventory, which will be, like, 20-, 30-day old, right? I mean, so what is the average carrying cost at which the inventory has been valued at, right? Will be at what cost?
No, the price -- the closing price of our crude inventory is $67.27 per barrel, and we are carrying about 43 days of crude. Does that reply to your query?
That's right. I mean, and the product, if you have a similar -- like, you said 43 days of crude, what would be the equivalent of...?
Our products are stored at several places. So there some is at refinery end, some at marketing end, some in pipelines. Put together, that is also about 37 days. About 30 days -- 30 days for product and 7 days for maybe intermediate.
We have next question from Vidyadhar Ginde from ICICI.
Sir, I have a couple of questions. One was on this, in the first quarter earnings call, you had talked about this CGD [ what keep you in ]. So could you give us any update on what's happening on that? Because IGL had become a matter to court. So if you could give us an update on that issue? And how do you think that's going to pan out?
Vidyadhar, I think you need to repeat this question because there's a lot of buzz behind you. There's a lot of humming sound.
No, no, no. The question I was asking -- yes, yes. So the question I was asking is, that in the first quarter, you had talked of your interest in getting into Mumbai and Delhi in CG [ gas ] distribution if you are allowed to. And you had also said IGL has taken the matter to court. So if you could give us an update on what's happening on that? And also your view on how that's going to pan out?
I think Vidyadhar, we have to talk on this separately because -- I think we can talk separately on this.
Sure, sure, sir. And second question is, on an earlier earnings call, you had talked about possibly bidding for BPCL or maybe even investing in, any updates on that?
I don't remember having said that we will be going to bid for BPCL.
No, no, not bid for BPCL. It was a potential. It was not, like, neither no nor a clear yes.
So still the position is same. We are sort of not officially informed or asked to bid or not to bid. It is only the media reports which are doing the rounds. So once that offer or other one is available, then only we can perhaps take any call.
And on GAIL, what is happening? Or what's happening there?
On what? Gail?
GAIL, GAIL, GAIL.
No, same situation as far as we are concerned. But I believe GAIL, there was a talk of perhaps bifurcation, which may take some time. But we have not heard anything on that.
Next question is a follow-up question from Avadhoot Sabnis from CGS-CIMB.
Yes. So firstly, again, I'm a bit confused on the BS-VI pricing of product. My understanding right now is that there's a uniform pricing system for products, whether it's petrol or diesel, because when the marketing arm of IOC buys from the refinery, it's not just from your own refinery, right? It's from other refineries of other PSUs as well as potentially private refiners. So there's a uniform pricing applicable for everybody, is my understanding. So a, am I wrong on that? And two, wouldn't the same apply for BS-VI pricing as well? There will be some -- whatever the pricing would be, it will be uniform across the...?
Your understanding is correct. And that is not likely to be disturbed.
Okay. Okay. So basically -- okay. Second question relates to, again, your refining margins, okay, your normalized refining margins have dropped very substantially. Look, frankly, far ahead of what the normal [ crude ], sort of lower crack spreads. Firstly, can you -- and I'm clearly not getting any positive sort of big contribution that was expected to come from Paradip. Would it be possible to share what was the Paradip normalized GRM in third quarter or for the 9 months of this year? And a related question is, I think when you discussed GRMs, even in the second quarter, you said you have to make a detailed sort of analysis of why GRMs are low. If you could share the result of that analysis?
Yes. In the previous con call, for the last quarter, we had mentioned that there is a significant gap between Singapore benchmark margins and our normalized margins, which we were to look into. And in fact, we realized that perhaps now it may not be appropriate to compare our GRMs with Singapore benchmark margins also because the prices are playing a havoc. The yield of the products in the Singapore benchmark margins and what the Indian refineries do is significantly different. And as far as the prices of various products move in tandem, that does not create a problem. But now the prices are moving quite differently. Like there is a crash in the FO prices, high sell for FO prices, for which the yield in the Singapore is very high. Earlier, the MS prices, in fact, were -- in fact had gained some strength and the weightage of MS in Singapore was high. So that is all creating a problem. So while we were lower than Singapore benchmark margins in the last quarter, we are higher than Singapore benchmark margins for this quarter on a normalized basis.
Sir, firstly what I was trying to get at is that other than the normal market cracks, are there refining-specific issues which could have contributed to the lower GRMs, i.e., because of shutdowns and stuff like that? Is there any refining-specific issues which you could quantify, if at all?
No, I don't think there is any such issue. It is only the factor of the prices and partly because of the BS-VI shutdowns that our GRMs are slightly lower. But otherwise, there is no such refinery-specific issue.
And sir, the number on the Paradip normalized GRM?
So our people will give you separately.
Okay. Last, sir, question, if I could squeeze in. There is a drop in the debt levels from September to December. I'm struggling to understand why there is a drop, given that the CapEx number seems to be higher than operating cash flow and the government subsidy dues also are [ looking ] flat or slightly increased?
No, as of 31st of March, we had about INR 19,000 crore of government dues, which have come down to about INR 10,800 crores and that is the primary reason for decrease in the borrowing.
Sir, I'm asking December to September.
Because of the price levels, the working capital required -- working capital has also gone down. So there is some relief in the working capital also.
Last question for the day comes from Mr. Ramesh from Nirmal Bang Securities.
In the consolidated numbers, the share of JVs and associates has come down very sharply, from INR 452 crores for the third quarter last year, to INR 280 crores this year. Can we get some sense in terms of what led to this fall in the share of JVs?
It is primarily because of CPCL, perhaps.
The CPCL is consolidated along with the gross number, right? This is the share of JV.
If you see those numbers are not great, this Adani, which has gone into production, that's the JV. Yes. Sorry, I said Adani. Our LNG -- in Ennore LNG plant, which still last year was under commissioning, and it is not approved. Well, we said 15% capital utilization. So it'll take about a year to be profitable. So that operating small loss is taking away others' profit.
So this is, basically, the Ennore terminal loss, which is relating to this fall in the settled JVs?
Yes.
Okay. Then in terms of the petrochemical business, so it's interesting to see that you're talking about all the chemicals in Barauni. Sir, the broader question is, now if you see the capacity numbers, we're talking about still a lot of capacity additions coming in. So in terms of your competitive positioning, how are you reading the demand supply in the region and across the globe? And how do you -- what is the basis of your confidence that you'll be able to operate at, say, 80%, 90% on your full petrochemical capacity, given the kind of excess capacity we have in the world?
For petrochemicals?
In India?
Yes.
No, I think the situation in India, perhaps, is relevant for us to see. And I believe there is a lot of capacity available domestically for PP.
Yes. So the question I'm asking is, everybody istalking about downstream chemicals, especially polypropylene. And if you see the global situation, that's what drives your margins. So to that extent, I just want to understand in terms of your reading of the business, what gives you the confidence that you'll be able to generate cash flows in the petrochemical business, say in the next 3 to 5 years, given that there's a lot of capacity is lined up, including a lot of oil companies who are using the oil to chemical strategy. So I just want to get a sense in terms of what your reading of the petrochemical business is?
We feel that the prices, in fact, should correct in polymers also. And based on that only we are going ahead with our petrochemical plants.
Thank you, sir. That would be the last question for the day. Now I hand over the floor to Mr. Bhavin Gandhi for closing comments. Over to you, sir.
Thanks, Pavitra. I would like to take this opportunity to thank the management and the participants which have participated in the call. [ We wish you a good day ]. Thanks.
Thank you. Thank you for participating.
Thank you, sir. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha's conference call service. You may disconnect your lines now. Thank you, and have a pleasant evening.