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Ladies and gentlemen, good afternoon, and welcome to the Indian Oil Corporation Limited 4Q FY '20 Call organized by Batlivala & Karani Securities India Private Limited. [Operator Instructions]I would now like to turn the conference over to Mr. Bhavin Gandhi. Please go ahead, sir.
Thank you, Yashashri. Good afternoon, everyone. On behalf of Batlivala & Karani, I welcome you all to this post result conference call with the management of Indian Oil Corporation. It gives us great pleasure to once again host the management for this post results discussion with the investors. I would now like to hand over the call to the management for their initial remarks, post which we'll open the floor for Q&A. Over to you, sir.
Thank you, Mr. Bhavin. We welcome you to annual earnings call. From management side, we have Mr. Sandeep Kumar Gupta, Director of Finance; Mr. Matthew Thomas, Executive Director, Corporate Finance and Treasury. Along with them, we have Mr. Rohit Agrawala, General Manager, Corporate Finance; Mr. Prabhat Himatsingka, DGM, Treasury; and myself, Avinash, Chief Manager, Treasury. To begin with, Director of Finance will briefly touch upon the performance highlights. Thereafter, we will take calls from you. And since this is an earning call, I will request you to restrict your questions to annual accounts. Now I hand over the call to Director of Finance, IOCL.
Yes. A very good afternoon to you all, dear investors and analysts. First of all, I pray you all being safe, including your family members, et cetera. And I take this opportunity to welcome you all to the conference call post announcement of the Q4 results of '19-'20. I believe you would have gone through the accounts hosted on the website and also through the updates sent by us. However, I would like to briefly dwell on the results to provide additional clarity and insights. First, dealing with highlights, before going to the numbers, I would like to touch upon the impact of COVID-19 on business operations of the company during April and May '20. The capacity utilization of our refineries had dropped to almost 40% in the beginning of April '20. The corporation has been able to gradually raise the throughput of its refineries from about 55% of rated capacity in the beginning of May '20 to about 78% by the end of month and above 90% during first 3 weeks of the current month, that is June. And we expect that we can reach 100% of the capacity utilization by end of July. The demand for gasoline was about 42% in April. It gradually recovered to about 64% in May and has been about 84% in the first 3 weeks of June. Similarly, for gas oil, the demand was about 45% in April, 69% in May and are about 87% in 3 weeks of June. ATF, though, took the hardest hit with sales of only 9% in April, about 17% in May and about 31% in the 3 weeks of June. On the contrary, LPG witnessed robust growth, and it was a double-digit growth in April as well as May, partly also because of the -- firstly, because of the lockdowns and the stay of people at home, and secondly, because of the Pradhan Mantri Garib Kalyan Yojana, where the cylinders were to be given free for the first 3 months to the PMUY subscribers. With the gradual lifting in lockdown restrictions, several downstream industries in the petrochemical sector have resumed operations from late April '20. Indian Oil's Naphtha Cracker at Panipat is now operating at full capacity, along with downstream units for production of polypropylene, HDPE, LLDPE and MEG. The polypropylene plant at Paradip Refinery has also come back and is online now, while the PX/PTA at Panipat and LAB unit at Koyali Refinery continued to operate even during the lockdown period. Work on all major projects has restarted on ground. And in fact, we are continuing with all of our projects. The COVID period was in start very challenging and the Functional Directors met almost on a daily basis through videoconferencing to cope up with the challenges. The strong information technology capability not only ensured uninterrupted services of ERP and other applications, but also their use from home by employees. Digital technology was extensively leveraged for review monitoring, information sharing and knowledge management. To ensure that the supplies of petroleum products is continued undeterred, we also provided support in the form of ex gratia to our various business partner employees, which are basically LPG delivery man or RO attendants, et cetera. We declared an ex gratia of INR 5 lakhs in the case of death of any of those and also provided insurance of -- to about 3.10 lakh front-line personnel to gain their support and continue the supplies uninterruptedly. As far as crude supplies were concerned, initially, we did serve force majeure notices on some of the Middle East suppliers, but then based on mutual agreements, either the parcels were deferred or they were canceled, and we could also manage with whatever parcels were not canceled or deferred. We diverted some of the parcels of about 7 million barrels to Indian Strategic Petroleum Reserves Limited and took the upfront payment from them. So this way, we could manage our situation well as far as crude procurement is concerned. And with increased LPG imports, we could also manage the increased quantity from our various term suppliers and also through spot contracts. We also extended credit to our RO dealers because the sales were not that much. To support the refineries continued run, we extended credit to them, so that the stocks can be held by the RO dealers. And those all credits are also now fully recovered. We also started the advanced winter stocking for Ladakh region in the first week of April itself, which was at least 2 months ahead of the normal schedule to see that some quantity of production can also be shifted to that region for that purpose. Now let me briefly touch upon the major verticals. The throughput during the quarter was at 17.1 million metric tonne and is less than the throughput recorded in Q3 of current year, which was 17.5 million metric tonne. The demand for finished products was impacted in March '20 due to COVID-related lockdown, which in turn led to lower throughput. The distillate yield was higher at 81% during the quarter when compared to previous quarter of 79.8% and also marginally higher than the corresponding quarter of financial year '19, which was at 80.6%. Fuel and loss during the quarter was 9%, whereas during the preceding quarter, it was 8.8%, and the marginal higher fuel and loss is also because of the lower devices. Our refineries registered a negative GRM, $9.64 per barrel during the fourth quarter, which was primarily due to the huge inventory losses, which we had to suffer because of the crash in the prices. And the total inventory loss was to the tune of INR 16,184 crore, which has been accounted in the refinery business vertical. The normalized GRMs after stripping off inventory impacts and factoring in price lags for the quarter is $2.15 per barrel. For the full financial year, the normalized GRMs for the full year '19-'20 is $2.64 per barrel as against $4.81 per barrel in the year '18-'19. The decline in product crack spreads, which is also reflected in benchmark Singapore GRMs, has been the main reason behind the fall in normalized 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 of hydrocarbons. In order to maintain a smooth placement and supply of products across the country, our pipelines are being augmented. Indian Oil is now focused on LPG and natural gas pipeline infrastructure, apart from conventional crude oil and product pipeline networks. The capacity utilization of our pipelines was about 88% during the quarter as compared to 88.7% in the previous quarter. Our pipelines continued to generate stable returns, giving an EBITDA of about INR 1,540 crore during this quarter, which is at similar levels as that of the preceding quarter. The EBITDA for financial year '20 was lower by 2.2% when compared to the previous year. Coming to marketing. The product sale during this quarter was 20.644 million metric tonne as compared to 21.765 million metric tonne in the preceding quarter. The fall in sales volume is mainly on account of COVID-related shutdowns. On year-on-year basis, the product sales fell by about 0.7 million metric tonne to 83.887 million metric tonne in financial year '20 as compared to 84.615 million metric tonne in financial year '19. These can be attributable to fall in sales in almost all the products in March '20 due to COVID-related issues. Accordingly, the marketing EBITDA for this quarter stood at INR 2,332 crore as against INR 3,914 crore in the previous quarter. The marketing EBITDA is INR 14,623 crore on a full year basis as against INR 15,032 crore in financial year '19, and hence, continues to be stable. In petrochemical, during the quarter, the EBITDA was INR 475 crore as against INR 742 crore in the previous quarter. However, while comparing with the year-on-year performance with that of the corresponding year of last year, there has been a sharp downside in EBITDA. The major reason is due to the shrinkage of petrochemical spreads in polymers, MEG and PTA. Moreover, the PTA unit was also on the shutdown in the first quarter of financial year '20 due to the NGT instructions. We believe, as we go forward, the petchem will continue to contribute handsomely to the bottom line of the company. Coming to borrowings, the borrowing as on 31st of March '20 is at INR 116,545 crore as compared to INR 86,359 crore as on 31st of March 2019. Company is going through a phase of expansion and upgradation of its infrastructure facilities across business segments, be it refining, pipeline, marketing or natural gas. Accordingly, company has spent about -- has spent INR 28,316 crore during '19-'20 under the head capital expenditure. However, the internal accruals remained muted during '19-'20, mainly on account of inventory losses and subdued refining margins as well as petrochemical margins. Further, as per Ind AS 116 on leases, which has become effective from 1st of April 2019, company had recognized new leases of about INR 4,400 crore during the year. These -- this increase and with the previous leases, totaling to about INR 8,000 crores, is shown as borrowings in the accounts. Further, drop in sales of petroleum product during last week of March due to lockdown resulted in lower cash collections, whereas payment for crude oil supplies were continued to be made as per the contractual terms. This led to elevated working capital requirements during the year. We also have taken a permission of Board and now will be approaching the shareholders during our AGM for increase in the borrowing limit to INR 165,000 crore. And I must clarify that this is only an enabling provision so that we do not -- we are not required to go frequently to the shareholders. The last such increase was 10 years back. And though we are taking this enabling authorization from the members, but we do not anticipate our borrowings to go to that level. In fact, as against the 31st March levels of INR 116,545 crore, we expect that by the end of this month, we will be perhaps lower than INR 1-lakh mark also. I will end my briefing here. We will now take your questions. Thank you very much.
[Operator Instructions] We have our first question from Probal Sen from Centrum Broking.
I had a couple of questions. One, if you can give us some sense in terms -- you mentioned that the core margin or the -- rather the normalized margin, net of even the marketing-led inventory gain was about 2-point-something dollars for the quarter. Can we get a sense of what trends you have seen in first quarter, particularly given that even in the first quarter, at least as per reports, we did get some benefits due to crude costs, also discounts being much sharper from the Middle East suppliers. Have we got any benefit of that in terms of margins? And the second question was with respect to CapEx, given the disruptions that has happened in project work and obviously, the lockdown, is it fair to assume that FY '21 CapEx could actually be materially lower just because you won't be able to actually deploy that much capital in this year? And if so, if you can give a guidance on what that number could look like?
Yes. So first, I will come on the expected margins during the current quarter. So the OSPs declared by the Middle East suppliers have shown quite handsome discounts for the first quarter months. And we definitely get the benefit because we are eligible to the price, which is declared by the Middle East suppliers, which is in the form of OSPs. So that benefit definitely accrues to us. However, the crack margins, which is based on international quoted prices, is very, very subdued because of the destruction of the demand. So I believe these things will set off each other. And as far as first quarter is concerned, I do not see a very handsome GRM levels, and they will remain subdued. However, going forward, as we have also mentioned that our refining throughput has reached above 90% levels, the sales are to the tune of about 85% to 86% for MS and about 88%, 89% for HSD as compared to the previous -- corresponding month of the previous year. We expect the demand also to further go up. That all will perhaps be very supportive for the crack margins even on global levels. And we expect handsome recovery going forward, at least for Q2 and Q3 as far as refining margins are concerned. Coming to your question on CapEx, we reviewed the entire ongoing projects, and we felt that there is nothing worth dropping as of now. While you are sure that -- while you're correct that the demand has taken a beating, but since our projects also take some time to start production, we are not deferring any of the ongoing projects, while we will be very cautious to go ahead with any future projects, and we will definitely consider the destruction of this demand, which may perhaps take 1 or 2 years to revive. So we will be cautious in approving new projects. But as far as the CapEx plan of the current year of about INR 26,000 crore is concerned, we are hopeful that we will be able to do that. And our internal resources will also recover to support that CapEx.
Sir, just if I can follow-up quickly. What I meant with respect to the CapEx question was also that the shear problems on the ground in terms of actually getting project work done, whether it is the lockdown-related issues in terms of accessing the sites or the labor shortages also. I was saying that practically speaking, can you actually achieve this kind of capital deployment? I mean deferment you are not doing that is appreciated, but literally, to get the amount of work done that you would have planned, is it fair to assume that because you've lost 1 quarter and now monsoons will also start, it can actually restrict the amount of CapEx that we can actually complete in this year? I was asking more from that point of view, sir.
Yes. We also examined from that point of view also. And we, in fact, took a stock of all our projects. And 300-plus projects we reviewed, and we sort of got information that the work is on, on all those projects on ground itself. You would also be aware that in many parts of the country, the labor force is also -- has also started returning. So we are -- as of this point, we are hopeful that we will be able to achieve this CapEx for the current year.
We have our next question from Sabri Hazarika from Emkay Global.
I have got 3 questions. The first one is a bookkeeping question. So you have reported around INR 11,300 crore of exceptional inventory loss because of COVID. So can you give this -- the breakup between refining and marketing for this? I mean it will be both for refining as well as marketing, right? Can you give the breakup of the exceptional inventory loss in refining and marketing?
Yes. Refinery is about INR 8,000 crore out of this INR 11,305 crore, and balance is marketing.
Balance is marketing. Okay, sir. And second question is, so this year, your -- if I look into FY '20 earnings, so you had a INR 1,300 crore profit. It had around INR 11,000 crore of inventory gains or inventory -- sorry, it has got inventory loss also. But net-net, I mean, this year was an exceptional year in terms of it has led to like significant increase in debt levels and also the fact that the CapEx of INR 28,000 crore was by no means able to meet through the internal accrual. So how do you see FY '21, considering that the outlook still is somewhat volatile in a way and GRMs are also currently not that high and marketing margins, of course, may be good, but again, there are certain uncertainties regarding how oil prices will behave. So how do -- what kind of free cash flow generation you are targeting for FY '21? And do you think that your debt could remain at around INR 1 lakh crore or it could even -- there are like risk of it going up to, say, higher levels?
No. Look, while there is a lot of volatility in the prices and a lot of uncertainty around COVID also, whether there is going to be a second phase or not, to what extent and what path the recovery will happen in the demand. So there are a lot of ifs and buts, but we are hopeful that looking into the present circumstances, the demand has come back faster than what was expected initially and perhaps, the situation will improve. And we hope that there is not going to be any second phase of this COVID virus. So with demand picking up, we expect that the refinery margins also will quickly correct. In fact, you would have seen in the past week also, there is a marked improvement in the crack spreads of gasoline as well as gas oil and kero/ATF also. So we expect this correction also to happen quickly and with increased level of operations, we are hopeful of a decent refining margin also in the balance period of the year. Now if that happens, so there will be certain internal accruals, which we will -- which will support CapEx. Otherwise, also, like I have said that by end of this month, we expect our borrowings to go down to INR 1 lakh crore level. So there is a decrease of about INR 26,000 crore from the highest level, which we achieved -- which we had to sort of face sometime in April, which was INR 126,000 crore. So we expect the borrowings to dip further with increase in demand. And even if supposing the internal accruals are not that decent, with the current dip in the borrowing levels, even if we have to borrow something more, our debt-equity levels still will be very manageable and perhaps will be lower than INR 1.24 lakh crore, which is getting reflected as on 31st of March '20.
Right. And suppose, of course, not predicting for it, but suppose refining market remains weak and there are like further inventory loss, Forex loss scenario coming up, so would you be like quite comfortable in increasing marketing margins to like cover up for this kind of shortfall? Or do you have some kind of a cap regarding marketing earnings?
I think this question is very hypothetical. Let the situation come.
Right, sir. And sir, just one small question. What is the government subsidy outstanding for FY '20 end?
It is about INR 13,000 crore as of now. And -- but then we have recovered about INR 5,855 crore since 1st of April, and we are also recovering some amount now in the current month. So every month, we are getting some payments in liquidation of dues. And you would also be aware that the -- because of the lower Saudi CP prices, the LPG subsidy has practically weaned off. There is no -- practically no SKO subsidy. So going forward, the addition in the subsidy levels is not there and liquidation only is expected.
We have a question from Pinakin Parekh from JPMorgan.
Sir, 3 quick questions. My first question is, the financial statements say that there has been an inventory impairment of roughly INR 11,000 crore or so, and there is an inventory loss of around INR 18,000 crore or so. So from here, in the first quarter, given that oil prices have rallied, how much of this can reverse or will nothing of this get reversed?
We -- so first of all, I hope you are clear about this, what is this INR 18,000 crore inventory loss. This is in comparison with the opening inventory levels. And this INR 11,305 crore, which we have classified as exceptional is the write-down below cost of inventory which was there on 31st of March. So as to your question, the closing inventory rate was around -- about $36, $37 -- was at about $36, $37 per barrel after the inventory loss hit. And now the present ruling price of the crude is at about $41, $42. Now it all depends how the prices behave going ahead because we have to take net realizable value in account while declaring the results for the period ending 30th of June. So if the things remain at the current level and there is no downward trend, then we can expect some amount of inventory gain in the quarter 1, but that all depends on how the prices behave going forward.
Sir, just to clarify the close -- yes, sir. But just to clarify the closing crude price, you assume is 31st March Brent or the average for the last 15 days or something? Because the closing 31st March Brent was, I think, around $22 or $23.
No, as per accounting guidelines, we have to see that if that crude is processed into the products, that products will be sold at what price. So since we had a longer period available when we declared the results after 31st of March, we have considered the net realizable value of all that product which got produced from that crude. And based upon that, we have valued our inventories.
Understood. Sir, my second question is that when we go back to BS VI, IOCL has undertaken a CapEx of INR 17,000 crore. And back before COVID, there was talk about a onetime increase in fuel prices to recoup the cost of the investment. At this point of time, sir, what kind of price increase on a step-up basis would be required in diesel and petrol to recoup that INR 17,000 crore? I mean would the INR 1 price hike be enough, or will it be more or a smaller amount?
No, without going to the details, what I can assure you. First of all, this amount cannot be recovered in a short period. The projects are there, they have got a life. The BS VI also has got a life. So we calculated a compensation, which was desirable considering by perhaps the life of the BS VI product, and the entire amount, which was a fair compensation to the refiners, has already been inbuilt in the prices, and we are already started recovering that.
Okay. So basically, right now, the current prices reflect whatever you as a company would have assumed as a fair return, sir? Correct, right?
Yes. Yes.
And lastly, sir, if I look at petrochemical sales volume, it was around 2.28 million tonnes for FY '20. Now, sir, how should we look at this segment over FY '21 and '22 because there were major projects which were completed in FY '20, and there is some more petchem capacity also coming up? So how would this business trend over this year and next year in terms of volumes, in terms of margin mix or shift in margins?
But look, as I mentioned in my opening remarks, the PX/PTA did not work for 1 quarter in the last year. So as far as PX/PTA volumes are concerned, it will definitely see an increase in the current year as compared to the last year. PNCP was normal, LAB was normal. So those normals will continue. Over and above that, our polypropylene, the second chain also was commissioned in February, and we can expect full production out of that chain also.
We have a question from Mr. S. Ramesh from Nirmal Bang.
First, a housekeeping question. So in the company handout, you have given an inventory loss of around INR 18,000 crore, so does that include that exceptional loss of INR 11,000 crore?
Yes, it does include that.
Okay. So if you look at your EBITDA numbers, based on the segment EBITDA, it adds up to a loss of minus INR 9,370 crore, and usually, you include the other income in your EBITDA. So if I add back the other income of INR 1,722 crore, there's a loss of around INR 11,000 crore. So what is this due to? Is part of the exceptional also included in that? Because we're not able to reconcile. Yes. See, if you look at the EBITDA, excluding the exceptional loss...
You've asked the question very fast. So I couldn't get you. Perhaps -- but Mr. Rohit Agrawala will be able to tell you.
Yes. Sir, if you look at the EBITDA, excluding the exceptional loss, it will be around INR 232 crore. But if you add back the other income, and -- or strip off the other income in this negative EBITDA loss, the actual loss is something of the order of INR 11,000 crore. So I was just trying to reconcile that -- the reported EBITDA, excluding the exceptionals.
This EBITDA, I suppose, is including exceptional.
This EBITDA includes exceptionals?
Yes. Because I'm seeing EBITDA of INR 11,000 crore only, for which you have got the breakup -- division-wise breakup. Because I'm able to look at this EBITDA, which has been given to you, refinery INR 9,370 crore, marketing plus INR 7,000 crore -- sorry, quarter-wise, quarter 4 minus INR 9,370 crore, that totals to your INR 11,051 crore. I hope you are looking at that EBITDA?
Yes. I'm asking about the quarter 4, fourth quarter EBITDA.
Yes. That's the minus INR 9,370 crore?
Yes.
Yes. Yes. Yes. That is -- so there's no add back that's exceptional out of that -- to that.
So this doesn't include the exceptional loss?
Yes.
Yes, then -- so -- but if you add back the other income, the other income is included in that, right?
Yes, correct. So minus INR 9,000 crore is including all the inventory losses, including the exceptional...
No, I understand that. So if you want to get the EBITDA excluding the exceptionals because the exceptional is below the line. So we -- if you look at the EBITDA -- if you add back the other income -- if you remove the other income, there's actually a loss of around INR 11,000 crore. I'm just trying to reconcile that with the reported EBITDA in your P&L for the fourth quarter.
So that, I think we can discuss with you separately. I think...
Yes. We'll do that.
We will give a reco of that.
Sure. And second thing is when you're looking at your prospects for improved refining margins, if you see the complex refiners, they have struggled based on the fact that the light/heavy or sour/sweet differentials have been pretty much next to nothing. So you're banking on improved spreads? Or do you also expect the sour/sweet differentials to widen in favor of the lighter crudes or sweeter crudes? So would that also be a factor which would have help improve your refining margins going forward?
Can you please repeat your question?
Yes. So in the commentary given by Mr. Gupta, you said refining margins could improve over the next -- rest of the year from second quarter based on the improved spreads. So I just wanted your perspective on the prospects for complex refiners, like IOC, where you have secondary processing. So if you look at the sour/sweet differential or light/heavy differential, that also helps the complex refining margin. So are you just banking on the improved spread for the products on a basic benchmark? Or do you see the benefit from the light/heavy differentials or your average crude slate being cheaper than, say, the normal benchmark and that also to help you improve your margins?
Look, our -- we are generally processing about 50% sweet and 50% sour. So if that be the trend, it perhaps does not matter much with the differentials, I believe. So our mainstay is on the crack product margins, and we expect that, that should improve to give us some support.
Okay. Yes. Just one last question. Now in terms of your consolidated segment numbers, the Other segment has reported a fairly large increase in the losses to about INR 4,200 crore. So can you give us the breakup in terms of how much would be the loss, say, in E&P? Or where exactly you have lost at the EBIT level in the consolidated numbers in the Others segment?
We have lost in E&P only, and that is because of the impairment, which we had to take because of the crash in the prices. And that is also disclosed by way of note number, where it is INR 1,345 crore for our Canadian assets and some minor amount for U.S.
Okay. So basically for the North American assets. Okay.
[Operator Instructions] We have a question from Mr. Vidyadhar Ginde from ICICI Securities.
Hello?
Yes.
So my first question is that if you could share with us some color on your crude imports, the source, I would really like to have what proportion of your crude imports come from Saudi Arabia, Iraq, UAE, Kuwait, Nigeria, so that we'll get some idea on the kind of discounts you may enjoyed this quarter.
Look, this is a classified information.
A rough idea or -- no, can I say that it is roughly in line in India's import basket?
Pardon?
We have some idea on the extent of crude India imports from these countries. So is your mix likely to be very similar to that?
I cannot really diverge the sources of my crude procurement.
Okay. Secondly, you said that your crude after adjusting for inventory loss and -- it is $36, $37 in March. So what is it at cost? What was it at cost?
Now -- but the cost -- that can be calculated because we have been giving...
Yes, it is about $17, $18. So it was around $54 then because I think that is the extent of the inventory loss.
No. I do not have that figure before me right now.
But sounds fine, no, over $50 at cost?
Vidyadhar, I think we can back-calculate it.
Yes. What was the overall...
Yes. You can back-calculate and do it because we don't do that back calculations. [indiscernible] calculations present for you, you can back-calculate it.
And lastly, on -- if you could give us some color on your likely petchem utilization rate basis?
As I mentioned earlier, in answer to one of the questions, the PNCP, LAB and PX/PTA, all are likely to operate at normal levels and which is generally more than the capacity. And we also have now polypropylene both chains functioning, and we also expect that to run to full capacity.
So except for the first -- during the lockdown initially, rest of the period it will be...
Yes.
So the impact only will be in the first quarter?
Yes. But we explained to you that some of the units, even during lockdown, continued uninterrupted.
[Operator Instructions] We have a question from Mr. Rohit Ahuja from BOB Capital.
Sir, 2 questions from my side. First thing would be on overall operations, sales volumes and the marketing margin movement. Do you see things coming back to normal by this month end and from next month, especially on the margin front and the volume front?
Yes. As I explained to you that our refining capacity is now more than 90% -- the level of operation is more than 90% of capacity. And we expect all of our refineries to come back to 100% level latest by July end. Sales, as I explained, the MS, HSD sales are in the range of 85% to 90% on a Y-o-Y basis, corresponding to the corresponding month of the last year. And we -- and as I mentioned, that the recovery rate has been faster than what we expected initially. And we expect that with this and things not deteriorating in the terms of maybe second wave, et cetera, we expect that the demand will quickly recover to the original levels. I cannot say to 100% levels, but definitely, not more than maybe 5% to 6% hit.
So second question would be on the inventory loss. Whatever we reported in Q4, would most of it will be made up for in Q1 and do GRMs still look good in terms of crude discounts that you enjoyed from Middle East?
I would not say they look very handsome because the discounts which we are getting through OSPs of Middle East suppliers, first of all, the quantity of those Middle East supplies is not full. There are other suppliers also who do not work on OSP system. And that discount is also set off because of the lower cracks which are prevailing as of now, starting from the lockdown periods. So the Q1 GRMs definitely may not be very handsome. But going forward with this revival in demand and the cracks also firming up in last few days, we expect that going forward, the cracks will be handsome.
Inventory loss? I mean, would you see good inventory gain given the current oil price...
As I mentioned, the level of the inventory valuation was about $36, $37 per barrel. And the crude prices, which are ruling as of now is about $41, $42. So there is some recovery, but then a large -- it depends largely on what prices prevail even beyond 30th of June because we are required to value our inventory at net realizable value.
We have a question from Nafeesa Gupta from Bank of America.
Sir, my question is again on inventory losses. So according to the results, it says that in the specified period, the write-down on valuation of inventories below cost is to the tune of INR 6,800 crore, but then we've taken an exceptional loss of INR 11,300 crore. And this is due to a specified longer time period, which has been taken for inventory losses. Sir, just wanted to understand as to what this longer time period is? And why have we considered a longer time period and not just a quarter?
Normally, when we close our accounts, say -- within, say, 40 days -- 35 to 40 days, of the close of the period, we take a particular cut off date, which is within April. But this time, since the prices -- there was an abnormal reduction in the prices, and we had a longer time available to check what is the net realizable value of the stocks which were there on 31st of March, we adopted the longer period and took a larger hit on a conservative basis.
Sir, otherwise, would this number have been a part of this 1Q numbers, if not 4Q?
Yes, definitely.
Okay. Sir, we are just hoping to recover some of these and then -- so that is the reason that we kind of took them in the 4Q itself, is it correct?
No, you cannot be sure of that. As I explained to you, we will have to again see what is the net realizable value of our stock as on 30th of June based on the prices which remain after 30th of June. So I'm not sure whether that will get recovered within this quarter or not and to what extent, but definitely, with the increase in prices, this amount will get recovered. As I mentioned, we valued at about $36, $37, now the prices are $40, $41.
Got it, sir. And sir, my second question is on refinery expansions. So if we check the PPAC data, it says that Haldia has seen some expansion in the last fiscal year. Just wanted to know what is the status on the others, Koyali, Barauni, Haldia and the other expansions, where are we on those?
No, we -- Haldia had a project of distillate yield improvement, so 0.5 million tonne was the increase in its capacity. Barring that, there is no other capacity expansion at other refineries, except for our project at Barauni, which was declared, and we are increasing its capacity to 6 to 9 million metric tonne, which will take time. And with the commissioning of INDMAX at Bongaigaon refinery, our capacity will increase to 2.7 million tonnes from the present 2.35 million metric tonnes.
Sure, sir. And sir, just a related question, I know the others have asked it already, but given that we have a large refining capacity and also we have large capacity to store crude, can we say that in this quarter, we will get some benefits from the discounted crude that we procured in the last couple of months?
Yes. We should, actually. If I see my inventory levels, say, on 1st of March, we had 8.8 million tonnes of crude; 1st of April, we had 9.8 million metric tonnes; 1st of May, we had 11.4 million metric tonnes. So we definitely -- 1st of June, we are expected -- 1st of June, it was 10.2 million metric tonnes. And going forward, in the subsequent months, we are back to our normal levels of 8 million tonne of inventory. So we definitely built up some inventory during these periods. We did not surrender much of crude except for the 7 million barrels, which we gave to -- 7 millions barrels, which is roughly about 1 million tonne only, which we gave to ISPRL for its strategic reserves. So we definitely have crudes bought in this low-period scenario, which should give us some benefit going forward.
We have a question from Mr. Mayank Maheshwari from Morgan Stanley.
I had -- the first question was related to your marketing business. How has been the market share for MS and HSD over the last quarter? And how are you kind of thinking about the market share on the industrial fuel as well? Can you give us some comments around that?
So nothing very significant. With the increased play of private players, we have been losing some market share, which is very, very natural to happen to the -- at least to the biggest players. So our market share have during -- you asked about last quarter?
Yes. How has been, kind of -- yes, I was just looking at last quarter and how has been it faring after that?
So in fact, during the lockdown period, we may have gained some market share instead of loss. So definitely, there is no loss of market share during this lockdown period.
Okay. But in the fourth quarter, what was your market share, if you can just give us some detail?
We have the numbers?
We've got annual numbers. We will give the details separately.
We will give you the details separately.
Okay. Okay. And sir, the second question was more related to the gas business itself. Can you just kind of talk about what's happening on the city gas front in terms of your new geographies as well as the Ennore terminal?
City gas, we continue with about 40 geographical areas. Some on it on our own -- 17 on our own, 23 in joint venture. And the projects are progressing normally. As far as Ennore is concerned, we are still constrained because of the pipeline thing, which will get commissioned by February '21 as of -- as per the latest testings.
So sir, what's the utilization rate on Ennore now as of...
Ennore utilization is low. It is only 1.44 million metric tonnes as of now, MMSCMD as of now, which is about less than 10% on a yearly basis. So it is low and constrained because of the pipeline thing. The pipeline thing is likely to be over by, say, February '21.
Okay. Okay. And on the city gas side, you're saying that our projects rolling on time? Or is there any impact on this COVID on your plans there as well?
Because of COVID, definitely, there is some impact on the project time lines, for which we will have -- we have been taking up, and I am sure we will get some that MWP relaxation from PNGRB also.
We have a question from Mr. Vikash Jain from CLSA.
If I understood this correctly, had the longer reporting period not been allowed, just for argument sake, if you were supposed to value the inventory at the same price as it existed, say, sometime in April that you typically do, you would have been forced to use a price possibly lower than $36, $37, so this loss -- the inventory loss number would have been much bigger and because of this same reason, the inventory gain in 1Q will be much lesser. Is that understanding correct?
No. I think it is on the reverse side, in fact. We adopted a longer period, and we were very conservative while reporting the profits for the period ending 31st of March. We took a bigger hit in '19-'20. Had we continued with the shorter period, the part of the inventory losses would have got shifted to Q1 of this year.
No. So basically, what I want to understand is, your valuation is about $36, $37 per barrel for crude oil, that, if you would have assumed prices prevailing around April, would have meant a realization, which is even lower. So when you mean adopting a longer period, essentially, what -- I mean, had you not done that, would your valuation be higher than $36, $37? That's something which I'm not clear about.
No if we -- had we adopted the shorter period for testing our NRV, our inventory valuation rate would have been higher and so the losses would have been lower.
But sir, if prices in April were far lower than $36, $37, then how would net realizable value...
No, in fact, in the calculation of net realizable value, the product prices are to be seen and what is value of our net realization.
No. No. That's fine, but I thought $36, $37 is the implied -- okay. Okay. Okay, fine. So basically, if the fact that you have the ability because there was a kind of no change in retail prices for a while, you had the ability to sell at a -- for that brief period, at a higher price, therefore, your net realizable value was much higher. So that's why you've taken a higher $36, $37 kind of realizable value.
I don't think you are hoping any answer from this.
Okay. And sir, on CapEx, can you give us your expected CapEx numbers for FY '21 and '22? Sorry, if you have already given that, but I think I didn't catch it.
What, what?
'21 and '22, your budgeted CapEx -- FY '21 and FY '22.
For the current year, I can say that it is INR 26,000 crore. For the last year, we spent INR 28,000 crore. For '20-'21, we plan to spend INR 26,000 crore, which includes, say, refining about INR 4,000 crore, pipeline is about INR 4,500 crore, marketing about INR 6,000 crore; petchem about INR 2,300 crore and some joint venture investments about INR 4,800 crore, including CGD, et cetera.
In terms of volume addition on the back of this CapEx, there isn't -- of course, I mean, you'll get more retail selling space and all that, but from a capacity perspective, your capacity -- the last big capacity increase was the PP expansion, which has just started up in February, right? I mean there is nothing which is happening in FY '21, which would add to your capacity, production capacity?
So there are certain projects, which are not for capacity expansion, but they are for, say, reduction in logistics costs, like our marketing terminals or pipeline, so there are certain expenditure in that. There are certain leftover expenditures in respect of the projects which are completed already. There are certain expenditure in respect of even the production facilities like for MEG at Paradip. So we can share the details with you later on.
No. Sure, absolutely. Sir. And finally, you've been pretty upfront about the -- so just the last one, and that's it. If you've been upfront about the fact that full normalization of demand would not happen anytime soon. So what is your -- the way -- I know it's everybody's guess, and it's very difficult to be exact about this, but the way you're seeing it, by when do you think we get to close to, say, flat Y-o-Y and then start seeing the growth as we used to see in the last couple of years? So what are your likely time lines for that?
Look, we are also guided by the studies which are done internationally. A lot of agencies, a lot of consultants keep on reporting various numbers. And based on those estimates only, we are saying that the current year petroleum product growth will be, say, perhaps minus 5% or so. And perhaps sometime the next year, the demand may come back to the original levels. Now the product-wise difference within this will be there, while MS and HSD may come back very quickly, LPG has seen a growth, ATF will take a longer time to recover. So the product-wise differences will be there in the recovery rates. But on an overall basis, perhaps '21-'22 should see the normal levels as the prevailing pre-COVID.
We'll take our last question for the day from Mr. Vinit Joshi from Goldman Sachs.
Sir, my question is on inventory and working capital that you mentioned earlier. So if I heard correctly, you said that you have 8 million tonnes of crude inventory. But can you also talk about the -- like I think the Oil Minister mentioned that the Indian companies have opportunistically bought crude and stored in floating storage as well. So if we look at both the land as well as the floating storage for Indian Oil, what that amount would be? And the second question is you mentioned that there has been some additional investment in working capital, which has led to the higher debt. So can you please quantify what that additional working capital investment is, which we should be normalizing in our numbers going forward?
So first on the inventory, as I mentioned, our normal levels are about 8 million tonnes of crude inventory. And we had, on 1st of April, 9.8 million tonnes; on 1st of May, 11.4 million tonnes; on 1st of June, 10.2 million tonnes; and perhaps by 1st of July, we will sort of revert to the normal levels. So we did procure certain crudes despite the -- certain additional crude despite the reduction in the processing rate of the refineries. And we believe that it will give us new benefits in the periods to come. Your second question was on -- as we explained, there is no permanent increase because working capital, in fact, a lot of working capital has got released because of the reduction in the prices. And our borrowings level, which were at the level of INR 126,000 crore at maximum during April, are now back to about INR 104,000 crore level, and we expect it to reach the INR 1 lakh crore level -- below INR 1 lakh crore level very soon. So not exactly any pressure from working capital side on the borrowings.
So this INR 25,000 crore extra was because of the working capital, which has already reversed is what you're saying. So there will be no further reversal from the current level? It's already baking in all the extra ones?
Yes.
I would now like to hand the call to Mr. Bhavin Gandhi. Please go ahead, sir. Mr. Bhavin Gandhi?Sir, any closing comments from your end?
So on a nutshell basis, we expect that the demand recovery is going to be there in Q2 and more so in the later part of the year. We also expect that with this demand recovery, the crack spread, it is natural for them to correct to the pre-COVID levels. We also expect our working capital requirements to be lower going forward because of liquidation of GoI dues because of low price levels because of perhaps no -- nil subsidy for LPG and SKO going forward based on these low prices. So we are bullish that we will be able to perform handsomely for the rest of the year. That is all as a closing comment. Operationally, in any case, we have been doing well, and we will continue to do well. Thank you.
Thank you, sir.
Ladies and gentlemen, this does conclude your conference for today. We thank you for your participation and for using iJunxion conference service. You may please disconnect your lines now. Thank you, and have a great day.