Analyst Concall
HPCL mgmt sees no disruption in crude oil supply from Russia
This story was originally published at 14:13 IST on 24 January 2025
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--HPCL: Oct-Dec sales volume growth 8.2% vs industry growth of 6.3%
--CONTEXT: Comments by HPCL's management in post-earnings analyst call
--HPCL: Commissioned around 45 retail outlets in Oct-Dec
--HPCL: Russian crude oil accounts for 35-40% of co's monthly consumption
--HPCL: Facing no issue related to availability of crude oil
--HPCL: Oct-Dec GRM $9 per barrel
--HPCL: Procured Brent crude at avg $75/barrel Oct-Dec vs $80/barrel qtr ago
--HPCL: Operational availability of Vizag, Mumbai units improved sharply
--HPCL: Interest, depreciation costs to rise INR 6 bln-INR 7 bln in FY26
--HPCL: Energy arm to start ops, expected to break even in 1-2 years
--HPCL: Will evaluate, review share buybacks in future
--HPCL: See capex at INR 130 bln-INR 150 bln this
--HPCL: Standalone net debt currently at INR 540 bln
By Akash Mandal
MUMBAI – Hindustan Petroleum Corp. Ltd. does not expect any disruption in the supply of crude oil from Russia amid the recent sanctions imposed by the US on Russian oil. About 35-40% of the company's crude oil consumption per month is met by Russia, the company's management said in a post-earnings conference call Friday. The refiner also said it has secured enough crude oil to meet its requirements till March.
The company heavily imported crude oil from Russia due to significant discounts from the latter, the management said. In the aftermath of Russia's invasion of Ukraine in early 2022, and the US pushing for sanctions on Russian global trade, Russia offered discounts to countries that were willing to buy its crude.
HPCL said there is no dearth of crude oil, and it currently imports the commodity from 40 different countries. Thus, if the supply of Russian crude oil is disrupted, it will not impact the company.
The company said it procured Brent Crude oil at an average of $75 per barrel for Oct-Dec, compared to $80 per barrel in the previous quarter. At 1151 IST, Brent Crude oil futures traded at $78.26 per barrel, down 0.1% from the previous close.
The state-owned oil refiner said its gross refining margin for the December quarter was $9 per barrel. It incurred a loss of INR 7 billion in its integrated operations, with the majority of losses coming in the petrochemical vertical. This was because of subdued polymer prices, and the company expects this trend to reverse. Though it posted operating profit in its integrated operations in Oct-Dec, high interest and depreciation costs limited the growth, the company said. Its interest and depreciation cost is seen rising by a further INR 6 billion-INR 7 billion in 2025-26 (Apr-Mar). For the December quarter, finance costs and depreciation and amortisation expenses aggregated to INR 24.39 billion. Its net debt currently stands at INR 540 billion, of which INR 440 billion is long-term debt, the management said.
The company said its polymers business will have to operate at a margin of $150-$170 per tonne in order to achieve profitability. Currently, this vertical operates at a margin of $70-$80 per tonne.
For Oct-Dec, the company said its sales volume growth of 8.2% to 12.87 million tonnes was higher than the industry's growth of 6.3%. The operational availability for both refineries in Visakhapatnam and Mumbai improved during the quarter and both the refineries operated at their nameplate capacity, the management said. The refiner also commissioned around 45 retail outlets during this period.
The refiner said it expects its subsidiary HPCL Energy to start commercial operations in the near future. The subsidiary will initially incur losses, but is expected to break even in 1-2 years.
The management said it sees a capital expenditure of INR 130 billion-INR 150 billion during the full year. Of this, INR 3 billion-INR 4 billion will be spent on the refining segment and INR 6 billion-INR 8 billion will be earmarked for the company's marketing vertical. The remaining portion would be utilised for equity investments in existing joint ventures.
In response to an analysts' request to consider share buybacks amid HPCL's stock price trading at 5 times multiple, the management said it will consider the same and evaluate other options for value unlocking to help strengthen its shares.
Post-market hours Thursday, the company reported a net profit of INR 30.23 billion for the December quarter, lower than analysts' estimates of INR 32.22 billion, on revenues of INR 1.184 trillion. The stock rose 5% to an intraday high of INR 379.95 on the National Stock Exchange Friday, but then turned negative and traded 1% lower at INR 358.35 at 1355 IST. End
US$1 = INR 86.20
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Tanima Banerjee
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