An employee refuels a car at a Hindustan Petroleum Corp. gas station in New Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg News)

HPCL Q1 Profit Halves On Inventory Loss

  • Profit declines 49.2 percent missing analyst estimates due to an inventory loss.
  • Revenue too fell 3.8 percent to Rs 53,469 crore on a quarter-on-quarter basis, beating consensus estimates.
  • Gross refining margins fell to $5.86 per barrel from $6.83 per barrel last quarter but still beat estimates.
  • The inventory loss stood at $2.95 per barrel.

Hindustan Petroleum Corporation Ltd.'s net profit nearly halved, missing analyst estimates, as inventory losses due to lower crude prices weighed on first quarter earnings.

Net profit of the state-owned oil company fell 49.2 percent sequentially to Rs 925 crore for the quarter-ended June, the company said in a stock exchange filing on Friday. This fell short of the Bloomberg consensus estimate of Rs 1,110 crore. Revenue too fell 3.8 percent to Rs 53,469 crore on a quarter-on-quarter basis, higher that the consensus of analyst estimates which stood at Rs 47,997 crore.

Inventory Loss Weighs On Q1 Earnings

The company registered an inventory loss of $2.95 per barrel, or Rs 1,595 crore in absolute terms, Chairman and Managing Director MK Surana told reporters at the press conference held to announce quarterly results.

The inventory loss also weighed on gross refining margins, the amount earned from refining one barrel of oil, which fell to $5.86 per barrel from $6.83 per barrel last quarter. It, however, beat the Bloomberg consensus estimate of $4.9 a barrel.

With crude prices firming up to around $51-52 per barrel, inventory losses to be curtailed in subsequent quarters, Surana told BloombergQuint in an interview. He does not expect crude prices to rise above $55 per barrel.

Earnings before interest, tax, depreciation and amortisation fell 43.6 percent to Rs 1,628 crore from last quarter while the margin contracted 256 basis points to 3.04 percent.

Domestic sales increased to 9.20 million metric tonnes while export sales fell to 0.06 million metric tonnes compared to the previous quarter. HPCL refined 4.65 million metric tonnes of crude which was largely flat compared to the previous quarter.

HPCL plans a capital expenditure of Rs 7,100 crore for financial year 2017-18, Surana said.

Merger With ONGC

HPCL is yet to receive a formal intimidation from the government on the merger with Oil and Natural Gas Corporation Ltd, Surana said, adding that Oil Minister Dharmendra Pradhan had made the announcement in Parliament.

The government recently gave in-principle approval for the sale of its 51.11 percent stake in HPCL to state-owned ONGC. The transaction is expected to be completed in the next one year. After the completion of the buyout, HPCL will be merged with MRPL, ONGC Chairman DK Sarraf had told BloombergQuint earlier.

“MRPL coming to HPCL brings more synergy,” Surana said.

MRPL is standalone refinery. We have shortage of refinery capacity and MRPL does not have a marketing setup. That is one area of synergy possible between ONGC and HPCL. Otherwise, to some extent ONGC and HPCL are differently focused as far as the business lines are concerned. 
MK Surana, CMD, HPCL

Both HPCL and ONGC will “continue to do their own projects instead of dipping into each other”, Surana added.