Good afternoon, ladies and gentlemen. I am Pavitra, moderator for the conference call. Welcome to Indian Oil Corporation Limited Q2 FY 2021 Post Results Conference Call, hosted by Batlivala & Karani Securities Private Limited. At this moment, all participants are in listen-only mode. Later, we will conduct a question and answer session. At that time, if you have a question, please press star and one on your telephone keypad. 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. Good afternoon, ladies and gentlemen. On behalf of Batlivala & Karani Securities, I welcome you to this post result 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 this. Without much ado, I would like to hand over the proceedings to the management for remarks, after which we'll open the floor for a Q&A session. Over to you, sir.
Thank you, Mr. Bhavin. We welcome you to quarterly earnings call. From management side, we have Mr. Sandeep Kumar Gupta, Director of Finance, Indian Oil. Mr. Mathew Thomas , Executive Director, Corporate Finance and Treasury. Along with them, we have Mr. Rohit Kumar 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 quarterly performance highlights. Thereafter, he will take the questions. Now I will request Director Finance to address the meeting. Over to you, sir.
Dear investors and analysts, a very good afternoon to all of you. At the outset, I pray that all of you are safe and remain safe. I take this opportunity to welcome all of you to this conference call, post announcement of the second quarterly results of 2020/21. I believe you would have gone through the accounts hosted on the website and through the updates received by most of you. I would like to briefly dwell on the results to provide additional clarity and insights. Highlights first. First, on COVID-19 and its impact on the business operations of the company during second quarter of this fiscal. Capacity utilization of refineries was at about 90% in July.
It fell to about 67% in August due to planned shutdown of Paradip Refinery and in view of moderation of petroleum product demand in August because of rainy season, as well as intermittent lockdown by certain states. The utilization improved to 81% in the month of September. In October, on the back of a strong bounce back in demand, the refinery utilization has been ramped up to 95%. Gasoline demand has consistently grown over the months post relaxation in lockdowns. As far as year-on-year demand is concerned, gasoline demand in July was at about 89% of last year's demand. It improved to about 91% in August and registered a positive year-on-year growth for the first time in September at about 102%. It has further improved to about 104% in the first four weeks of October. The preference for personal mobility has helped in strong rebound in demand for gasoline.
Gas oil demand has witnessed much more volatility in comparison to gasoline. After seeing a strong rebound in demand in the month of June, the demand slightly tapered off in the month of July and August. In July, the sales volume for IOC was at about 78% of last year's sales. This further moderated to about 75% in August before bouncing back to 91% in the month of September. The demand in October has registered a positive year-on-year growth and was at about 102% of last year's sale. ATF continues to take the hardest hit, with sales of only 50% in September, and it continues at similar level in October also. Indian Oil's naphtha cracker at Panipat and LAB plant in Gujarat continued to operate at full capacity during the second quarter.
The PX/PTA unit at Panipat and polypropylene unit at Paradip operated at below 50% capacity in the second quarter, mainly due to lower product upliftments. Capacity utilization of PX/PTA has been closer to 85% in October, and the capacity utilization of Paradip polypropylene unit has also been at about 65% in October. I would also like to touch upon a couple of other new products launched by Indian Oil in recent months. On 20th of October, Indian Oil launched India's first H-CNG, that is hydrogen CNG plant at Delhi Transport Corporation's Rajghat depot in New Delhi. It is a pilot project, and 50 DTC buses are part of six months trial. Once the pilot is successful, H-CNG is all set to be scaled up to more buses and private vehicles.
H-CNG is produced by blending hydrogen with CNG, resulting in cleaner fuel. This process is carried out on in-situ basis. One of the main advantages of the fuel is that it can be dispensed using existing CNG dispensing setup with minimal upgrades to infrastructure. It is thus an ideal interim fuel to achieve emission reduction and part of a larger quest towards ushering in hydrogen fuel economy in the country. Indian Oil has recently introduced differentiated LPG with the brand name Indane XTRATEJ for industrial users that gives flame temperature which is 8% higher than conventional cooking gas, thereby cutting down cooking time and reduction in LPG consumption, thus increasing the efficiency. I would like to briefly touch upon the financial performance during this quarter.
During the second quarter, the average price of crude in the Indian market was at $42.9 per barrel, an increase of 41% from the average price of the immediate preceding quarter, that is Q1, fiscal year '21. With respect to the crack spreads, gasoline cracks continued to languish at about $2.87 per barrel during this quarter. The cracks are significantly lower than the corresponding quarter of the previous year. Similarly, the HSD crack during this quarter was at $3.17 per barrel, vis-à-vis crack spread of $13.69 per barrel in the corresponding quarter of financial year 19/20. FO continues to register negative crack spreads of $4.20 per barrel during this quarter, as compared to a negative crack of $4.40 per barrel in the preceding quarter, and negative crack of $1.70 per barrel in the corresponding quarter of FY 2020.
In the petrochemical space, spreads for polymers in this quarter were 7% less than the previous quarter and about 3% higher than the corresponding quarter of FY 2020. In case of PTA, the spread during this quarter at $75 per ton was substantially lower than the previous quarter spread of $248 per metric ton. The spread for corresponding quarter of FY 2020 was at $227 per ton. With respect to MEG, the spread in the current quarter was about 41% less than the previous quarter. However, comparing to the corresponding quarter of FY 2020, the spread has been higher by 41%. This quarter, Indian Oil has registered a profit after tax of INR 6,227 crore. Although the refining profit continued to remain very weak during this quarter, the impact of the same has been mitigated by inventory gains to a large extent.
In the current quarter, Indian Oil registered an inventory gain of INR 7,400 crores as compared to an inventory loss of INR 3,196 crore during the preceding quarter. For the half year, the profit after tax is INR 8,138 crore as against INR 4,160 crore in the first six months of FY20. Revenue from operations during this quarter is INR 115,749 crore as against INR 88,937 crore in the preceding quarter of this year. Let me briefly touch upon performance of major verticals during quarter two. First, refineries. The throughput during the quarter was at 13.97 million metric ton with a capacity utilization of 79.5%. As mentioned earlier, with a strong rebound in petroleum product demand, the refineries have operated at about 95% in the month of October. During Q2, distillate yield was at 79.6% and fuel and loss was at 10.2%.
Lower throughput has resulted in higher fuel and loss during this quarter. IOC refineries have registered a GRM of $8.62 per barrel during this quarter. The normalized GRMs after stripping off inventory impacts and factoring in price lag for the quarter, though, is negative at $0.97 per barrel. Benchmark Singapore GRMs during Q2 remained weak and was at about $0.05 per barrel only. Lower throughput and consequently higher fuel and loss contributed to underperformance of refining margins during this quarter. On the pipelines, the capacity utilization of our pipelines was about 73.38% during this quarter as compared to 63.53% in Q1 of FY 2021. With increase in refining throughput and bounce back in petroleum product demand, the capacity utilization of pipelines is expected to improve in the coming quarters. Pipelines continued to generate stable returns, giving an EBITDA of about INR 1,292 crore during this quarter.
The petroleum product sales during this quarter was 17.22 million metric tons as compared to 15.48 million metric tons in the preceding quarter. The resumption of economic activities post uplifting of lockdowns has resulted in growth of major products like MS, HSD. Demand for ATF, however, continues to remain low. Marketing EBITDA for this quarter stood at about INR 3,606 crore as against INR 7,701 crore of the previous quarter. EBITDA for six months of FY21 is INR 11,306 crore as against the EBITDA of INR 8,378 crore in six months of FY20. In petrochemicals, during the quarter, the petrochemical business reported an EBITDA of INR 1,211 crore as against INR 728 crore in the preceding quarter. While comparing with the current six months performance with that of corresponding period of last year, there has been an increase of about 33% in petrochemical EBITDA.
On the borrowings, the borrowing as on 30th September 2020 was at INR 91,505 crore as against INR 98,605 crore as on 30th June 2020, and INR 116,545 crore as on 31st March 2020. The borrowing includes lease obligation of INR 7,868 crore as on 30th September 2020. I will end my briefing here and will now take your questions. Thank you very much.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star and one on your telephone keypad and wait for your turn to ask the question. If you would like to withdraw your request, you may do so by pressing * and 1 again. Participants are requested to restrict to two questions in the initial round and join back the queue for further questions if time permits. I repeat, ladies and gentlemen, if you have a question, please press * and 1 on your telephone keypad. We have first question from Vivek Anand from Ambit Capital. Please go ahead.
Hi. Thank you for the opportunity. I have two questions. One is, the CapEx guidance of INR 26,000 crore that we had for FY21. Where are we on this and is there any change in guidance or progress that you would like to highlight? Second question is on the major investments over the next year or so that we are making in gas product and LPG pipelines. Given the major investments made in these segments, how should analysts and investors appraise you on these projects? Should we look at any specific cost metrics or any project IRR? Any thoughts there? Thank you.
Yeah. The current year CapEx for IOC standalone was about INR 21,000 crore plus for the current year, with another about INR 4,800 and odd crore for JV and subsidiaries, making it a total of INR 26,000 crore plus. We are poised to achieve this target definitely. In fact, there is a pressure from Government of India to increase the CapEx for obvious reasons, to support the country's economic growth. In that process, while we are making all attempts, and if that support comes from Government of India to expedite some of these statutory clearances or maybe to avoid some of the clearances, that will only help us to complete our projects faster than that was envisaged, and will result in basically the better economic returns on our projects. We are not at all concerned with doing more CapEx or maybe expediting our CapEx plans.
As far as the future CapEx is considered, as I have mentioned in our previous discussions also, we have got a system of a hurdle rate based on weighted average cost of capital, which currently is 11%, and no project is approved unless we meet this hurdle rate from that investment. Whatever projects we are approving are definitely projected to give us this kind of return, and hence all are fairly appraised.
Right. Just a follow-up, the government pushing for more CapEx, does this mean that you take on new projects or advance the projects that you have already indicated, advance the timelines?
Their call is for increasing the CapEx. How we do it is upon us. While on some of the projects we are advancing our timelines, as I mentioned, if there are certain relaxations in the statutory clearances, that definitely helps us. Further, we have also expedited whatever was on the drawing board. We are expediting those plans also. As I mentioned, we are not approving any project unless there are viable returns from that project, and that returns cross the hurdle rate which is mandated by the company. This entire process has only perhaps hastened putting up the project proposals in addition to expediting the current proposals which are going on. We are not at all apprehensive about it, because the faster we conceive a project, the better it is for the company.
Okay. Thank you very much. All the best.
Thank you, sir. We have next question from Vidyadhar Ginde from ICICI Securities. Please go ahead.
Yeah, thank you. My question is, you can give us the cost and the volume of crude inventory in September, and some guidance on likely utilization of refineries in the rest of the year and on Petchem units.
Yeah. The crude was valued at $43.76 per barrel at the end of 30th of September 2020. Your second question was regarding the refining capacity. As I mentioned in my opening remarks also, October we have touched 95% already, and we are trying to ramp up the capacity slowly. We hope that with the festive season of Diwali coming forward, and the holiday season also coming forward, there will be robust demand of gasoline definitely, and also of other products. We are sure to shortly touch the 100% level for refinery capacity.
Your experience on ramping up, in the sense the ramp-up in throughput was quite absorbed by the market, is what you're suggesting in October, and the volume as well.
It was on the strength of the demand in the market that we could ramp up the refinery production. Otherwise, we do not have place to store the product. It was only on the basis of the robust demand in the petroleum product that we could ramp up the refinery production.
Also as for the volume of crude and product inventory, if you could give that number for September.
We generally maintain about, say, 15 million metric tons-17 million metric tons of crude and product inventory put together at any given point in time.
You said in the past, crude is 8 million tons. Is that fine?
Yeah, crude is about 9 million ton and product is about 8 million ton.
Okay. Lastly, on utilization in Petchem, madam.
Petchem utilization also I mentioned in my opening remark.
Correct.
Yeah. In October, PX/PTA is now closer to 85% level and polypropylene of Paradip is also at, of course, 65% level. The naphtha cracker at Panipat and LAB at Gujarat, in any case, were operating at capacity earlier also.
PP, is it likely to ramp up further or stay where it is?
No, definitely, because our Panipat naphtha cracker has done in the past capacity utilization in excess of 120% also. In line with the demand, we will definitely ramp up the capacity utilization.
Okay. Thanks a lot. Thank you very much.
Thank you, sir. We have next question from Pinakin Parekh from J.P. Morgan. Please go ahead.
Yeah. Thank you very much, sir. Sir, two questions. My first is, you made some interesting comments on CNG and how it is being used on a trial basis. Sir, can you give us some color on, A, at this point of time, is it being dispensed off on your own retail outlets, which also have CGD outlets, or is it separate? Second, going forward, if this were to scale up, would this be entirely kept within IOCL's own retail outlets, or will be shared with the CGD companies?
On H-CNG, I mentioned that we have put up a demo plant, which has started operating, and this demo plant is only at Rajghat depot in Delhi as of now. 50 buses have been given by DTC, who will be fueled by this H-CNG and will be on trial for 6 months period. Based on the experience, this particular activity will be ramped up on a pan-India basis subsequently. This technology of in-situ, that is at the same place, putting up a reforming unit for spiking hydrogen in CNG, is a proprietary technology of IndianOil R&D Centre. Then based on perhaps any commercial arrangement only, it can be given to other companies.
Understood. Sir, in terms of scalability, it's right now a six-month period and then we'll see how it scales up. From your initial understanding, sir, where do you think this can go over the next two to three years?
I think we will wait for one or two quarters, maybe in the subsequent con call for Q3, I will be in a position to give you a better picture.
Understood. This is very helpful. Thank you, sir.
Thank you, sir. We have next question from Amit Rustagi from UBS. Please go ahead.
Yeah. Good afternoon, sir. Sir, we have seen that a lot of PSUs are rewarding their shareholders in the form of buyback. Is there a way of thinking at our level also, to change the way we were rewarding shareholders in the past and try to help boost the market capitalization?
No, while we expected in the last buyback also that it will improve our share price and will result in rewarding to the shareholders. It did not happen so. We do not think anymore that this is an effective way of, say, rewarding shareholders, more so at the current price. As such, the company does not have any plan. The Government of India also has a holding left only at 51.5% level now, and I do not know whether they have any plans for, say, asking us to do any buyback at this point in time, and whether that will be of any use or not. As of now, no plans of any buyback.
Okay. Sir, we have around INR 91,000 crore of debt at our company as on 30th September. Could you explain that what are the components of this debt, long-term, short-term, lease liability, and till what extent we can go in raising the debt given we are already now stretching on the net debt to equity ratio versus the past ratios?
In fact, you should appreciate that there has been lot of easing on this front, actually. We touched a peak of INR 126,000 crore in April.
Higher from INR 116,545 crore on 31st of March 2020. Now we are at INR 91,500 crore debt level. There is lot of ease on that front. Now with increase in sales and expected improvement in the crack spreads for the product with the rising demand, the situation of generation of internal resources should get strengthened, actually. That will ease their borrowing position further. We are not at all apprehensive about it. Yes, our CapEx plan may have some impact on our borrowing, down from 1.24:1 debt equity as on 31st of March 2020, we are at 0.89:1. Definitely, we do not feel any pressure on the borrowing side as of now. Plus, you must also appreciate that this amount of INR 91,505 also includes about INR 8,700 crore worth of lease obligations, which is not borrowing per se, which is included in this 0.89:1 debt equity ratio.
We are not uncomfortable about this borrowing position.
Okay. Sir, what is our CapEx plan for this year and next year, remaining year and next year?
As I mentioned earlier, the current year plan was INR 21,000 standalone, about INR 5,000 crore group companies, total INR 26,000 crore. We intend to better this figure. In fact, we spend more. Again, for next year also, our CapEx plan will be in this range only. Not less than that, definitely. That is very important for our growth of top line also. As I mentioned earlier, we are approving projects only based on strong viability, we are not wary of doing any CapEx approvals.
Okay, great, sir. Thanks a lot, sir.
Thank you, sir. Ladies and gentlemen, if you have a question, please press Star and One on your telephone keypad. We have next question from Probal Sen from Centrum Broking. Please go ahead.
Thank you for the opportunity, sir. You mentioned about the core margin actually going to negative INR 33 and the inventory gains, of course, being more than almost INR 9. Obviously, there is an element of inventory plus a price lag. Is it possible to separate the two, sir, for this quarter? How much has been due to that typical 15-day lag in marketing pricing and how much is just the crude inventory movement?
No, I don't have those figures right now with me.
Okay.
On a cumulative basis, you should also see if we had inventory gains this quarter, we had inventory losses in the previous quarter also. On a six-monthly basis, if you see the inventory gain or loss on a net basis, inventory gain constitutes about 38% of my PBT only. The rest all is coming from the business.
38% of PBT is broadly from inventory, right?
For six months period, yeah.
For six months, yeah. Okay. Sir, the second question was you mentioned, I think, I'm sorry if I missed it, you mentioned about the volume that you are holding in terms of inventory. Can you just repeat that number and tell us how many days of product and crude we are holding right now in the system?
I gave you a number of 9 million ton for crude and 8.4 million for products.
Okay.
I am not converting into number of days because.
No.
sales set up.
Yeah. That's fine, sir. Obviously, in terms of marketing EBITDA, if I look at just the gross margin or an EBITDA also, there has been a little bit of a decline. Can you just throw some color in terms of what has actually driven that dip on a QOQ basis?
While how much margin we keep in marketing is something which is privy to us, I will not like to divulge further details. What I can say is that we treat marketing margin as complementary to our refining margins. In the periods when the refining margins, core refining margins are low, we can definitely make up through marketing margins.
This quarter, because with inventory gains, we have made better refining. We have actually passed on that or have sort of moderated our pricing for marketing. Is that a fair way to look at it?
I'm sorry, I will not be able to tell more on marketing margin side.
Okay. Fine, sir. Thank you for your time, sir. All the best.
Thank you, sir. We have next question from Sabri Hazarika from Emkay Global. Please go ahead.
Good afternoon, sir. The first question I wanted to know is, what are the refinery expansion plans, expansions currently going on and which are finalized as of now?
Yeah. The first is our Bongaigaon Refinery, where we are putting up an INDMAX unit, and with commissioning of that very shortly, the capacity of Bongaigaon Refinery will go up from 2.35 million metric tons to 2.7 million metric tons. That is happening perhaps within a month's time itself. The second is the Barauni Refinery expansion from 6 million ton to 9 million ton, which we approved some time back, and the work on that is progressing, but that may take about three to four years' time to mature. It is also coming up with some chemical projects along with. Recently, the board approved Gujarat Refinery expansion along with the Lube and Petrochemical integration. This will increase the capacity of Gujarat Refinery from 13.7 million metric tons to 18 million metric tons. These are broadly the refinery expansion projects which are going on currently.
Nothing on Panipat Refinery 10 million ton expansion. That has not been finalized, right?
No. Not at this stage. The preliminary work, stage 1 approval was granted some time back. The work on the detailed feasibility report is going on, but we're yet to come to board.
Okay. Second, I have a few bookkeeping questions. What was the H1 CapEx for the company?
It was INR 7,500 crores.
Okay, subsidy outstanding from government?
In respect of claims launched up to 30th of September, the subsidy as on date, you are talking about subsidy? Okay.
Yes.
Are you talking about GOI outstandings?
Yeah, GOI outstanding.
In respect of claims launched up to 30th of September, the outstanding amount is INR 7,285 crore, as on now. As on 30th of September, it was INR 9,163 crore, but further claims have been realized, and it is now INR 7,285 crore.
Okay. That free cylinder subsidy has been totally reimbursed, and currently it is not going on or is it going on right now, this free cylinder?
No, it was not a subsidy actually. The free cylinder advance was given, and the amount was to be claimed back from Government of India based on the refills taken by the consumers. That period has now been extended up to 31st of December. As and when the refills are taken, we will be launching the balance claims also with Government of India.
Okay, there is no delay in that recovery. Okay.
Okay.
And lastly-
Sorry to interrupt, sir. Could you please join back the queue for further questions?
Okay, thank you so much.
Thank you, sir. We have next question from Sumeet Arora from Smart Sun Capital. Please go ahead.
Hi, sir. Very good afternoon to you. Sir, just one question. I have two questions. One is on your fuel retailing outlets. How many do we have in total? How many have we added in the first half of this financial year? How many do you plan to add in the rest part of this financial year? Sir, secondly, my question is, sir. This question is more to you as an investor rather than an analyst. Sir, today, it's actually a joke. Market cap of Indian Oil is at $10 billion . Okay. It's truly unbelievable on what is going on. On your point which you made about buyback proposal, sir, my only point is it's a very humble request that if you want to increase valuation, then obviously the promoter of the company should never participate in a buyback.
The matter of fact is that we have 51.5% Government. Government does not buy back our shares. They don't tender when you buy back. We have share goes up to 60%, the share price can go up by three times, ultimately this is India's wealth. My only point is that, why is It's not being focused on value creation because ultimately, we are the largest refining company in the country. How can the largest refining company in the country have a valuation of only $10 billion? It is absolutely not possible, sir. I really feel that you should set up a committee, and this should be looked into. It's my very humble request because ultimately, it's going to benefit all stakeholders, whether it is majority, minority, or whoever it is. Government of India should never participate in any buyback.
Why should they participate in a buyback? My only request is please have a look into this, sir.
Yeah. Okay. First on the RO question, we have a target of about 2,400 ROs setting up in this year, and till September, we have commissioned 994 ROs, and we are sure to achieve the targeted number of 2,400 ROs in this year. Second one.
Sir, totally, how many do we have totally? How many do we have today?
We have now about 30,000 ROs.
Sir, how many do you plan to add in the next couple of years?
This is generally the plan. We will be adding about 2,000 to 2,500 ROs every year.
Okay, sir. That's wonderful, sir. Thank you so much. Wish you all the best, sir.
Thank you.
Thank you, sir. We have next question from Aditya Suresh from Macquarie Securities. Please go ahead.
Sir, thank you for the opportunity. First is, to the previous question which Sumeet asked, if we can get a response. That's a very pertinent question. Just on the buyback again, just from a mathematical standpoint, if your stock is at five times P/E, that's almost like a 20% earning yield. This return is likely to be far greater than any of the CapEx that you're planning to do on refining or gas or any of that. The backdrop is one of exceptionally cheap cost of funds. It seems mathematically compelling to do the buyback. If you can give your thoughts on that in terms of what would it take for you to do the buyback. I guess I have a follow-up to that, but if you can first answer that question, sir.
Okay. We will look into this issue of doing a buyback also. You are aware that we being a government company with more than 50% holding by Government of India, any decision will be based on government's mandate also. We will look into this.
I guess as a secondary question to this is, if I was a minority shareholder over the past, say, couple of years, the share price has fallen by about 60%-70%. To the point about generating returns for minority shareholders, what are the steps which IOCL management is taking to help minority shareholders?
Look, as far as physicals are concerned, physicals only are in our hand. As far as physicals are concerned, you can see the performance of company has been extremely good and continues to be good. The international prices are not in our hands. So is the case with the perception which you create, you investors create, you analysts create, that is also not in our hand. We are trying to do whatever is in our hands to the best of our capability.
Thank you, sir.
Thank you, sir. We have next question from Nafeesa Gupta from Bank of America. Please go ahead.
Thank you. Good afternoon, sir. Sir, firstly, on CapEx, could you provide a breakdown of the Petchem CapEx for this year and maybe for the next three, four years? Also, in the new technologies like hydrogen fuel cell and the battery swapping, how much are we looking at in terms of CapEx?
Can we listen now? Yes, Nafeesa.
Yeah. Hi, Nafeesa. This is Avinash.
Hi.
Basically, in the current year, as Director Finance, mentioned . We are looking to spend something like INR 21,000 crore. In that, little more than INR 4,000 will go into refineries, which will consist of some balance payment of BS-VI and the 2G ethanol plant and some of the product fuel expansions which have been approved. In pipeline vertical, we will be spending more than INR 4,500 crores. It will be going on, we are laying a natural gas pipeline in southern part of India and also Paradip-Hyderabad product pipeline and also LPG pipeline on the eastern part of India. On the marketing side, we would be spending little more than INR 5,500 crore. About INR 1,500 crore will be going into cylinders and regulators.
About INR 1,500 to INR 2,000 crore will be going into retail outlets. Other amount will be going into revamp of storage points and LPG bottling facilities. Another major vertical is Petchem, where we'll be spending more than INR 2,000 crore. Currently, the MEG plant is being set up at Paradip refinery and revamp of PX/PTA and small time expansion of Petchem capacity in Panipat is going on in full swing. We will be spending about close to INR 5,000 crore in our joint venture and other projects. This would be the broadly breakup for the current year.
Right. For the newer technologies, like the renewables and the hydrogen cell and EVs?
On gas, we would be spending more than INR 1,000 crore, and in other, it would be less than INR 500 crore.
Got it.
Those are smaller activities. They do not entail so much of CapEx. The hydrogen things, et cetera, are in the nascent stage only. They are at R&D level only. They will not call for immediate any sizable CapEx as of now.
Right. Sir, my second question is that.
Yeah, please go ahead, ma'am.
Yeah. Sir, the second question is that, in the times of such fluctuations in crude prices, do we change our inventory holding period, which is about 40 days? Do we reduce it when there is such volatility?
In our case, in the case of Indian Oil Corporation Limited, this level of inventory is based on the refinery locations. Because certain quantity is already locked up in the cross-country pipelines for crude, which transport the crude from the port locations to the refinery locations. We do not keep any swing inventory to take the benefit of the price levels. This is sort of about eight to nine million tons is sort of the optimum inventory for us.
Okay, sir. Sir, if I may, the ethanol prices were increased by the government some time ago. What kind of impact does that have on your marketing margins, if it does?
No, nothing, because it does not have an impact. This is neutral for us. If the cost of ethanol is more, we claim from Government. If it is less, we surrender in the pricing.
Got it, sir. Thank you.
Thank you, ma'am. We have next question from Harshad Borawake from Mirae Asset. Please go ahead.
Good afternoon, sir. Two questions from my side. First is on the CGD business. Once, let's say, open access comes in, so as a company, are we open to do CGD business on our own or continue to do in a JV format?
No, we-
I'll ask the second question after this.
Yeah, we have both the models operating for us. While for certain geographical areas, we have picked one on our own. For others, we have done it through our JVs, two JVs, where we are JV partners. Going forward also, we may operate both the models, depending upon the situation.
Theoretically, in case if Delhi and Mumbai opens up for third party, you would be open to dispense CNG on your own, through your own stations. Is that correct understanding?
Let first of all, let it be opened up.
Okay. Sure. Secondly, on this discussion on buyback. I was just wondering in terms of our CapEx, I think this year we are planning some INR 25,000 crore-INR 26,000 crore CapEx. In terms of capital allocation, what's the hurdle rate on the CapEx side and how does it compare with, let's say, the returns if we buy our own share. Are we planning to do or already have we done this kind of study?
As I mentioned initially also, we do not have any immediate plans of buyback and hence, any such kind of studies, we do not have this. As I mentioned, since there are a lot of proposals for buyback, we will definitely look into it.
Sure. Okay. Thank you.
Thank you, sir. We have next question from S Ramesh from Nirmal Bang Securities. Please go ahead.
Good evening and thank you very much. In your petrochemical segment, can you explain how you increased your petrochemical EBITDA with the products driven by improvement in margins?
Mr. Ramesh, sorry to interrupt. Your voice is not clear. If you can just repeat the question.
Yeah. I just wanted to understand the key drivers for the increase in the petrochemical EBITDA from INR 720 to INR 1,211 crores on a YOY basis. Any particular product, or was it driven by volume or pricing?
It was mainly because of volumes, because in the previous year, our VHPT did not operate for a considerable period during the first half.
Okay. The second part is, in terms of the trend in the current half year, would you get a sense that your petrochemical business will do better than the refining business, given that there is some traction in terms of demand growth in petrochemicals and the spread?
Your voice is not very clear. A lot of disturbance from your end.
Sorry. I was just asking, based on the performance of the petrochemical segment so far, is there a sense that your petrochemical segment perhaps may do better than your refining and marketing segment in the second half? How do you see the output going forward?
Petrochemical sector doing better than refining?
Yeah.
I do not know whether you are on absolute or you are on percentage terms, so I'm not very sure.
I'm just trying to get a sense in terms of your reading of the markets, because there is a significant improvement in petrochemical business.
My expectation is that it has been very long that the refinery crack spreads are languishing, and it is not sustainable for any refinery world over. With some ease in the COVID situation, as and when that happens after this second wave, which has gripped Europe and U.S., I think the refinery crack margin should improve quickly, and I believe definitely the returns from refining and marketing would also be robust.
Okay. Thank you very much, sir. That was helpful.
Thank you, sir. We have next question from Manikantha Garre from Axis Capital. Please go ahead.
Hi, sir. Thanks for providing me the opportunity. Just wanted to check with you on this H-CNG technology. Wanted to understand what kind of efficiencies that it can bring versus CNG. That's the first one. Are we also going towards or thinking towards producing hydrogen, end of the day, from this technology? Is that possible or that is completely unrelated? That's my first question, sir.
The last part I could not get. Which technology?
With this H-CNG technology that you have brought out.
No, H-CNG, I got.
Are we moving towards H2 production directly, hydrogen production directly?
Yeah.
Are we also working on this part?
Yes. This H-CNG, as I mentioned, as compared to CNG, this is expected to achieve about 8% economy. As I said that we are on a trial basis, 50 DTC buses will be running for six months. Based on the results, further course of action will be decided. On hydrogen production level, yes. Our refinery R&D Centre at Faridabad is working on a lot of technologies through which hydrogen can be produced. There are at least three, four technologies which I am aware of, on which they are working. We have definitely good plans for hydrogen production also.
Any commercial timelines that you are working with here for the hydrogen production?
No, they are at presently research stage.
Okay. Just one question with respect to the RO addition, sir. As of now, we have 30,000 retail outlets, and you said that you'll be adding 2,000-2,500 ROs every year. That's like a 67% addition every year. I see that our peers are adding at much faster rate, and in the context of continuous reduction in market share in MS and HSD, just wanted to understand, is that enough? That RO addition is enough with the scale that we currently have?
Yes. We are aware that we were left out actually in this race of setting up RO. For some time now, and now we have ramped up our RO setting up. A lot of LOIs, new LOIs are now available with us on the strength of which I am saying that we will be able to complete this RO setting up target of about 2,400 for this year. Going forward also, we will be setting up more and more ROs, and we will ensure that we are not left behind.
If you can excuse me one question here, where are these being targeted? Which parts of India predominantly?
No specific. This is a commodity which is consumed everywhere on a pan-India basis. These ROs will come in every nook and corner of the country, and definitely, we are looking for good sites to have these ROs.
Got it. Thank you.
Thank you, sir. We have next question from Rohit Ahuja of BOB Capital Markets. Please go ahead.
Thanks for the opportunity. Sir, just wanted a view on the petroleum product consumption growth. Now that we've seen a decline in the first half of the year, do you see a need to expand your refining capacity over the next 3-5 years, considering that we are unable to grow our consumption beyond 3%-5% at the industry level?
We have with us a lot of estimates from the consultants who project the demand for petroleum products by, say, 2024, 2025 or 2029, 2030. On the top of it, we have a full-fledged corporate economic, corporate planning, and economic studies cell within IOCL, who also does an independent study and forecast the petroleum product consumption in the country. In fact, our independent study has also corroborated the views of the consultants for consumption of petroleum products in the short term and the long term, which supports setting up of new refining capacity in the country. We are proceeding accordingly for creation of new capacity. Whatever projects we have approved till date definitely find support by the demand numbers.
Going forward also, whatever projects are on the drawing board, we will be very cautious that if there is a demand, then only those projects are set up. There is lot of negativity around fossil fuels, it is said that the consumption of fossil fuel is going to be stunted or maybe has peaked, which is not. The recent BP report also says that for India is different than the other parts of the world. In India, the petroleum product consumption will peak around 2,050 only. We do not have any apprehension that the petroleum product consumption in the country is going to grow very handsomely, and our refinery plans are in line with that assumption only.
Do you see a risk there? We are net exporters of refining products. We have excess refining capacity than what we consume. If the export market shrink, which is expected over the next five years for up to 2025, do you still see a reason for domestic capacity to expand?
No. I am saying that we are not putting up refineries for exports. We are putting up refinery for domestic consumption. As of now, the estimates, whether they are external estimates or our internal estimates, all of those estimates support setting up of newer capacities.
Do you see still a reason for the JV refinery that was planned, the mega refinery along with Saudi Aramco being an investor in that in Maharashtra? Do you still see the case for that to come up?
No. The case or not will be seen later on. First of all, the land issue is required to be resolved, which is still hanging on. Let that problem be first overcome, and then we will see the interest of Saudi Aramco and ADNOC. We will also have to see the scenario with BPCL privatization. Then only any call can be taken on this West Coast refinery.
Got it. Sir, last few year, we had seen a lot of queries on the buyback and concerns on the share price underperformance. Also, one of the reasons being quoted is, what is going to be your cash flow. Are you looking at any inorganic move towards any other PSU within this sector or in ancillary sectors Or you'll be asked to acquire any of them? Can you give any light on that?
No mandate, so no plans as of now. However, we'll be very happy if any such lead can come to us and if it makes business sense.
Okay. Thanks.
Thank you, sir. Last question for the day comes from Sumeet Arora from Smart Sun Capital, which is a follow-up question. Please go ahead.
Hi, sir. Thank you once again for giving me a chance. Sir, just on my reason for buyback, I would like to highlight this to you. This transaction has happened in Asia as we speak today, wherein Royal Shell has bought 51% of its local partner out for a valuation of $1 billion for gas station, which is basically 13, 14 P/E. Sir, my only humble request is because I clearly see value creation in a huge way for Indian Oil Corporation, and I really believe in this company and its institution. Sir, I would tell you that if Royal Shell is buying its joint venture partner 14 P/E.
We surely, sir, at four, five P/E and a 21% earning yield, sir, we should definitely consider buyback because I clearly believe in you all, and I clearly believe this company is not worth under INR 40 billion, sir. It's my humble request to you as an investor, please consider this option, sir, because this company is a true jewel of India. It is not worth INR 10 billion. Please look into this, sir. You can see the deal today, which has happened in Asia, and that's all I would say that, sir. It's all over to you, sir. Thank you very much and all the best for our glorious future, sir.
Thank you, Mr. Sumeet. Thank you for having confidence in Indian Oil and its work. We also have the same belief. I do not know how the markets are perceiving differently towards IOCL. We also believe that perhaps this share price is not a true reflection of IOCL's potential and its performance. I believe that as your role, you will definitely provide a better perception for Indian Oil Corporation. Thank you very much.
No, sir. The only reason is because I clearly see it. I clearly see the global valuations. Why should only Indian companies not get valued? We have the best of funds in India today, but they don't invest in public sector because of reasons of minority shareholders rights. Please look into this because there is huge value, there's huge opportunity, and there's huge growth for this company, sir. A very small measure on your end will rerate the entire public sector in India today, sir. That is my only opinion and my humble request to you, sir. That's all.
Thank you very much.
Okay, 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 for giving me the opportunity to host them for the post result call. Thank you to all the investors for giving. Thank you so much.
Yes.
Thank you, sir.
Thank you for joining.
Thank you, sir. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Chorus Call Conference Call Service. You may disconnect your lines now. Thank you and have a pleasant evening.