Ladies and gentlemen, good afternoon, and welcome to the Indian Oil Corporation Limited 4Q FY 2020 call organized by Batlivala and Karani Securities India Private Limited. At this moment, all participants are in a 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. I would now like to turn the conference over to Mr. Bhavin Gandhi. Please go ahead, sir.
Thank you, Ashish. Good afternoon, everyone. On behalf of Batlivala and 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 result discussion with the investors. I would now like to hand over the call to the management for the 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 Agrawal, General Manager of 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. Since this is an earnings call, I will request you to restrict your questions to annual accounts. Now, I hand over the call to Director of Finance. I yield.
Yeah. A very good afternoon to you all, dear investors and analysts. First of all, I pray for you all being safe, including your family members, et cetera. I take this opportunity to welcome you all to the conference call post announcement of the Q4 results of 2019/2020. 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 the 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 2020. The capacity utilization of our refineries had dropped to almost 40% in the beginning of April 2020.
The corporation has been able to gradually raise the throughput of its refineries from about 55% of rated capacity in the beginning of May 2020 to about 78% by the end of month, and above 90% during first three weeks of the current month, that is June. 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 three weeks of June. Similarly, for gas oil, the demand was about 45% in April, 69% in May, and about 87% in three weeks of June. ATF loads took the hardest hit with sales of only 9% in April, about 17% in May, and about 31% in the three weeks of June.
On the contrary, LPG witnessed a robust growth, and it was a double-digit growth in April as well as May, 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 first three 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 2020. 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.
In fact, we are continuing with all of our projects. The COVID-19 period was in the start very challenging, and the functional directors met almost on a daily basis, through video conferencing, 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 lakh in the case of death of any of those, and also provided insurance of about INR 3.10 lakh frontline personnel, to gain their support and continue the supplies uninterrupted. As far as crude supplies were concerned, initially, we did serve force majeure notices on some of the Middle East suppliers. Based on mutual agreements, either the parcels were deferred or they were canceled. 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. This way, we could manage our situation well, as far as crude procurement is concerned. 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 two 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 ton and is less than throughput as recorded in Q3 of current year, which was 17.5 million metric ton. The demand for finished products was impacted in March 2020 due to COVID-19-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 2019, which was at 80.6%. Fuel loss during the quarter was 9%, whereas during the preceding quarter it was 8.8%. The marginal higher fuel loss is also because of the lower divisor. Our refineries registered a negative GRM, $9.64 per barrel during fourth quarter, which was primarily due to the huge inventory losses which we had to suffer because of the crash in the prices. 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 2019/2020 is $2.64 per barrel as against $4.81 per barrel in the year 2018/2019. 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.
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 tons as compared to 21.765 million metric ton in the preceding quarter. The fall in sales volume is mainly on account of COVID-19-related shutdowns. On year-on-year basis, the product sales fell by about 0.7 million metric ton to 83.887 million metric ton in financial year 2020 as compared to 84.615 million metric ton in financial year 2019. These can be attributable to fall in sales in almost all the products in March 2020 due to COVID-19-related issues.
According to 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 2019, 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 under shutdown in the first quarter of financial year 2020 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 2020 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 INR 28,316 crore during 2019/2020 under the head capital expenditure. However, the internal accruals remained muted during 2019/2020, 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 has recognized new leases of about INR 4,400 crore during the year. This increase, and with the previous leases totaling to about INR 8,000 crore, is shown as borrowings in the accounts.
Further drop in sales of petroleum products 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. Now we'll be approaching the shareholders during our AGM for increase in the borrowing limit to INR 165,000 crore. I must clarify that this is only an enabling provision, so that we are not required to go frequently to the shareholders. The last such increase was 10 years back. Though we are taking this enabling authorization from the members, we do not anticipate our borrowings to go to that level.
In fact, as against the 31st March levels of INR 116,545 crores, we expect that by 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.
Certainly, 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 phone and await your turn to ask the question when guided by the facilitator. If your question has been answered before your turn and you wish to withdraw your request, you may do so by pressing star and one again. We have our first question from Probal Sen from Centrum Broking. Please go ahead.
Thank you very much for the opportunity, sir. Good afternoon. I had a couple of questions. One, if you can give us some sense. You mentioned that the core margin or the, rather the normalized margin net of even the marketing-led inventory gain was about two-point-something dollars for the quarter. Can we get a sense of what trends you have seen in first quarter, particularly given that 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? 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 2021 CapEx could actually be materially lower, just because you won't be able to actually deploy that much capital in this year? If so, if you can give a guidance on what that number could look like.
First I will come on the expected margins during the current quarter. The OSPs declared by the Middle East suppliers have shown quite handsome discounts for the first quarter months. 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. That benefit definitely accrues to us. However, the crack margins, which is based on international quoted prices, is very subdued because of the destruction of the demand. I believe these things will set off each other. 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%-86% for MS and about 88%-89% for HSD 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. We expect a 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.
Okay.
You are correct that the demand has taken a beating. 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. We will definitely consider the destruction of this demand, which may perhaps take one or two years to revive. We will be cautious in approving new projects. 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.
Thank you very much. Sir, just if I can follow up quickly. What I meant with respect to the CapEx question was also that the sheer 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? Deferment, you are not doing, that is appreciated. Literally to get the amount of work done that you would have planned, is it fair to assume that because you have lost one 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.
We also examine from that point of view also. We, in fact, took a stock of all our projects. 300+ projects we reviewed, and we sort of got information that the work is on all those projects on ground. You would also be aware that in many parts of the country, the labor force has also started returning. As of this point, we are hopeful that we will be able to achieve this CapEx for the current year.
Got it, sir. Thank you so much. I'll come back if I have more. Thank you, sir.
Sure.
Thank you, Mr. Sen. We have our next question from Sabri Hazarika from Emkay Global. Please go ahead.
Yeah. Good afternoon, sir. I've got three questions. The first one is a bookkeeping question, sir. You reported around INR 11,300 crore of exceptional inventory loss because of COVID-19. Can you give the breakup between refining and marketing for this? 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?
Yeah. Refinery is about INR 8,000 crore out of this INR 11,305 crore, and balance is marketing.
Balance is marketing. Okay, sir. Second question is, this year, if I look into FY 2020 earnings, you had a INR 1,300 crore profit. Of course, it had around INR 11,000 crore of inventory gain. Sorry, it has got inventory loss also. Net-net, this year was an exceptional year in terms of it has led to 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 accruals. How do you see FY 2021 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.
What kind of free cash flow generation you are targeting for FY 2021, and do you think that they could remain at around INR 1 lakh crore or it could even go up, like risk of it going up to, say, higher levels?
Look, while there is a lot of volatility in the prices and a lot of uncertainty around COVID-19 also, whether there is going to be a second phase or not, to what extent and to what part the recovery will happen in demand. 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. Perhaps the situation will improve, and we hope that there is not going to be any second phase of this COVID-19 virus. 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 kerosene also.
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. If that happens, there will be certain internal accruals which will support CapEx. Otherwise, also, like I've said that by end of this month, we expect our borrowings to go down to INR 100,000 crore level. There is a decrease of about INR 26,000 crore from the highest level which we had to face sometime in April, which was INR 126,000 crore. We expect the borrowings to dip further with increase in demand.
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 net equity levels still will be very manageable and perhaps will be lower than 1.24, which is getting reflected as on 31st of March 2020.
Right. Of course, not predicting for it, but suppose refining market remains weak and there are further inventory loss, Forex loss scenario coming up. Would you be quite comfortable in increasing marketing margins to 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, sir. Let the situation come.
All right, sir. Sir, just one small question. What is the government subsidy outstanding for the FY 2020 end?
It is about INR 13,000 crore as of now. We have recovered about INR 5,855 crore since 1st of April, and we are also recovering some amount now in the current month. Every month, we are getting some payments in liquidation of GoI dues. You would also be aware that because of the lower Saudi CP prices, the LPG subsidy has practically waived off. There is practically no SKO subsidy. Going forward, the addition in the subsidy levels is not there, and liquidation only is expected.
Okay. Thank you so much, sir. All the best.
Thank you, Mr. Hazarika. We have a question from Pinakin Parekh from JP Morgan. Please go ahead.
Yeah. Thank you very much, sir. Three quick questions. My first question is, the financial statements say that there has been an inventory impairment of roughly INR 11,000 crores or so, and there is an inventory loss of around INR 18,000 crores or 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?
First of all, I hope you are clear about what is this INR 18,000 crore inventory loss. This is in comparison with the opening inventory levels. 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. As to your question, the closing inventory rate was at about $36, $37 per barrel after the inventory loss hit. Now the present rolling price of the crude is at about $41, $42. 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. 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 one. That all depends on how the prices behave going forward.
Sir, just to clarify the close. Yes, just to clarify the closing crude price you assume is 31st March Brent or the average for the last 15 days or something? The closing 31st March Brent was, I think, around INR 22 or INR 23.
As for accounting guidelines, we have to see that if that crude is processed into the products, that products will be sold at what price. Since we had a longer period available when we declared the result after 31st of March, we have considered the net realizable value of all that product which got produced from that crude. Based upon that, we have valued our inventories.
Understood. My second question is that, when we go back to BS VI, IOCL has undertaken a CapEx of INR 17,000 crores. Back before COVID, there was talk about a one-time 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 crores? Would a INR 1 price hike be enough, or will it be a more or a smaller amount?
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. We calculated a compensation which was desirable considering perhaps the life of the BS VI product. The entire amount, which was a fair compensation to the refiners, has already been inbuilt in the prices and we are already start recovering that.
Okay. Basically right now the current prices reflect whatever you as a company would have assumed as a fair return, sir. Correct, right?
Yes.
Lastly, sir, if I look at petrochemical sales volume, it was around 2.28 million tons for FY 2020. Sir, how should we look at this segment over FY 2021 and 2022? There were major projects which were completed in FY 2020, and there is some more petchem capacity also coming up. How would this business trend over this year and next year in terms of volumes, in terms of margin mix or shift in margins?
Look, as I mentioned in my opening remarks, the PX/PTA did not work for one quarter in the last year. 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. 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.
Understood. Thank you very much, sir.
Thank you. We have a question from Mr. S Ramesh from Nirmal Bang. Please go ahead.
Good evening, gentlemen. First, a housekeeping question. In the company handouts, you have given an inventory loss of around INR 18,000 crores. Does that include that exceptional loss of INR 11,000 crores?
Yes, it does include that.
Okay. If you look at your EBITDA numbers, based on the segment EBITDA, it adds up to a loss of INR -9,370. Usually you include the other income in your EBITDA. If I add back the other income of INR 1,722, there's a loss of around INR 11,000 crore. What is this due to? Is part of the exceptional also included in that? Because we are not able to reconcile. Yeah, see, if you look at the EBITDA excluding the exceptional loss.
You asked the question very fast, so I couldn't get you. Mr. Rohit Agrawal will be able to tell you.
Yeah. If you look at the EBITDA excluding the exceptional loss, it will be around INR 232 crores. If you add back the other income and off the other income in this negative EBITDA loss, the actual loss is something of the order of INR 11,000 crores. I was just trying to reconcile that with the reported EBITDA excluding the exceptionals.
This EBITDA, I suppose, is including exceptional.
This EBITDA includes exceptionals?
Yeah, because I am seeing EBITDA INR 11,000 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.
Yeah.
Refined INR 9,370, marketing plus INR 7,000. Sorry, quarter-wise. Quarter four, INR -9,370. That totals to year INR 11,061. I hope you are looking at that EBITDA.
Yeah, I'm asking about the quarter four, fourth quarter EBITDA.
Yeah, that's the -INR 9,370?
Yeah. Yeah. They have not added back that exceptional to that.
This doesn't include that exceptional loss.
Yeah.
Yeah. If you add back the other income, so other income is included in that, right?
Yes. INR -9,000 is including all the inventory losses, including the exceptional.
No, I understand that. If you want to get the EBITDA excluding the exceptional, because the exceptional is below the line. 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 crores. I'm just trying to reconcile that with the reported EBITDA in your P&L for the fourth quarter.
That I think we can discuss with you separately, I think.
Yeah, we'll do that.
We will give a recall.
Sure. 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 differences have been pretty much next to nothing. You are banking on improved spreads, or do you also expect the sour sweet differentials to widen in favor of the lighter crudes or sweeter crudes? Would that also be a factor which would help improve your refining margins going forward?
Can you please repeat your question?
Yeah. In the commentary given by Mr. Gupta, he said refining margins could improve over the rest of the year from second quarter based on the improved spread. I just wanted your perspective on the prospects for complex refiners like IOC, where you have secondary processing. If you look at the sour sweet differential or light heavy differential, that also helps the complex refining margin. 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 for your average crude slate being cheaper than, say, the normal benchmark and that also to help you improve your margins?
We are generally processing about 50% sweet and 50% sour.
Okay.
If that is the trend, it perhaps does not matter much with the differentials, I believe. Our main stay is on the crack product margins.
Okay.
We expect that should improve to give us some support.
Yeah. 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 2,200 crores. Can you give us the breakup in terms of how much would be the loss in E&P or where exactly you have lost at the EBIT level in the consolidated numbers? The other segment.
We lost in E&P only, that is because of the impairment which we had to take because of the crash in the prices. That is also disclosed by way of note number, where it is INR 1,345 crores for our Caribbean assets.
Okay.
And s ome minor amount for U.S.
Okay. Basically for the North American asset. Okay. Thank you very much.
Thank you. Before we take the next question, I would request participants to press star and one to ask a question. We have a question from Mr. Vidyadhar Ginde from ICICI Securities. Please go ahead.
Hello. Good afternoon. My first question is that if you could share with us some color on your crude imports, the source, I really like to have what proportion of your crude imports come from Saudi Arabia, Iraq, UAE, Kuwait, Nigeria. That we get some idea on the kind of discounts you may have enjoyed this quarter.
Look, this is a classified information.
A rough idea or can I say that it is roughly in line with India's import basket?
Pardon?
Do you have some idea on the extent of crude India imports from these countries? Is your mix likely to be very similar to that?
I cannot really divulge 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. What is it at cost? What was it at cost?
Now, the cost.
What do you mean?
Well, that can be calculated because we have.
It's about $17, $18. Will it around $54 then? I think that is the extent of the inventory loss.
I do not have that figure before me right now.
Sounds fine, over INR 50 at cost.
Together, I think we can back calculate it.
Yeah. It works out to around that kind of a number.
We can calculate and do it, because we don't do that back calculations. No calculation on that one. You can back calculate.
Lastly, if you could give us some color on your likely petchem utilization rates?
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, which is generally more than the capacity. We also have now polypropylene both chains functioning, and we also expect that to run to full capacity.
Except for during the lockdown initially, rest of the unit will be t he impact only will be in the first quarter.
Yeah. We explained to you that some of the units, even during lockdown, continued uninterrupted.
Correct. Thank you.
Thank you, Mr. Ginde. Participants are requested to restrict the questions to two at a time. We have a question from Mr. Rohit Ahuja from BOB Capital. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, two questions from my side. First thing will 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?
Yeah, 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 our refineries to come back to 100% level latest by July end. Sales, as I explained the MS, it is the sales are in the range of 85%-90% on YOY basis, corresponding to the corresponding month of the last year. As I mentioned, that the recovery rate has been faster than what we expected initially. 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%-6% hit.
Second question would be on the inventory loss. Whatever you 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. That discount is also set off because of the lower cracks which are prevailing as of now, starting from the lockdown periods. The Q1 GRMs definitely may not be very handsome. 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, do you see good again?
As I mentioned, the level of the inventory valuation was about $36, $37 per barrel. The crude prices which are rolling as of now is about $41, $42. There is some recovery, but it depends largely on what prices prevail even beyond 30th of June, because we are required to value our inventory at net realizable value.
Okay. Thank you.
Thank you, Mr. Ahuja. We have a question from Nafeesa Gupta from Bank of America. Please go ahead.
Thanks. Good afternoon, sir. My question is again on inventory losses. According to the results, it says that in the specified period, the write-down on valuation of inventories below cost was to the tune of INR 6,800 crores. We've taken exceptional losses, INR 11,300 crores. This is due to a specified longer time period which has been taken for inventory losses. Just wanted to understand as to what this longer time period is and why have we considered a longer time period and not just the quarter?
Normally April period and not June. Normally, when we close our accounts, say within 35-40 days of the close of the period, we take a particular cutoff date which is within April. This time, since 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 around 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 the 1Q numbers, if not 4Q?
Yeah, definitely.
Okay. We are just hoping to recover some of these, and then so that is the reason that we kind of put 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. I'm not sure whether that will get recovered within this quarter or not, and to what extent. Definitely with the increase in prices, this amount will get recovered. As I mentioned, we valued at about INR 36, INR 37. Now the prices are INR 40, INR 41.
Got it, sir. Sir, my second question is on refinery expansions. 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 this?
Haldia had a project of distillate yield improvement. 0.5 million ton 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 began, and we are increasing its capacity. With the commissioning of INDMAX at Barauni refinery, our capacity will increase to 2.7 million tons from the present 2.35 million metric tons.
Okay, sir. Thank you. 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 stock 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?
Yeah, we should actually. If I see my inventory levels, say on 1st of March, we had 8.8 million tons of crude. 1st of April, we had 9.8 million tons. 1st of May, we had 11.4 million metric tons. We definitely, 1st of June it was 10.2 million metric tons, and going forward in the subsequent months, we are back to our normal levels of 8 million ton of inventory. We definitely built up some inventory during these periods. We did not surrender much of crude except for the 7 million barrels, which is roughly about 1 million ton only, which we gave to ISPRL for its strategic reserves. We definitely have crudes bought in this low period scenario, which should give us some benefit going forward.
Okay, sir. Thank you so much.
Thank you. We have a question from Mr. Mayank Maheshwari from Morgan Stanley. Please go ahead.
Thank you for the call, sir. 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?
Nothing very significant. With the increased play of private players, we have been losing some market share, which is very natural to happen at least to the biggest player. You asked about last quarter?
Yeah. I was just looking at last quarter and how has been it faring after that.
In fact, during the lockdown period, we may have gained some market share instead of loss. Definitely there is no loss of market share during this lockdown period.
Okay. In the fourth quarter, what was your market share, if you can just give us some detail?
The BFP numbers?
We have our annual numbers. We'll give the details separately.
We will give you the details separately.
Okay. 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 Ennore terminal?
City gas, we continue with about 14 geographical areas, 17 on our own, 53 in joint venture. 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 2021, as per the latest estimates.
Okay. What's the utilization rate on Ennore now?
Ennore utilization is low. It is only 1.44 million metric tons as of now, MMSCMD as of now, which is about less than 10% on a yearly basis. It is low and constrained because of the pipeline thing. The pipeline thing is likely to be over by, say, February 2021.
Okay. On the city gas side, you're saying that are projects rolling on time, or is there any impact of this COVID on your plans there as well?
Because of COVID, definitely there is some impact on the project timelines, for which we have been taking up, and I am sure we will get some from PNGRB here also.
Got it. Thank you, sir.
Thank you. We have a question from Mr. Vikash Jain from CLSA. Please go ahead.
Yes, sir. Thanks for taking my question firstly. If I understood this correctly, had the longer reporting period not been allowed, just for argument's 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. The inventory loss number would have been much bigger. Because of this same reason, the inventory gain in 1Q will be much lesser. Is that understanding correct?
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 2019/2020. Had we continued with the shorter period, the part of the inventory losses would have got shifted to Q1 of this year.
No. 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. When you mean adopting a longer period, had you not done that, would your valuation be higher than $36, $37? That's something which I'm not clear about.
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.
Sir, if prices in April were far lower than $36, $37, then how would net realizable value?
In the calculation of net realizable value, the product prices are to be seen.
No, that's fine. I thought $ 36, $37 is the implied valuation. Okay, fine. Basically, the fact that you had the ability because there was a kind of no change in retail prices for a while, you had the ability to sell for that brief period at a higher price. Therefore, your net realizable value was much higher. That's why you've taken a higher $36, $37 kind of a realizable value.
I don't think you are hoping any answer from this.
Okay, fine. Sir, on CapEx, can you give us your expected CapEx numbers for FY 2021 and FY 2022? Sorry if you have already given that, but I think I didn't catch it.
For what again?
FY 2021 and FY 2022, your budgeted CapEx. FY 2021 and FY 2022.
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 FY2021, we plan to spend INR 26,000 crore, which includes, say, refining about INR 4,000 crore, pipelines about INR 4,500 crores, marketing about INR 6,000 crores, petchem about INR 2,300 crores, and some joint venture investments about INR 4,800 crores, including CGD, et cetera.
In terms of volume addition on the back of this CapEx, of course, you'll get more retail selling space and all that, but from a capacity perspective, the last big capacity increase was the PP expansion, which has just started in February, right? There is nothing which is happening in FY 2021 which would add to your capacity. Production capacity.
[audio distortion] There are certain projects which are not for capacity expansion, but they are for, say, reduction in logistics cost, like our marketing terminals or pipelines. 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. We can share the details with you later on.
No, sure. Absolutely. Sir, finally, you've been pretty upfront. Sir, just the last one, and that's it. You've been upfront about the fact that full normalization of demand would not happen anytime soon. I know it's everybody's guess, and it's very difficult to be exact about this. 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? What are your likely timelines 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. Based on those estimates only, we are saying that the current year petroleum product growth will be, say, perhaps, -5% or so. Sometime the next year, the demand may come back to the original levels. 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. The product wise differences will be there in the recovery rates. On an overall basis, perhaps 2021, 2022, should see the normal levels as were prevailing pre-COVID-19.
Okay. Thank you, sir.
Thank you, Mr. Jain. We'll take our last question for the day from Mr. Vineet Joshi from Goldman Sachs. Please go ahead, sir.
Hi, sir. Thank you for taking my question. My question is on inventory and working capital that you mentioned earlier. If I heard correctly, you said that you have 8 million tons of crude inventory. Can you also talk about, the oil minister mentioned that the Indian companies have opportunistically bought crude and stored in floating storage as well. If we look at both the land as well as the floating storage for Indian Oil, what that amount would be? The second question is, you mentioned that there has been some additional investment in working capital, which has led to the higher debt. Can you please quantify what that additional working capital investment is, which we should be normalizing in our numbers going forward?
First on the inventory, as I mentioned, our normal levels are about 8 million tons of crude inventory. We had, on 1st of April, 9.8 million tons, on 1st of May, 11.4 million tons, on 1st of June, 10.2 million tons, and perhaps by 1st of July, we will sort of revert to the normal levels. We did procure certain additional crude, despite the reduction in the processing rate of the refineries. We believe that it will give us due benefits in the periods to come. Your second question was on? [audio distortion]
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. Our borrowings level, which were at the level of INR 1,26,000 crore at maximum during April, are now back to about INR 1,04,000 crore level, and we expect it to breach below INR 1,00,000 crore level very soon. Not exactly any pressure from working capital side on the borrowing.
This INR 25,000 crore extra was because of the working capital, which has already reversed, is what you're saying? There will be no further reversal from the current levels.
Yes.
It's already baking in all the extra ones.
Yeah.
Okay. Thank you.
Thank you, Mr. Joshi. 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?
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 if there is demand recovery, the 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 nil subsidy for LPG and SKO going forward based on these low prices. 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 concludes 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.