Good evening, ladies and gentlemen. I'm Pavitra, moderator for the conference call. Welcome to the Indian Oil Corporation Limited 3Q FY 2020 post-results conference call hosted by Batlivala & Karani Securities. 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. Over to you, sir.
Thanks, Pavitra. Good afternoon, everybody. On behalf of investors and analysts, we have with us Director of Finance, Indian Oil, Mr. S.K. Gupta. We have ED Corporate Finance, Mr. Matthew Thomas. We also have with us CGM Corporate Finance, Mr. R.K. Jain. We have with us GM Corporate Finance, Mr. Rohit Chakravarty. We have with us DGM Treasury, Mr. Prabhat, and myself, Avinash. I will request the Director of Finance, are you ready to address investors?
Thank you, Avinash. Good afternoon to all of you. I am S.K. Gupta, Director of Finance, Indian Oil Corporation Limited. I take this opportunity to welcome you to the conference call for the announcement of our third quarterly results for the year 2019/2020. I believe you would have gone through the results posted on the website and also through the updates sent by us. I would like to briefly dwell on the results to provide additional clarity and insights. Coming to the highlights first, as you would have perhaps read in the media, Indian Oil has debuted to the coveted Global 500 list of world's most valuable and strongest brands across sectors for the year 2020. The list was released at the World Economic Forum in Davos by Brand Finance, the world's leading independent brand valuation consultancy.
There are only 11 Indian brands in this coveted list, and Indian Oil is the only Indian brand in the oil and gas sector to feature there. Our INDMAX technology has been selected through global tender by NIS of Serbia, owned by Russian oil and gas conglomerate, Gazprom Neft, for production of higher value products. This is the first-ever agreement to license the refinery process technology overseas from India. Adding a few more feathers in the cap, Indian Oil introduced first-ever indigenously developed wind turbine gear oil, lubricant for Indian Army's main battle tank, and extreme pressure lubricants for drilling applications, breaking the monopoly of a multinational in these segments. Climate change is a more pressing reality now than ever.
A key question before all of us is whether we can reduce the greenhouse gas emissions and also at the same time, cater to the fuel demand and perhaps continue the business. In order to realize this, year 2019 witnessed consolidation of our R&D efforts in the area of 2G and 3G biofuels. Our commercial projects for producing ethanol from bio residue and from waste gases are progressing in time. As part of SATAT scheme of Government of India, which is Sustainable Alternative Towards Affordable Transportation, Indian Oil fuel stations in Pune and Kolhapur have commenced marketing of automotive- grade compressed biogas or CBG, produced from agricultural sewage and organic waste. Earlier during the year, Indian Oil also became the world's first company to transport ethanol-blended MS through pipelines. Nowhere in the world ethanol-blended MS is transported through pipelines.
We also introduced first time winter-grade diesel in the areas of Ladakh. Earlier, the diesel which was sent there was not usable during the wintertime, but we became the first company to supply the winter- grade diesel to the area of Ladakh. Talking about numbers, the average crude price, which is Indian basket, during this quarter was at $62.57 per barrel, a marginal increase of 1.43% from the average price of the immediate preceding quarter, that is Q2 FY 2020. If we compare on a nine-month basis, the average price during the current nine months has been $64.01 per barrel as against $72.05 per barrel in the corresponding nine months of FY 2019. With respect to the crack spreads, with reference to Indian basket price of the crude, MS cracks have remained steady during this quarter as compared to the preceding quarter.
When compared with Q3 FY 2019, MS cracks have improved significantly. For HSD, the crack spreads during this quarter have been lower by about 15% as compared to the preceding quarter. It is also lower by about 9% in the corresponding quarter of FY 2019. FO crack spreads during this quarter has been significantly lower as compared to the preceding quarter and corresponding quarter of FY 2019. In the petrochemical space, the spreads have been on the declining trend over the last one year. The spreads for polymer in this quarter was 19% less than the previous quarter and 32% less than the corresponding quarter of FY 2019. In case of PTA, the spread during this quarter was about 36% less than the previous quarter. While comparing with the corresponding quarter of FY 2019, it is 58% lower.
With respect to MEG, the spread in the current quarter was about 29% less than the previous quarter. While comparing to the corresponding quarter of FY 2019, the decline over the year is much more pronounced, which is about 73%. This quarter, we registered a profit after tax of INR 2,339 crore, higher than the preceding quarter, which was only INR 563 crore, although Q3 has witnessed a sharp fall in refining as well as petrochemical margins. The impact of the same has been mitigated by inventory gains in this quarter as compared to inventory loss in the earlier quarters. In the current quarter, there has been an inventory gain of INR 1,608 crore as compared to the inventory loss of INR 1,807 crore during the preceding quarter.
From a nine-month perspective, the profit after tax is INR 6,499 crore as against INR 7,795 crore in nine months of FY 2019.
The sharp fall in refining as well as petrochemicals margins have resulted into the fall in profits. Revenue from operations during this quarter is INR 1 lakh INR 44,820 crore as against INR 1 lakh INR 32,376 crore in the preceding quarter of this year. Let me briefly touch upon the major verticals. Refineries first. The throughput during the quarter was 17.5 million metric tons, which is the same as in the preceding quarters, but was lower than the corresponding quarter of FY 2019. The planned shutdown in refineries for BS-VI upgradation have impacted the throughput to some extent. The distillate yield was steady at 79.8% during this quarter, which is marginally higher than the previous quarter, but lower than the corresponding quarter of FY 2019. Fuel and loss during this quarter was 8.8%, whereas during the preceding quarter it was 8.9%.
Our refineries registered a GRM of $4.09 per barrel during this quarter, as compared to $1.28 per barrel during the previous quarter. The normalized GRMs for the quarter is $2.15 per barrel, as against $4 per barrel for the previous quarter. If we compare on a nine-month basis, the normalized GRMs for the current nine months is $2.8 per barrel, as against $5.4 per barrel in the corresponding period of last year. The decline in product crack spreads has been the main reason behind fall in 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 for hydrocarbons. In order to maintain smooth placement of the supply of product across the country, our pipelines are being augmented.
Indian Oil is now focused on LPG and natural gas pipeline infrastructure also apart from conventional crude oil and product pipeline networks. The capacity utilization of our pipelines was about 88.7% during this quarter as compared to 92.2% in the previous quarter. The fall in capacity utilization is mainly attributable to fall in crude throughput because of refinery shutdowns. Our pipelines continue to generate stable returns, giving an EBITDA of about INR 1,545 crore during this quarter, which is about 3% lower than the preceding quarter, and lower by 4% from the corresponding quarter of FY 2019. The current EBITDA on a nine-month basis is lower by 2% from the corresponding period of last year. In marketing, the product sales during this quarter was 21.926 million metric tons as compared to 20.181 million metric tons in the preceding quarter.
On a nine-month basis, they have remained almost same, that is 63.711 million metric tons in nine months of FY 2020, versus 63.649 million metric tons in nine months of FY 2019. Accordingly, the marketing EBITDA for this quarter stood at about INR 3,914 crore as against INR 3,813 crore of the previous quarter. While comparing the marketing EBITDA on nine-month basis, it is seen that the EBITDA of nine months of FY 2020 is INR 12,292 crore as against the EBITDA of INR 8,184 crore in nine months of FY 2019. Marketing EBITDA continues to be stable. In petrochemicals during this quarter, the petrochemical business reported an EBITDA of INR 742 crore as against INR 774 crore in the previous quarter. However, comparing the current nine-month performance with that of the corresponding period of the last year, there has been a sharp downside in EBITDA.
The major reason is due to the shrinkage of petrochemical spreads in polymers, MEG, as well as PTA. The PTA unit was under shutdown during the first quarter of the current year. The PX-PTA plant has commenced production during the second quarter. We believe as we go forward, the petchem will continue to contribute to the bottom line of the company handsomely. In borrowings, you must have observed that the borrowings as on 31st December 2019 have decreased by about INR 10,653 crore and is at INR 75,706 crore level as compared to INR 86,359 crore as on 31st March 2019. The borrowing level as on 30th September 2019 was INR 80,382 crore. I will end my briefing here. We 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 your turn to ask the question. If you would like to withdraw your request, you may do so by pressing star and one again. I repeat, ladies and gentlemen, if you have a question, please press star and one on your telephone keypad. Participants are requested to restrict with two questions in the initial round and join back the queue for further questions. First question comes from Avadhoot Sabnis from CGS-CIMB. Please go ahead.
First, my first question relates to dividends. I think, last two, three years, there has been some interim dividend for the first nine months. It's after quite a big gap, there is no interim dividend in the first nine months. If the board, in its wisdom, has decided not to give dividend for the first nine months, would it be safe to assume that the dividend, if any, for FY 2020 will now come only with the fourth quarter results? Secondly, again, last three years, we have had a higher payout of 60% dividend payout compared to the minimum level of 30%. Is there a possibility of going back to the minimum level of 30%? That's my first query.
Now you have observed that the profits during the current period for these nine months in the current year, were substantially lower. We thought that it will be prudent to see the view of the profits coming in the fourth quarter before we take any call on the interim dividend.
Secondly, a related question, which is on CapEx. Firstly, I think you have given a guidance of CapEx of INR 25,000 crore for this year. I presume that still stands. Is there a guidance for next year? Where I'm coming from is that you have given a very aggressive CapEx guidance for next five years, which would imply that the CapEx actually accelerates going forward. FY 2021, FY 2022 will probably be obviously higher than FY 2020. Would you be looking to look at reviewing that CapEx number given the lower profitability in refining?
The indication perhaps was for a period of five years. That in any case will not scale up to that level immediately. That will happen gradually. Maybe you can expect some increase definitely next year as compared to current year.
The current year INR 250 billion requirements are held close that, right?
Yeah. There can be a marginal increase from that level immediately in the next years.
Thank you, sir.
Thank you, sir. We have next question from Probal Sen from Centrum Broking. Please go ahead.
Yeah, thank you for the opportunity. I have two questions. Number one, sir, on the tax rates front, just wanted some more clarity. Has there been any clarity in terms of whether you will be moving to the new lower tax rate of 25% as per the new rules or because of outstanding MAT provisions, you would stick to the normal marginal tax rate of between 30%-33% for this year and the next? The second question was, has there been any clarity from the government or internally in terms of what premium you need to charge from April when Bharat VI fuel starts to be sold from a majority of retail pumps?
On the first question, for the current year, we are not going to opt for the new rates, the lower rates. For next year, though at present it is not likely, but we will have to take a call depending upon the situation, profits, and other things. On the second question, the prices of auto fuels is decontrolled, so we do not need to or expect any guidance from the Government of India on this aspect. We will take a suitable call. Definitely, there has to be some increase to compensate the refiners for the CapEx and the OpEx which they will be incurring, they have incurred or they will be incurring.
Okay. Sir, it's not possible to quantify at all any range of the price increase you'll need to take for that, even though it's two months away?
I think it is already in the media. Yesterday, our chairman had taken a press conference.
Okay.
I think we have indicated some range, maybe of INR 0.50 per liter, which can be there. That will be exact workings, because the investments of each refinery will be different. It will have to be calculated actually, that what kind of increase is there for every refiner, and maybe because the prices cannot be diverse, at least for a company, so we will have to arrive at a sort of a weighted average rate.
Okay. Thank you. Thank you very much, sir. I'll come back in the queue if I have more questions.
Thank you, sir. We have next question from Rakesh Sethia from HSBC. Please go ahead.
Hi. Thank you for the opportunity, sir. Sir, two questions from my side. First on the refining capacity expansion for Barauni, which you have announced. I think the specialist mentioned a number of close to about INR 13,000 crore for a capacity of 3 million ton. Could you explain if there are any other economic benefits apart from those 3 million, and what sort of economic benefits investors should be looking out from this project? Because intuitively, INR 13,000 crore for 3 million ton of capacity expansion, that sounds not too much a number from economic returns perspective. Secondly, if you could help us understand where the Ennore project is right now, and what kind of volumes one should be expecting over the next couple of years, and what are the companies planning to evacuate those volumes beyond the territory of Chennai?
On the first question, any expansion of refining capacity which is happening anywhere, is definitely coming out with some petrochemicals also. It is the case with our Barauni expansion also. The cost is at this level because there is inclusion of some poly, some PP also in this project. Definitely, you can expect that our cost of capital is about 11%. Definitely, we are expecting returns of that order. On the second question, our present capacity utilization is to the extent of about 15%. We are doing about 0.7 MMT of gas from that terminal, and that is constrained only because of the connectivity by pipelines. All the major anchor customers in that region are already being serviced like CPCL, Madras Fertilizers, Tamil Nadu Petroproducts, and Manali Petrochemicals, et cetera. We expect the capacity to be ramped up shortly.
Perhaps, we expect almost full utilization by mid- 2021. Maybe the Q1 of calendar year 2021 or max Q2 of calendar year 2021.
Just one clarification. To go to 100% utilization level, you would not need any separate pipeline, or is there any pipeline under construction to evacuate those volumes?
Yeah. We have presently only Ennore-Manali section, which is only 22 km commissioned, through which we are servicing these four major customers, which I just mentioned. We are commissioning, we are working on Ramanathapuram to Tiruchirappalli section, which is 143 km, perhaps expected to get commissioned by March 2020. Ennore-Ramanathapuram and Tiruvallur-Bangalore section, which is about 1,279 km, by the timeframe which I indicated just.
Understood, sir. Thank you very much.
Thank you, sir. We have next question from Sabri Hazarika from Emkay Global. Please go ahead.
Good afternoon, sir. I have two questions. The first one is, on this BS VI itself, like chairman mentioned that the prices may go up by around INR 0.5- INR 1 per liter. This benefit will accrue to the refining division or the marketing division?
This definitely the investments and the OpEx is done by the refinery vertical. Within a company, it doesn't matter to which vertical we assign it to. It is due to the refining division.
It will be like, whatever the BS IV prices are, the benchmark prices, plus INR 0.50, or would you benchmark it to something like a Euro VI benchmark itself?
No, as I said, we have to attain the finality on the price, on the cost, which we will be incurring, CapEx or in OpEx. Today, the Euro VI benchmark pricing is not available, at least for both the products. We will have to see how to do that.
Okay, sir. Second question is on few bookkeeping question. One is the government subsidy outstanding at the end of December?
It is about INR 10,800 and some odd crore. With INR 10,859 crore, to be precise, is the outstanding as on 31st of December.
Of this, how much would be kerosene and LPG?
Outstanding.
Yeah.
Kerosene. INR 1,755 is how much? INR 1,750 is for kerosene and balance is LPG.
Okay, sir. One last question. You mentioned that your adjusted GRM was around $2.5 for the quarter, right?
We said $2.15.
$2.15, okay. Got it, sir. Thank you so much, sir.
Thank you, sir. We have next question from Pinakin Parekh from JP Morgan. Please go ahead.
Yeah. Thank you very much, sir. My first question is on refining. If you look at the throughput, basically in the second quarter of, I think, third quarter of FY 2019, throughput touched 19 million tons on an annualized rate of 76 million metric tons. Since then, over the next four quarters, throughput has been on a quarterly basis below 17.5 million metric tons. Going forward, is this the run rate of throughput that we should expect? Basically, there was a bunch of maintenance and refinery expansions which pulled back throughput, and going forward, we can expect throughput to rise?
Yeah, you are very correct. It is only because of the shutdowns in run-up to BS VI preparedness that the throughputs are down. You can expect a higher, more than 100% capacity utilization next year, when practically no shutdown will be there.
Sure, sir. Thank you. Sir, my second question relates to the petchem expansion. Now the capacity has come onstream. Is it fully operational and profitable, or are they still in the process of ramping up and therefore higher costs? I just wanted to understand, how will the profitability, yes, market spreads are one thing, but from a plant perspective, should the operational profitability improve as it ramps up, or now that is fully captured?
I believe you're talking about PX-PTA. No? Which is now fully operational.
Yes.
PX-PTA is now fully operational, and it is only constrained due to the prices.
The PP one, sir?
The PP at Paradip, the first train was commissioned earlier in July 2019. The second train is mechanically complete and is being commissioned now.
Okay. Sir, lastly, are there any new petchem expansions or refining volume growth over the next 12 months, CapEx which has been spent over the last six to eight quarters, which could enter commercial productions over the next 12 months?
It is only the second chain of PP which we talked about. Nothing beyond that.
Understood. Thank you very much, sir.
Thank you, sir. Our next question from Anubhav Agarwal from Credit Suisse. Please go ahead.
Yeah, good afternoon, sir. One question was on the fuel oil sales. Right now, annually, we're doing about 3 million tons of sales. Over the next two years, will this quantum go down, or will it largely stay here?
This furnace oil, the high sulfur furnace oil, in any case, we are planning to sort of reduce year-over-year. Our yield of FO is of the order of 3.5%- 4% only. With the production of about 1 million metric ton of IMO-compliant furnace oil, at Gujarat Refinery and perhaps some more quantity will come from Haldia Refinery. The production of FO is not likely to increase, that high sulfur FO, at least.
Is it likely to go down? 1 million ton is IMO-compliant, but what about the remaining 2 million ton? Would we continue like that?
No, the reduction in the FO will be linked to, say, any upgrade in the refinery slate, refinery units. Okay. Since we have already completed our distillate yield improvement project at Haldia, no more further such facilities are envisaged in the near future. This is likely to be at the same levels.
Okay. My second question was on the marketing volume growth. Can you give some volume outlook over there? My specific question was with respect to the LPG penetration. Industry is already reaching a very high penetration rate for LPG, and that's one of the highest segment in terms of growth for us. Let's say for the first nine months, I see that our volume growth in the marketing segment is only 1%. Over the next one or two years, how do you see overall marketing volume growth for us?
1% you said about the total products for us?
Yeah, total products.
Got it.
Absolutely.
Yeah. Not just LPG.
I think it's 1% despite LPG growing at 8%, 9%.
Okay. Now, it will be mostly determined by the demand also, or the demand remains. Some reduction in, because you are saying 1%, that reduction is also because of the SKO volumes going up sharply. What numbers should I give you for the demand? I think we can come back on those demand numbers separately.
Sure, sir. Thank you.
Thank you, sir. We have next question from Vishnu Kumar from Spark Capital. Please go ahead.
Good afternoon. Thanks for your time, sir. Just wanted the actual debt numbers, that is, excluding the lease and Ind As adjustments out of the INR 75,000 crore.
It is INR 68,521 crore.
Got it, sir. Comparable March, how much was that numbers?
INR 82,848 crore.
INR 82,848 crore. Got it, sir. In terms of your OpEx cost for refining, the per barrel works out to almost $3.5 per barrel. Is there any one-off or something in that number? I mean, if I take the reported GRM against and back calculate my EBITDA, the balance is working on almost $3.5 . Normally, I believe it's.
Only because the throughput was down as some of the, perhaps, the speakers also mentioned. Once the volume goes up in the next year, because the shutdowns will not be there, we see this number coming down.
Steady state, what would be your ideal OpEx cost, sir?
It should be about $3 considering all Ind AS depreciation, et cetera.
I mean, in operational level, I'm asking cash OpEx before EBITDA, in terms of dollar per barrel.
Say, i t can be a range between around $2.2-$ 2.3, $ 2.4.
Got it, sir. Thank you.
Thank you, sir. We have next question from Nafeesa Gupta from Bank of America. Please go ahead.
Thank you. Good afternoon, sir. My question is again on BS VI, sir. Any other refinery shutdowns planned for in the fourth quarter? Also, could you give us a breakup of the CapEx done on BS VI transition?
Our total spend is likely to be on the order of about INR 17,000 crore for BS VI projects. We have a few shutdowns in Q4 also. What are you interested about?
Sir, any major ones? Any major ones in 4Q?
So we will-
All the major ones are done?
We will have Guwahati, Mumbai and Mathura coming up in Q4.
Okay. Sir, my other question is that in this quarter, the utilization of high sulfur was high at 60% relative to the previous quarters. Is that a one-off or should we see that trend to continue? Did that also contribute in your refining margins in terms of feedstock benefits?
I think we were operating around this. Okay. 60% high sulfur utilization. We will come back on this subject.
Sure, sir. Thank you. If I may, sir, can you also tell me the CapEx numbers for 3Q? Also you mentioned that you expect the CapEx to go beyond INR 250 billion in FY 2020, sir. Any particular reason why?
Yeah. CapEx for, you wanted Q3 no? Q3.
Yeah.
Q3 CapEx. Just a minute. Total CapEx for this period is INR 17,801 crore, and for Q3 it is INR 7,995 crore.
Got it, sir. The other follow-up question was, sir, any reason why you expect the full year CapEx to go beyond INR 250 billion as you mentioned in answers to your previous question?
We have ambitious CapEx plans as the earlier question also has not mentioned. There are a lot of projects which are lined up in various verticals. That is why I mentioned it will be a shade better in the next year.
Got it, sir. Thank you.
Thank you, ma'am. We have next question from Rohit Ahuja from Bank of Baroda Capital Markets. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, just going back to that question on dividend, I didn't get that clearly. I said you normally have a trend of paying interim dividend, especially in Q3. I think your profits for the nine months are pretty good. Can you clarify why the decision not to pay dividend this quarter?
While you feel that it is pretty good, we feel it was perhaps not that good. It was much lower than the corresponding period of last year and definitely from full year. We decided to have a better view of profitability before taking a decision. We did not want to pay multiple times also. We will see. We will take a call in this quarter.
Okay. Sir, secondly, on the IMO, we haven't seen GRMs moving up the way it was expected about a year back. Rather, we are seeing the new concern on freight rates being pretty high. Can you just clarify, sir, when do you think situation could normalize on the benchmark GRMs and your GRMs, and when do you see this turning up?
Despite these BS VI shutdowns, our operational performance has been largely good, and it is only the factor of the prices that the GRMs are low. Now while we do not have any control, and perhaps the prices cannot be forecast very accurately, with any correction in the prices, we expect the GRMs to be stronger.
Okay. Thank you.
Thank you, sir. We have next question from Manikantha Garre from Axis Capital. Please go ahead.
Hi, sir. Thanks for the opportunity. I have two questions. One is, can you please guide us on your view on the marketing margins going forward? That's my first question. The second question would be, can you throw some light on the strategy going forward for the gas space, especially what's happening with your LNG terminal as well as the CGD. What's the status there?
Manikantha, I think you should repeat your question because you're not audible at all. I believe you did ask about, first thing about the marketing margins going forward.
Yes, sir.
Right.
View on the marketing margin going forward?
You can see the EBITDA numbers of marketing and they have been quite steady, and I believe they'll continue to be steady over the year and over the quarter. Even in the last year, you found that these numbers were almost similar, so we are almost reaching to the same numbers. We'll continue to have the marketing margins at the same levels. I think your second question, we have not heard it correctly. Can you just repeat that?
Yes, sir. On the first question itself, I remember in your first quarter conference call, you have mentioned that marketing margins would gradually trend down from June and onwards. I was actually more asking towards.
You wanted to trend down?
I don't know, sir. How was your thought?
I believe that we are making good progress in marketing. I think you should be appreciating the fact that we will continue to make that progress.
Sure. The second question is with respect to your strategy going forward for the gas space, especially with respect to the CGD and LNG terminal.
LNG terminal, we just explained earlier.
Yeah.
On the Ennore terminal. CGD again, we are working on the 40 GAs which are allotted to Indian Oil as standalone or in JVs. I think a lot of work is still to be done. We are only working on these years. On some of the years, the work is yet to start. Definitely, we are very bullish on the gas, and we will be availing any space which is available in the gas.
Sure, sir. Would it be possible for you to throw some light on the open access policy?
Sir, sorry to interrupt. Mr. Manikantha, could you please join back the queue for further questions, sir?
Yeah, sure.
Thank you. Next question comes from Mayank Maheshwari from Morgan Stanley. Please go ahead.
Thank you for the call, sir. I had one question related to the refining business. As you saw in the fourth quarter, I think the overall spreads on GRM that you did was about $2 or $2.2, and the operating cost is roughly around that similar level. Is there a plan that you're thinking where some of the refineries are running below cash costs? Is there some plan to take utilization routes lower in any of those refineries?
Utilization? Lower utilization?
Yeah, because cash flow running just below cash costs, I was just trying to see if there is any plans for the less complex refineries to be run at lower rates.
No, there is no such plan. We believe that this pricing scenario is perhaps temporary only, and this should correct it to sort of incentivize refining. We do not have any such plans of cutting down on the capacity of any refinery.
Okay. The second thing was on the crude side and the shipping side as well. You have seen the OSPs on the crude side move up pretty materially in 4Q. Can you just talk about it, at least subjectively, in terms of your strategy on crude sourcing now for next year?
We are as such, besides this hardening of OSP, as such, it is in the interest of the company as well as the country to diversify the supply sources. We are also doing the same thing. Last year, we introduced the U.S. crudes, which we will continue this year. Besides that, we are also looking through four or five different geographies and would try to include those crudes also in our basket.
Okay. Can anything said on the shipping side, like how much was the impact you saw on the margins in the last quarter because of shipping cost increases? Do you think things have normalized now for you?
No, the freight rates continue to be higher. Today also, they are about, I think, 25%-30% higher than what levels they used to be in the previous year. That definitely impacts the margins. One is perhaps because of IMO, and second is perhaps because some companies were sanctioned and some of the ships were out of circulation. We do not have any view on what will happen going forward. Definitely it is impacting to some extent, though not materially, but to some extent, definitely in the refining margins.
Okay. Thank you.
Thank you, sir. We have next question from Vipul Shah from Sumangal Investments. Please go ahead.
Hi, sir. Can you repeat the inventory gains for marketing and refining for this quarter, please?
Yeah, just a bit. For this quarter, for refining the price list. For refining, the inventory gain is, say, INR 1,900 crore approximately. This price is relevant for what? Refining?
Yeah.
For refining, you take about INR 1,700 crore.
Okay.
For marketing, it is INR -100.
INR -100. Okay. Thank you, sir.
Thank you, sir. We have next question from Vinit Joshi from Goldman Sachs. Please go ahead.
Hi, sir. Thanks for taking my question. Sir, in terms of VLSFO, can you please tell us what kind of margins are you making when you're selling VLSFO, and what is your total capacity of VLSFO for next fiscal year?
Our capacity is going to be a 1.2 million metric tons approximately, combined Gujarat and Haldia.
Okay.
Margins, I'll not be able to share as of now.
Okay. Sir, I think you mentioned that this VLSFO is not coming at a cost of HSFO. This is new production that you're doing. Is it some new upgrades that you have taken which is helping you produce this? Is it coming at the cost of, say, producing gasoline or some other refinery molecules which you are diverting to produce VLSFO?
No, perhaps I did not say that way. I said my total pool of FO is about 3.5%- 4% in the refinery yield. We have upgraded some of that to IMO-compliant FO.
How have you upgraded that? Have you added any residue upgradation desulfurization capacity? I just wanted to understand that, how are you producing this?
You are welcome for a refinery visit.
All right, sir. No worries. In terms of petchem, can you please tell us of your new capacity, like at what utilization rates they are running at? The production volume right now is still 0.63 million tons. In the past, you have done volumes as high as 0.7 million tons in 4Q FY 2017. What sort of volumes should we expect for next fiscal year?
You're talking about petrochemical as a whole, I believe.
Yeah. Overall volumes that you report in the PDF is around 630 KT.
Yes.
Right? In the past, you have done as high as 700 KT, right? Now you have capacity, which has expanded as well. I'm just trying to understand, what sort of volumes will you do in FY 2021, and what utilization rates are these new capacities running at right now?
See, the new capacity is only one PP that we're talking about in 650 KTPA. That is around 650 KTPA plant. That too because only one train is in operation. From August to December, we had 116,000 metric tons capacity utilization was around 82%. Once the second train is.
Okay.
It's already mechanically completed, and it will be under commissioning. Once it is on track, probably our production numbers will be ramped up. As far as the existing petrochemical plants are concerned, we had mentioned earlier, and the sector finance also mentioned that our PTA plant was under shutdown for quite some time, and that's the reason why we could not have the correct order, the targeted numbers of production. Now that it has come back on stream, going forward, our numbers will be up to the capacity that it has been designed for. We are not envisaging any decrease in capacity going forward because the plants are up and running. The new capacity, of course, as I mentioned, once the second train comes into play, the capacity will increase.
Okay. Thanks a lot, sir.
Thank you, sir. We have next question from Vikash Jain, from CLSA India. Please go ahead.
Okay. Hi, sir. Thanks for taking my question. Just one. Could you please tell me the unit inventory carrying cost for crude that you have as at the end of the quarter?
Unit inventory carrying cost?
In U.S. dollar per barrel.
Oh, if you want the price, I can give you what is the closing price. I believe you can calculate the inventory carrying cost.
No, what I mean is that it'll be carrying inventory, which will be 20, 33-day-old, right? What is the average carrying cost at which the inventory has been valued? Right? Will be at cost.
The closing price of our crude inventory is $67.27 per barrel. We are carrying about 43 days of crude. Does that reply to your query?
Yeah, that's right. The product, if you have a similar for, like you said, 43 days of crude, what would be the equivalent?
Our products are stored at several places.
Okay.
Which is at refinery end, some at marketing end.
Yeah.
Some in pipelines. Put together, that is also about 37 days.
Okay. Thank you so much.
Thank you.
About 30 days of product and seven days for maybe intermediate.
Thank you.
Thank you, sir. We have next question from Vidyadhar Ginde from ICICI. Please go ahead.
Yeah. I had a couple of questions. One was on this, in the first quarter earnings call, you had talked about this CGD you are keen to get in. Could you give us any update on what's happening on that? Because IGL had taken the matter to court. If you could give us an update on that issue, and how do you think that's going to pan out?
Vidyadhar, I think you need to repeat this question because there's a lot of buzz behind you. There's a lot of humming sound.
No. Yeah. The question I was asking is that, in the first quarter, you had talked of your interest in getting into Mumbai and Delhi in City Gas Distribution, if you are allowed to. You had also said IGL has taken the matter to court. If you could give us an update on what's happening on that and also your view on how that's going to pan out.
I think, Vidyadhar, we can talk separately on this.
Sure. The second question is on, in your earnings call you had talked about possibly bidding for BPCL or maybe even investing in GAIL. Any updates on that?
I don't remember having said that we will be going to bid for BPCL.
No, not bid, but it was a potential. It was not a clear no or a clear yes.
Still the position is same. We are not officially informed or asked to bid or not to bid. It is only the media reports which are doing the rounds. That offer or otherwise is available, then only we can perhaps take any call.
On GAIL, what is happening there?
On what? GAIL?
GAIL.
No, same situation as far as we are concerned, I believe GAIL, there was a talk of perhaps bifurcation, which may take some time. We have not heard anything on that. Hello? Vidyadhar, are you there?
Yeah, I'm there.
Okay.
Shall we get the next question, sir?
Yeah.
Next question is a follow-up question from Avadhoot Sabnis from CGS-CIMB. Please go ahead.
Yeah. Firstly , I'm a bit confused on the BS VI pricing of product. My understanding right now is that there's a uniform pricing system for products, whether it is petrol or diesel, because when the marketing arm [audio distortion] buys from the refinery, it's not just from your own refinery, right? It's from other refineries of other PSUs as well as potentially private refiners. The uniform pricing applicable for everybody is my understanding. A, am I wrong on that? Two, wouldn't the same apply for BS VI pricing as well? Whatever the pricing will be, it will be uniform across the-
Your understanding is correct, and that is not likely to be disturbed.
Okay. Second question relates to, again, your refining margins. Okay, your normalized refining margins have dropped very substantially. Looked frankly far ahead of what the normal sort of lower crack spreads. Firstly, I'm really not getting any positive sort of contribution that was expected to come from Paradip. Would it be possible to share what was the Paradip normalized year in third quarter or for the nine months of this year? A related question is, I think when you discussed GRMs, even in the second quarter, you said you have to make a detailed sort of analysis of why GRMs were low. If you could share the result of that analysis.
Yeah. In the previous con call for the last quarter, we had mentioned that there is a significant gap between Singapore benchmark margins and our normalized margin, which we were to look into. In fact, we realized that perhaps now it may not be appropriate to compare our GRMs with Singapore benchmark margins also because the prices are playing havoc. The yield of the products in the Singapore benchmark margins and what the Indian refineries do is significantly different. As long as the prices of various products move in tandem that does not create a problem. Now, the prices are moving quite differently. Like there is a crash in the FO prices, high sulfur FO prices, for which the yield in Singapore is very high. Earlier, the MS prices in fact had gained some strength, and the weightage of MS in Singapore was high.
That is all creating a problem. While we were lower than Singapore benchmark margins in the last quarter, we are higher than Singapore benchmark margins for this quarter on a normalized basis.
Firstly, what I was trying to get at is that other than the normal market cracks, are there refining specific issues which could have contributed to the lower GRMs, i.e., because of shutdowns and stuff like that? Is there any refining specific issue which you could quantify, if at all?
No, I don't think there is any such issue. It is only the factor of the prices and partly because of the BS VI shutdowns that our GRMs are slightly lower. Otherwise there is no such refinery specific issue.
Sir, the number on the Paradip normalized GRM?
Our people will give you separately.
Okay. Last question, if I could squeeze in. There is a drop in the debt levels from September to December. I am struggling to understand why there is a drop given that the capital number seems to be higher than operating cash flow, and the government security dues also are virtually flat or slightly increased.
No, as of 31st of March, we had about INR 19,000 crore of government dues, which have come down to about INR 10,800 crore. That is the primary reason for decrease in the borrowing.
No, I'm asking December versus September.
Because of the price levels, the working capital has also gone down. There is some relief in the working capital also.
Thank you, sir. Thank you so much.
Thank you, sir. Last question for the day comes from Mr. Ramesh from Nirmal Bang Securities. Please go ahead.
Good evening, gentlemen. Thank you very much. In the consolidated numbers, the share of JVs and associates has come down very sharply from INR 452 crore for the third quarter last year to INR 218 crore this year. Can we get some sense in terms of what led to this fall in the share of JV?
It is primarily because of CPCL, perhaps.
CPCL is consolidated along with the gross numbers. This is the share of JV in EBT account.
If you see those numbers are not great. There's Adani, which has gone into production.
Okay.
That's the JV.
LNG.
Yeah. Sorry, I said Adani. Our LNG and Ennore LNG Terminal, which till last year was under commissioning.
Okay.
It is not up to, we said 15% capacity utilization. It will take about a year to be profitable. That operating small loss is taking away others' profit.
It is basically the terminal loss which is relating to this fall in the current year .
Yes.
Okay. In terms of the petrochemicals business, it's interesting to see that you're talking about petrochemicals and Barauni. The broader question is now, if you see the capacity numbers, we are talking about still a lot of capacity addition coming in. In terms of your competitive positioning, how are you reading the demand supply in the region and across the globe? What is the basis of your confidence that you'll be able to operate at, say, 80%, 90% on your full petrochemicals capacity, given the kind of excess capacity we have in the world?
For petrochemicals in India?
Yeah.
It is still uncertain. I think the situation in India perhaps is relevant for us to see, and I believe there is a lot of capacity available domestically for PP.
Yeah. The question I'm asking is talking about downstream chemical, especially polypropylene, if you see the global situation, that's what drives your margin. To that extent, I just want to understand in terms of your reading of the business, what gives you the confidence that you'll be able to generate cash flows in the petrochemical business, say, in the next three to five years, given that there's a lot of capacities lined up, including a lot of oil within this petrochemical strategy. I just want to get a sense in terms of what your reading of the petrochemical business is.
We feel that the prices, in fact, should correct in polymers also. Based on that only we are going ahead with our petrochemical plans.
Okay. Thank you.
Thank you, 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.