New Delhi: Indian Oil Corp., the nation’s biggest refiner, will increase spending 23% to boost capacity even as it borrows more to cover losses from selling fuels below the cost of crude oil.
The state-owned company plans to spend Rs13,500 crore in the year ending 31 March to add processing capacity and build chemical plants, Serangulam V. Narasimhan, finance director, said in an interview in New Delhi. The refiner’s total debt has risen to Rs35,000 crore from about Rs32,000 crore in May, he said on Thursday.
IndianOil, set to increase processing capability 33% by 2012, imports about 75% of its crude and sells fuels below cost to help curb inflation. The refiner is adding capacity to meet demand that is rising as much as 5% annually in the world’s second fastest growing major economy, chairman Sarthak Behuria said in a separate interview on Thursday.
Raising money for planned investments has never been a problem as they can borrow from state-run banks, said Niraj Mansingka, a Mumbai-based analyst at Edelweiss Capital Ltd, who recommends investors buy IndianOil shares. They need to increase capacity and upgrade refineries to improve cash flows and produce better quality fuels, Mansingka said.
The stock has climbed 30% in Mumbai this year compared with a 48% gain in the Bombay Stock Exchange’s Sensitive Index. IndianOil rose as much as 1.3% to close at Rs551.80 on Friday.
Pump sales were profitable in the last two months and are losing money in June because the cost of crude has risen, Narasimhan said.
The company’s cost of importing crude oil has surged to $2.5 billion (Rs12,025 crore) a month from $1 billion in February, Narasimhan said. Crude prices in New York have at least doubled from a low of $33.98 a barrel on 12 February on signs the worst economic crisis since World War II may be easing. Oil traded at $72.05 a barrel at 5pm Indian time.
The government last raised prices of gasoline and diesel in June 2008 as oil surged. Prices were cut in December and January after crude slumped from a record $147.27 a barrel in July.
IndianOil needs to add 3-3.5 million tonnes (mt) of refining capacity each year, Behuria said. The company will commission about Rs30,000 crore worth of projects this year, Narasimhan said.
The Delhi-based firm and its units have the capacity to refine 60.2mt of crude a year, according to the company’s website.
About Rs11,000 crore will be spent this year on building new assets and Rs2,500 crore on maintenance work at IndianOil’s eight refineries, Narasimhan said.
The refiner is building a 15mt-a-year plant at Paradip in eastern Orissa and increasing capacity at refineries at Panipat in northern India, Gujarat in the west and at its Chennai Petroleum Corp. Ltd unit.
Bulk of the investment will go into these, Narasimhan said at his office. There are so many projects on hand. We have to prioritize.
IndianOil has got approval for a Rs14,900 crore loan for the Paradip refinery, according to SBI Capital Markets Ltd, which helped arrange the funds. The refinery is expected to cost Rs33,500 crore, SBI Capital said on 14 May.