Essar Oil Ltd reported a good set of numbers for the quarter ended 31 March, mainly on account of higher gross refining margins (GRMs). But it was expected as the environment for refining firms in general has improved.
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Essar’s GRMs for the quarter stood at $8.15 (Rs 360 today) per barrel compared with $5.37 in the same period last year and $7.21 in the December quarter. Refining margin is the difference between the value of petroleum products produced by an oil refiner and the price of crude oil.
However, Essar Oil’s stock fell by 3% to Rs 135.70 after the results announcement on a day when the benchmark Sensex of the Bombay Stock Exchange (BSE) was down by about 1%. The stock had run up in the recent past and some profit-booking would have happened after the firm announced good results.
Revenue increased by 27% year-on-year, much higher than the revenue growth seen in the last two quarters. Operating profit margin, too, expanded to 6.6% from 6% in the March 2010 quarter and 6.2% in the December quarter. Net profit rose by 18% on a sequential basis, despite lower other income, to Rs 321 crore. Other income for the December quarter included Rs 50 crore received after an arbitration award in Essar Oil’s favour.
For the year as whole, the firm performed well, with revenue increasing by about 29%. Essar Oil attributes the strong financials to higher refinery throughput of 14.76 million tonnes per annum (mtpa) and higher GRMs. Net profit for the year rose to Rs 654 crore compared with Rs 29 crore in fiscal 2010 (FY10). Higher depreciation and interest expenses ate into the net profit in FY10.
Meanwhile, Essar Oil is in the process of expanding its capacity to 18 mpta, the mechanical completion of which is expected in a phased manner in the second and third quarters of calendar year 2011. The company has deferred its 35-day shutdown to September-October from May-June as planned earlier.
According to the company, after expansion to 18 mpta, production would increase substantially and complexity would improve to 11.8 from 6.1. Higher complexity would help the refinery increase the proportion of heavy and ultra-heavy crude that it processes. This is expected to boost GRMs further.
That said, delays in the company’s refinery expansion would weigh on the stock, which has underperformed the BSE-100 index in the last fiscal.
Graphic by Ahmed Raza Khan/Mint
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