Oil marketeer Hindustan Petroleum Corp. Ltd’s (HPCL) results for the quarter ended 31 March were more or less along expected lines. Pre-tax profit stood at Rs5,231 crore, more than offsetting the loss of Rs4,519 crore incurred in the first three quarters.
While the company benefited from government oil bonds worth Rs2,038 crore in the three months to March and the discounts from upstream oil companies (Rs559 crore), it also gained from lower crude prices.
With crude oil prices hovering around $45 (Rs2,120) a barrel in the March quarter, retail fuel sales turned profitable for the first time since 2003. While LPG (liquefied petroleum gas) and kerosene prices were still subsidized, profits made on petrol and diesel more than offset these losses. Also, the drop in crude prices has led to lower working capital requirements, significantly easing the company’s interest burden.
Interest costs fell from Rs796 crore in the three months ended 31 December to Rs378 crore in the March quarter.
Interest costs fell from Rs796 crore in the three months ended 31 December to Rs378 crore in the March quarter. Ahmed Raza Khan / Mint
But last quarter’s impressive performance is set to be reversed, with crude prices having risen sharply this quarter to above $67 a barrel, about 50% higher than the average during the March quarter. At current levels, petrol sales are making losses and diesel sales are just breaking even. The losses on LPG and kerosene, meanwhile, have risen sharply compared with the March quarter.
According to research by Ambit Capital, oil marketeers such as HPCL will post losses on selling fuel below cost when crude prices are above $45 a barrel.
HPCL’s shares have risen by about 40% from their lows last month, with one of the main drivers being the expectation that the government may deregulate petrol and diesel prices. The petroleum minister has said that the new cabinet will consider the move soon.
Some analysts say that the likelihood of deregulation is high given the strong majority the new government enjoys and the fact that the country cannot afford further subsidies since its finances are already enormously strained. In case India moves towards deregulation, HPCL’s shares are likely to gain since it is dependent on marketing margins.
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