Home > companies > company-results > Essar Oil posts `71 crore net loss in September quarter

Mumbai: Weaker refining margins aided by lower domestic demand for diesel led Essar Oil Ltd, part of the steel-to-shipping Essar Group, to post a net loss of 71 crore on Friday for the quarter ended 30 September, against a net profit of 105 crore in the year-ago quarter.

The company posted a net loss despite its turnover increasing 22.65% year-on-year to 25,947 crore in the same period.

The extent of the loss was far more subdued than what the Street had expected. A consensus of Essar Oil’s earnings estimates put out by five analysts that track the company, compiled by Bloomberg, had estimated a net loss at 327 crore and net sales at 26,092 crore.

On a quarter-on-quarter basis, Essar Oil’s net loss narrowed significantly from 863 crore in the April-June quarter.

Essar Oil’s share price lost 1.76% to close at 55.80 per share on the BSE on Friday even as the bourse’s benchmark index Sensex lost 0.2% to close at 20683.52 points. The company declared results after market hours.

Essar Oil’s gross refining margin (GRM)—the difference between the value of petroleum products sold and the cost of processing crude—fell to $6.93 per barrel during the July-September quarter from $7.86 a year earlier. This had a direct bearing on the firm’s operating profit that declined 11.63% to 1,033 crore.

Due to weak demand for diesel in India because of a healthy monsoon, Essar Oil exported as much as 54% of its production during the quarter. This impacted the company’s margins since refiners enjoy a higher price for diesel in India than overseas.

Yet, Essar Oil’s refining margin outperformed the International Energy Agency benchmark GRM, which averaged negative $1.30 per barrel in the September quarter versus $2.46 per barrel a year earlier. This was due to the high complexity of Essar Oil’s refinery in Vadinar, Gujarat, where it uses cheaper and dirtier varieties of crude to yield a product slate that commands premium prices.

The company’s reported GRM enjoyed a premium to the regional benchmark Singapore GRM as well. The Singapore GRM for the three months ended 30 September came in at $5.4 per barrel.

A Mumbai-based oil and gas sector analyst with a foreign brokerage said that on a sequential basis, Essar Oil could have benefited from inventory gains arising out of higher crude prices and a depreciating rupee. He declined to be identified as he is not authorized to speak to the media.

Though the demand for petroleum products traditionally remains depressed in October, higher demand for petrol and diesel in the winter months of November and December may help refiners in the next quarter.

The other factor that impacted Essar Oil’s bottom line on a year-on-year basis was a higher loss on account of foreign exchange variations. Against a gain of 439 crore in the second quarter of fiscal 2013, Essar Oil saw a forex loss of 773 crore in the second quarter this fiscal year. Essar Oil’s chief financial officer Suresh Jain said a large part of the forex loss in the September quarter was mark-to-market and would be reversed in the next quarter. This is because the prices of petroleum products in India rise in tandem with international prices, but after a lag, Jain explained. The consequent additional income will be reflected in the company’s financial results in the next quarter.

Jain admitted that Essar Oil had not been able to raise as much of dollar-denominated debt to refinance existing rupee debt as it wanted, but it will try to raise a total of $2.7 billion by the end of fiscal 2014 to refinance rupee debt, he said. Since 31 March, Essar Oil has raised $800 million of foreign debt. Its current net debt is 18,000 crore, Jain said.

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