Earnings

IOC net profit jumps 11-fold on inventory gains, refinery margin rise

Updated : October 30, 2020 07:58 PM IST

India's top oil firm IOC on Friday reported an 11-fold jump in its standalone net profit to Rs 6,227.31 crore for the September 2020 quarter, on the back of a boost in refining margins and inventory gain on using low-priced crude oil for making fuels. The net profit stands at Rs 6.78 per share.

The company had reported a net profit of Rs 563.42 crore in the corresponding period a year ago, Indian Oil Corp (IOC) Chairman Shrikant Madhav Vaidya told reporters here. "The profit was up due to higher inventory and foreign exchange gains and better refinery margins," he said.

The company earned USD 8.62 on turning every barrel of crude oil into fuel in the second quarter of the current financial year 2020-21, compared with a gross refining margin of USD 1.28 in July-September 2019. IOC gained Rs 7,400 crore on using low-priced crude oil it procured during May and June to convert into petroleum products such as petrol and diesel in Q2. This inventory gain compared to an inventory loss of Rs 1,807 crore in Q2 of the 2019-20 fiscal.

Inventory gain is booked when a company buys raw material (crude oil in this case) at a particular price but by the time it is turned into fuel, the rates have gone up. Since retail pump prices are benchmarked at prevailing international rates, an inventory gain is booked. An inventory loss happens when the reverse happens. IOC also had a foreign exchange gain of Rs 672 crore in the July-September quarter as compared to a loss of Rs 1135 crore a year ago.

Vaidya said the fuel demand, which had nearly halved following the coronavirus lockdown, is fast returning to normal. Petrol demand is already at a pre-COVID-19 level, while diesel is just 0.5 per cent lower than normal. "We expect the two transportation fuels to come back to pre-COVID-19 levels within a month," he said.

During October, petrol sales rose 3.34 per cent when compared to the same month of last year, while diesel demand was 0.5 per cent lower year-on-year. However, aviation turbine fuel (ATF) demand continues to be 48-50 per cent of the pre-COVID-19 levels as full services are yet to start. "Other than that the situation is looking better," he said.

With the rising fuel demand, refinery run rate or capacity utilisation has also improved. "Refinery runs had fallen to 49 per cent (of the capacity) in April" as the nationwide lockdown eroded demand, he said.

With a gradual pick up in demand, the run rate increased to 67 per cent in May and to 89 per cent in June. However due to local lockdowns in several states, the demand fell and the refinery runs were reduced to 61 per cent in August, which picked to 77 per cent in the following month and they are now at 94 per cent. "We expect refinery runs to reach 100 per cent in a couple of months," he said.

Fuel sales at 17.7 million tonnes in July-September were 16 per cent higher than the preceding quarter but were 12 per cent lower than 20.17 million tonnes of products sold in July-September 2019. IOC's refineries processed almost 14 million tonnes of crude oil in the second quarter, up from about 13 million tonnes in April-June but lower than 17.5 million tonnes a year back.

Revenue from operations was lower at Rs 1.15 lakh crore in July-September as compared to Rs 1.32 lakh crore a year back. Vaidya said the company approved projects worth about Rs 5,000 crore, including petrochemical units at Panipat refinery, and raising Bongaigaon refinery capacity to 2.7 million tonnes from the current 2.35 million tonnes.

Its board also approved borrowings of up to Rs 20,000 crore during a financial year through a private placement of bonds or debentures in one or more tranches, within the overall limit of Rs 1,65,000 crore approved by shareholders at the last AGM, he said.

IOC net profit jumps 11-fold on inventory gains, refinery margin rise

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