The man in the hot seat
New Delhi   23-Apr-2008
Being the finance head of a government-owned oil company that is also on the Fortune 500 list would normally be a cushy job. If the company lords over half the oil retail business in an economy, where consumption is growing without too much regard for carbon footprints, the situation would seem even more comfortable. But when the international oil prices begin a one-way march northward and domestic retail prices are capped, the picture begins to look less perfect. Size and share, suddenly are no longer an advantage. As prices nudge $120 a barrel, managing liquidity becomes a daily challenge and growth plans have to be put on the backburner. At IndianOil, India’s largest oil marketing company, SV Narasimhan, is now in the hot seat. With three decades of experience in the industry, the 57-year-old oilman’s experience as a finance professional is now called to play. Despite a turnover of Rs 2.2 lakh crore last fiscal, profits for IndianOil is no longer a certainty. The health of the company is determined almost quarter by quarter, when the government announces a scheme for sharing its retail losses. Part of the losses on selling petrol and diesel are offset by refining, but the gap is still large. Oil bonds for the fourth quarter of last fiscal, for instance, are still not in. Borrowings now are close to a mind boggling Rs 36,000 crore. The tricky part, says Mr Narasimhan, is ensuring that the debt-equity ratio does not get skewed. One way to ensure the debt remains under control is to liquidate the oil-bonds that the government issues to the company. IndianOil currently holds bonds worth about Rs 16,400 crore, but caps on bond sales in a quarter set limits on sales. The other big challenge in the medium term will be to make sure that funds are available for the large capex plans that the company needs for its strategic growth in the future. One big project is the 15 mt refinery-cum- petrochemical project at Paradip on the east coast — resources need to be found to go ahead with the project. Funding this project off-balance sheet could be answer. As the former chairman of refining company Chennai Petroleum, Mr Narasimhan knows well the benefits of high refining margins. He also has a vary eye on rival oil companies, globally as well as within India, that are growing through acquisitions of oil producing companies and assets. With oil prices at record highs, these acquisitions do not come cheap. If IndianOil does find a good opportunity and is able to strike a deal, the finance director knows he will have to find ways to fund it. One treasure chest that has been held in reserve for such needs, is IndianOil’s stake in sister oil company ONGC. Worth about Rs 18,000 crore at last count, he hopes to be able to tap into this, if push comes to shove. Overall, as we head into election year and oil price increases seem more and more unlikely, Mr Narasimhan will in all likelihood have to work harder on his ability to skate on thin ice.