IndianOil pegs petrol price review on global cues, Rs
Mumbai   29-May-2012

IndianOil said on Monday it will look at reducing the price of petrol by June 1 if the auto fuel costs less in world markets and the rupee strengthen against the dollar in the current fortnight, making imports cheaper.

The company follows import-parity pricing for petrol, the raw material (crude oil) for which it predominantly imports.

IndianOil, which controls half of the fuel retailing market in the country, had raised petrol price by R7.5-8 a litre last week along with other retailers HPCL and BPCL to reduce losses from selling the fuel below its import price.

IndianOil, which lost R2,236 crore in 2011-12 on petrol sales alone, reported a 47% drop in its net profit for the year at R3,995 crore from a year ago as higher interest burden on borrowings due to delayed subsidy receipt from the government and a hefty entry tax levied by the Uttar Pradesh government took their toll. The company had to set aside R8,157 crore towards this levy and it is exploring ways to escape this burden. The net profit is only one-hundredth of the company’s turnover, which scaled R4, 09,957 crore in the fiscal, showing a 25% jump from the same period a year ago.

IndianOil’s net profits for the fourth quarter of the 2011-12 fiscal, however, jumped more than threefold to R12,670 crore as compensation from the finance ministry for selling fuel below cost in previous quarters arrived late. Fourth-quarter turnover rose 20% to R1, 12,267 crore from the year-ago period.

State-owned Bharat Petroleum Corporation last week reported a 15% drop in net profit for 2011-12 at R1, 311.27 crore.

“Our intention is to pass on to the consumer whatever may be the benefit from a decline in petrol price or a more favourable movement in rupee-dollar exchange rate,” IndianOil chairman RS Butola told reporters after announcing the annual results. He added that the intention to pass through the impact of these factors also holds good for an adverse fluctuation. Rupee has weakened about 1.8% since the beginning of the current fortnight, erasing gains made by a softening of petrol price in world markets in the same period.

IndianOil's average gross refining margin – the revenue from processing crude oil to finished products – weakened to $3.63 a barrel in the 2011-12 fiscal from $7.56 a barrel in the same time a year ago. Butola said the company has taken steps to boost refining margins by processing more of heavy and waxy crude oil varieties. “Our next set of large investments would be on this effort,” he said referring to the changes to be made in the refining infrastructure.

The company has been able to show profits only after the government recently agreed to give extra subsidy towards

losses on selling diesel, LPG and kerosene in the fourth quarter. The finance ministry, however, declined to give any assistance to lower losses on petrol sales. The company that owns 20,000 retail outlets across the country has also stabilised its petrochemical business and is hoping to generate profits from this business.

Oil retailers do not use the profits from their refining business to subsidise their loss making marketing operations except in years when they absorb some losses that are not compensated by the government and upstream companies ONGC, Oil India and Gail India. In 2011-12, most of their under-recovery on fuel sales were compensated, unlike in the previous year, when they had to absorb 9% of retailing losses.