IndianOil: Profit spill
New Delhi   30-May-2008
Only a rise in the retail prices of petrol, diesel and LPG can bail out India's biggest oil refiner and marketer Rs 2,44,969 crore IndianOil. Or else the government needs to lower import duties and other levies. As it is, higher interest costs and losses from selling products at lower than their cost prices, has resulted in a net loss of Rs 414 crore in the March 2008 quarter, compared with a net profit of Rs 1,503 crore, a year earlier. IndianOil had last declared a quarterly loss in the December 2005 quarter. The quantum of oil bonds dished out by the government and subsidies provided by GAIL and ONGC obviously haven't been enough because IndianOil's operating profit margin (opm) plummeted 844 basis points to 0.86 per cent in Q4 FY 08, even though the firm's total income rose 36 per cent to Rs 71,900 crore. IndianOil has highlighted that it needed to be compensated to the tune of Rs 3,259 crore in the March 2008 quarter for selling auto-fuels, domestic LPG and kerosene below the cost price. The silver lining was the better gross refining margin at $9 per barrel-for FY08-and the higher throughput of crude-up 4 per cent- hat the company processed during the quarter. In contrast, the regional benchmark Singapore refining margins, stayed flat at $6.9 per barrel. IndianOil managed better GRMs because it processed more of the high margin sour and heavy crudes. It's been a difficult FY08 for oil firms and FY09 doesn't look like it will be easier unless crude prices come off significantly. At Rs 421, the stock trades at 6.3 times FY08 earnings but given the uncertainties, it's best to stay away.