IndianOil: Refining profits
New Delhi   07-Nov-2007
Improved performance of its refinery division, subsidy sharing help the oil major tide over under-recoveries.IndianOil, unlike other oil marketing companies, was able to offset its under-recoveries on the sale of petroleum products in the September 2007 quarter via an improved performance of its refinery division. In addition, the company has accounted for Rs 6362.3 crore in oil bonds in Q2 FY08 compared with Rs 7168 crore a year earlier. IndianOil's operating profit grew 31.4 per cent y-o-y to Rs 5121.3 crore in Q2, while its total operational income (including oil bonds) fell 2.9 per cent to Rs 56,148.7 crore. Its operating profit margin also improved 235 basis points year-of-year to 9.1 per cent in Q2 FY08. In case of HPCL, the operating profit margin declined 160 basis points y-o-y to 5.4 per cent in Q2 FY08. Meanwhile, IndianOil's refinery throughput was 11.04 million tones in Q2 FY08 compared with 10.51 million tones a year earlier. The company also highlighted that its gross refining margin was $8.44 a barrel in the first half of FY08 compared with $3.13 a barrel a year earlier. The regional benchmark Singapore refining margin was $6.4 a barrel in the September 2007 quarter. Also, upstream players such as ONGC and GAIL, as part of the subsidy sharing formula provided Rs 2526.07 crore to IndianOil in the September 2007 quarter, as compared with Rs 3427.5 crore a year earlier. Improved performance of the refinery division, coupled with subsidy sharing by upstream players helped IndianOil offset the under-recoveries related to retail sales of petroleum products in the September 2007 quarter. Going forward, refining margins for IndianOil are expected to remain strong on a year-of-year basis, given the shortage of global refining capacity. However, with the government being reluctant to raise petroleum product prices, IndianOil will have to rely on the remaining oil bonds that it is entitled to receive in the second half of FY08 and subsidy sharing by upstream players.