IndianOil reduces inventory to avoid liquidity crunch
New Delhi   21-Nov-2007
IndianOil has decided to reduce its inventory levels from around 14-15 days to 10-11 days to lop off dose to Rs 750 core per day from its inventory cost. This move will help reduce the working capital requirement for the Indian refining and marketing giant. It is aimed at easing the liquidity crunch that has resulted from losses in retail petroleum product sales. With crude nearing $100/barrel mark, the state-owned oil marketing companies (OMCs) are looking out for various means and ways to avoid the liquidity crunch. The total losses for the three companies are dose to Rs 200 crore per day and IndianOil alone now loses dose to Rs 100 crore per day. They have decided to cut down their working capital requirement, increase borrowing (both domestic and international), sell out government bonds at discounted rates, issue non-convertible debentures and to some extent go slow on the acquisition spree. IndianOil's director finance SV Narashiman said, "We are already facing strain this month. Cutting inventory by a day will save Rs 750 crore for a day. We are reducing our working capital requirement. Our borrowing is at Rs 28,000 crore, which will go up substantially." Mumbai based BPCL's borrowing currently stands at Rs 8,500 crore and the company will have to resort to further borrowing to meet its expenditure. "Borrowing will not be a problem for us. Banks are willing to lend us at competitive rates". Says BPCL director finance SK Joshi. Oil companies have also been compelled to sell their oil bonds at discounts. Says a director of a public sector OMC "We sell the bonds as soon as we get them. Most of the time these bonds are sold at discounts of3%to4% to meet our expenses. IndianOil is further planning to raise $250 million through external commercial borrowing (ECBs) route to run its day-to-day operations. OMC s is also resorting to active hedging to cut down on their losses. OMCs are loosing Rs 7 per litre of petrol Rs 8 on per litre of diesel Rs 212 on per cylinder of LPG and Rs l7 on per litre on kerosene. With election in Gujarat and Himachal Pradesh, the government is in no mood to hike the retail petroleum prices in the near future.