Release Date: January 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hindustan Petroleum Corp Ltd (BOM:500104, Financial) reported a refining throughput of over 22 million metric tons for the year.
- The company has gained market share in all products, with significant growth in the aviation business.
- The Visakhapatnam refinery's hydrocracker unit is nearing stabilization, expected to improve distillate yields.
- Debt levels have been reduced from INR 64,000 crores to below INR 50,000 crores.
- The company has declared an interim dividend of 150%.
Negative Points
- Q3 results were impacted by a planned maintenance shutdown at the Visakhapatnam refinery.
- Inventory losses due to fluctuations in crude prices amounted to INR 700-750 crores.
- Suppressed margins on some marketing products, particularly HSD (High-Speed Diesel).
- The stabilization of the hydrocracker unit at Visakhapatnam refinery is still ongoing, affecting current performance.
- The company faces challenges in crude procurement due to disruptions in the Red Sea, impacting freight rates.
Q & A Highlights
Q: Can you explain the disruption in the Red Sea and its impact on crude oil imports and the business? Also, can you provide details on inventory fluctuations in the current quarter?
A: The Red Sea disruption has not impacted our term crude supplies. We have tied up our crude requirements up to mid-April, including both term and spot crude. The disruption has affected freight rates, but our spot crude procurement is on a DAP basis, ensuring supply continuity. Regarding inventory fluctuations, the fall in crude prices from $91 to $77.91 per barrel in the quarter resulted in inventory losses of around INR700-750 crores.
Q: What factors led to suppressed margins in marketing products, and when do you expect margins to improve?
A: The suppressed margins were primarily in HSD (High-Speed Diesel). We expect margins to improve as our internal sufficiency of HSD increases with the stabilization of our refinery units. This will reduce our dependence on standalone refineries and improve overall margins.
Q: Can you provide an update on the progress and timelines for the Vizag refinery's residual upgrade and the Rajasthan refinery?
A: The Vizag refinery's expansion activities are complete, and units are operating. The bottom upgradation construction will be completed in the next 6-8 weeks, with mechanical completion expected in Q1 of the next year. Full potential will be realized by Q3 of the next year. For the Rajasthan refinery, mechanical completion is expected by mid-2024, with refining products available by December 2024 and petrochemicals in the next financial year.
Q: What are the debt levels and future projections for HPCL?
A: Our debt has reduced from INR64,517 crores to below INR50,000 crores as of December 2023. We plan to maintain debt levels around INR50,000 crores, with a potential marginal increase of INR3,000-4,000 crores. Over the next 3-5 years, we aim to reduce debt further to INR35,000-40,000 crores.
Q: How much crude does HPCL source from Russia, and what are the discounts received?
A: Approximately 30% of our imported crude is sourced from Russia. While we cannot disclose specific discount details, we procure crude on a DAP basis, ensuring commercial viability.
Q: What is the status of the Chhara LNG terminal and long-term LNG contracts?
A: The Chhara LNG terminal is mechanically complete, with breakwater connectivity in progress. The pipeline connectivity to the gas grid will be completed in 4-5 weeks. We have received enthusiastic responses from over 13 players for long-term LNG contracts, and the evaluation process is ongoing.
Q: What is the EBITDA contribution from the lubricant business, and are there plans for value unlocking?
A: The lubricant business contributes around INR1,000 crores in EBITDA annually. We have onboarded an international consultant to advise on value unlocking strategies, including a potential demerger.
Q: What are the plans for green energy investments and their expected returns?
A: We plan to invest INR2,500-3,000 crores in green energy next year, focusing on biofuels, solar, and hybrid capacities. Over five years, we aim to invest INR15,000-20,000 crores. Each project is evaluated with a hurdle rate of 15% IRR, ensuring positive margins.
Q: What is the progress and future outlook for the city gas distribution (CGD) business?
A: Our CGD projects have turned positive in EBITDA in their third or fourth year. We plan to invest INR2,500-3,000 crores annually in CGD, continuing until the minimum work program is completed.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
