IndianOil racks up historic loss
New Delhi 10-Aug-2012
IndianOil, the country's biggest refiner, created grim corporate history by posting a record quarterly loss of Rs 22,451 crore despite lower crude oil costs, as the freeze in diesel, kerosene and cooking gas prices, depreciation of the rupee, and interest costs devastated its balance sheet.
The state-run company suffered a foreign exchange loss of Rs 3,187 crore and inventory loss of Rs 4,062 crore while the delay in government compensation increased its interest burden to Rs 1,849 crore during the first quarter of the current fiscal. Another state refiner, Hindustan Petroleum Corp Ltd, reported a quarterly loss of Rs 9,249 crore, magnifying the gloom in the sector.
The unprecedented loss threatens to derail the finance ministry's fiscal calculations and puts pressure on Oil Minister Jaipal Reddy to persuade the cabinet to raise prices of diesel, cooking gas and kerosene, which have been unchanged for more than a year.
Government officials, however, said this would be difficult while Parliament is in session. Oil companies face another difficult quarter as benchmark Brent oil prices have risen. In the April-June quarter, Brent had dipped 20 per cent and was trading at $97.8 per barrel by end-June. On Thursday, Brent crude was above $112 a barrel and was heading for its highest since early May, according to a Reuters report.
IndianOil Chairman RS Butola said the situation was alarming and if its finances did not improve, the company would face difficulty in raising loans, which would affect operations and the country's fuel supply.
Forced to Sell Petrol below Cost
"We have to pay in cash to buy crude. We are close to our borrowing limit," he told reporters after announcing the disappointing earnings.
IndianOil Director-Finance PK Goyal said the company's borrowing limit was Rs 1, 10,000 crore. Its actual borrowing was Rs 90,000 crore at the end of June, and Rs 86,000 crore this month. Butola said the company expected a compensation of Rs 17,485 crore from the government to make up for selling fuel below market rates. Analysts said this was an area of concern.
"In the next quarter too, there could be some pressure as IndianOil has not received any letter of compensation from the government as yet," said Sandeep Randeray, head of research, Brics Securities. Shares of IndianOil dropped nearly 2% to their lowest level in seven weeks. Analysts said earnings were along expected lines. "It is in line with overall expectations; going ahead, subsidy payments will be critical for the stock," said Deepak Pareek, oil and gas analyst at Prabhudas Lilladher.
Butola said the company was often forced to sell petrol below market rates despite state oil firms having the freedom to determine prices. "We will request the government to take back the marketing freedom, which will make us eligible to get compensation for (revenue) losses on petrol," he said. The government freed pricing of petrol in June 2010, but oil companies take tacit approval of the oil ministry before raising rates. IndianOil is incurring about Rs 1.37/litre revenue loss on petrol.
Government officials said companies would not be allowed to raise petrol prices when Parliament is in session. "A petrol price hike is expected only in the next few months," one official said requesting anonymity.
