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Raghuvir Srinivasan

INDIAN Oil's performance in the fourth quarter of 2003-04 is a story of buoyant earnings in refining and loss of margins in marketing business.

The company has reported a 10 per cent growth in turnover to Rs 36,235 crore while profit before tax, at Rs 2,785 crore, is up by about 5 per cent before adjustment for an exceptional income received by the company in 2002-03.

In the fourth quarter of 2002-03, Indian Oil had accounted for a one-time income of Rs 350 crore towards crude oil account settlement from Oil and Natural Gas Corporation, which boosted its net profit.

Adjusted for that, Indian Oil's profit before tax in the fourth quarter of 2003-04 would show a growth of 20 per cent.

That is not bad at all considering the industry situation in the January-March 2004 period. Oil companies, including Indian Oil, were unable to raise retail prices of petrol and diesel after the first fortnight of January despite the runaway rise in global crude oil prices.

While this has had a negative impact on Indian Oil's earnings, what saved the day was the exceptionally high refining margin of $6 per barrel which compensated for the dent on the retail front.

Indian Oil has also actively pushed down costs as seen by the sharp 41 per cent fall in staff costs in the fourth quarter as also in the 28 per cent drop in interest charges during the same period.

The company has exploited the low interest rates in the international markets and the appreciating trend in the rupee to increase its foreign currency loans.

This had the impact of reducing the overall cost of debt by 1.5 percentage points to 5.1 per cent during the year.

The ongoing first quarter of 2004-05 is likely to be a bad one for the company what with no decision coming through on increasing retail prices of petrol and diesel.

Estimates have it that the company may lose about Rs 500 crore on this account alone assuming that the government does not raise prices till June 30.

Besides, there is also no decision yet on the continuation of the subsidy sharing regime on LPG and kerosene with upstream companies, ONGC and GAIL.

The scheme of sharing subsidy on the two products across the entire industry lapsed with March 31 and the government has to decide afresh on the issue.

Assuming that the refining companies are told to share the subsidy amongst themselves without recourse to the upstream majors, that would mean an additional Rs 1,600 crore hit on Indian Oil's bottomline as per the company's own estimates.

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