The Hindu Business Line : IOC’s financials may feel the pinch of refining margin

Kolkata, Aug. 17 Falling gross refining margin may leave a sizeable impact on IndianOil’s balance-sheet in the second quarter. The uncertainty has compounded due to recent trend of depreciation of rupee and the delay in issue of oil bonds by the Government.

The company, however, claims to be in a relatively comfortable position compared with the corresponding period of 2006-07.

India’s largest refiner clocked net profit during the first quarter of this fiscal riding on an average gross refining margin of $10.7 and appreciating rupee.

Foreign Exchange

“We are surely now better off on all fronts — including marketing losses, refining margin, foreign exchange rates and average interest — compared with the corresponding period of 2006-07.

However, the same is not true when compared with the first quarter of 2007-08.

The margins generated so far in the second quarter are not enough to compensate the marketing losses,” an IOC official said.

While rupee is showing some signs of depreciation in the last one week and closed at Rs 41.15 on Thursday — highest since May 1, 2007.

GRM declines

Gross refining margin dropped to $8 a barrel in July and is now ruling at $6.6, approximately 40 per cent lower than $10.5 in June this year.

“The gross refining margin is higher compared with last year. The cumulative average gross refining margin between April and August this year is $9.4 compared with $6.5 a barrel during the same period last year. Similarly, the foreign exchange rate is much favourable compared with over Rs 43 a dollar during the same period last year. However, there is negative impact on the balance sheet on both counts compared with April-June 2007 quarter,” the official said.

The declining trend in gross refining margin would have hit the company harder had marketing losses were not down to Rs 85 crore a day in the last two months compared with a loss of Rs 95 crore during July-August 2006. This was primarily due to a fall in international prices of motor spirit (MS) or petrol to $74 a barrel. MS prices were ruling at approximately $85 during the first quarter of this fiscal.

The pressure on finances is evidently much less as total borrowings are down from approximately Rs 27,000 crore in March 2007 to Rs 23,000 crore. Average interest cost is 5.7 to 5.8 per cent.

“We are in no need for fresh borrowings. We expect raising the second instalment of $75 million foreign exchange loan in October. The loan was tied up in May this year,” said the official.