The Hindu Business Line : IOC’s under-recoveries halve as crude price falls

On the brighter side, the company’s under-recoveries have nearly halved from Rs 420 crore a day in July, when India’s basket crude was priced at 132.43 on an average, to Rs 220 crore a day in the first fortnight of September.

On the not-so-brighter side, there is a concern about a “huge inventory loss” in September as crude continues to slip and now rules below $100 mark (India basket).

To add to the problem, the refining margin has come down from nearly $17 a barrel in April-June quarter to $7 on an average. Most important, the sharp fall of rupee against dollar may substantially impact the bottom line due to higher interest payment on borrowings for the quarter.

“In addition to the operative crude inventory, we generally have approximately 10 days of stock in the pipeline system and intermediate storage tanks. This takes our effective crude inventory to nearly 20-21 days, which is much higher than our competitors in both private and public sectors. As crude prices drop fast and steady, a huge stock loss therefore seems inevitable,” a company source told Business Line. IOC has over 10,000 km of crude and product pipeline network in the country.

Apart from crude, stock losses seem inevitable on the product front especially on naphtha and ATF as the prices of both products are steadily declining. Naphtha prices have dropped by 30 per cent.

Meanwhile, if the rupee continues to remain weak against the dollar, the company’s bottom line may be impacted in the second quarter due to higher interest payments. Generally every 100 paise depreciation of rupee increases the interest payments by approximately Rs 330 crore.

“The margins may be under pressure in the second quarter. However, that is a short-term perspective. Overall the fall in crude prices and the consequent reduction in under-recoveries is a welcome change. We hope the trend will continue in the coming months,” the source said.

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