The Hindu Business Line : IOC to turn cash positive in Dec

Kolkata, Nov. 26 Thanks to profits generated on sale of diesel and petrol, after a long time, Indian Oil Corporation expects to turn cash positive in December.

The monthly borrowings – so far made to meet the working capital requirements – have dropped from Rs 7,000 crore during the July-September quarter to approximately Rs 1,500 crore in November.

Overall operations, however, will not be in profit mode due to marketing loss on kerosene and LPG and losses incurred in refining business during the last two months. The daily loss of the company, currently ruling at around Rs 61 crore a day, is expected to be halved in December. Trade losses incurred due to sharp fall in product prices put the refining business in the red.

“Our liquidity has already improved substantially leading to a drastic drop in monthly borrowings to meet the working capital requirements. The liquidity is set to improve further next month and we may generate some surplus cash in December,” a company source told Business Line.

Reporting its first ever loss in the history in the first quarter of 2005-06, IndianOil had started depending on borrowings to meet the working capital requirements. The liquidity crisis took its worst turn beginning this fiscal, when crude prices flared beyond $100 and eventually crossed $140 mark.

Saddled with a stockpile of oil bonds of limited tradability, IOC became hugely dependent on borrowings to keep things moving. So much so that the total borrowings of the company, which was Rs. 27,000 crore in 2006-07 and approximately Rs 34,000 crore in 2007-08 zoomed beyond Rs 65,000 crore as on date.

Much of this increase took place in the second quarter alone when crude was on fire and the oil marketing companies were not adequately compensated by the Centre for marketing losses as high as Rs. 380 crore a day for IndianOil alone in July this year. The three companies (IOC, BPCL and HPCL) were losing to the tune of Rs. 500 crore a day during the period.

Borrowings will come down

Enjoying a relatively comfortable working capital situation coupled with fresh issue of oil bonds, IOC is now aiming to bring down the borrowings by nearly 25 per cent to Rs. 50,000 level by the end of this fiscal.

The company is aiming disposal of approximately Rs 12,000-crore oil bonds including Rs 3,000-4,000 crore through special market operations of Reserve Bank and the rest through the open market in the months ahead.

As oil bonds have limited marketability to insurance companies disposal of bonds may not be easy. Oversupply of such instruments had in the past forced oil companies to shell out heavy discounts.

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