The crude oil price spiral has prompted Hindustan Petroleum Corporation to space out project investment plans and focus on those that can assure quick returns.

“Cash flow management is a challenge when we have to generate Rs 4,000 crore annually for big investments. We have carried out an exercise to ensure a reasonable debt, equity ratio and some projects have either been deferred or advanced,” Mr Roy Choudhury, Chairman and Managing Director, told Business Line .

For instance, the process of land acquisition for the 9-million-tonne Maharashtra Refinery, scheduled for commissioning in 2016, will take another 18 months. “This investment could, instead, be earmarked for expansion of our Vizag refinery which could be put on the fast-track over the next three years,” he added. Likewise, the Bhatinda refinery is also intended to become a key revenue stream once it is commissioned.

HPCL has given top priority to small projects in refineries to improve its gross refining margins (GRMs). These will typically involve investments of around Rs 200 crore and take barely 18 months for completion. However, they will go a long way in boosting revenue and assuring better GRMs.

“For instance, if we increase output of MS (petrol), the refinery gets better margins. Bottom upgradation is also helpful because distillate yield improves. The new fluidised catalytic cracking unit in the Mumbai refinery will boost LPG output and such value-added products will improve our revenue stream and GRMs,” Mr Roy Choudhury said.

HPCL has identified the lubes business as another key profit centre largely. By June-July, the Mumbai refinery will begin yielding all three types of lube products and, in the process, end up among the few facilities in the world to do so. In addition, this will translate into higher GRMs and ensure that HPCL's 31 per cent share in the competitive lubes business is kept intact.

“All this is part of our plan to focus on projects which can be completed quickly and generate enough revenue. This will help us insulate ourselves from fuel losses. If we cannot post even three per cent of our turnover as net profit, what can we possibly invest in?” Mr Roy Choudhury said.

Despite the cash flow challenge, HPCL has decided to go flat out on its rural retail drive this fiscal where it plans to set up around 500 outlets. A more “selective approach” will be adopted for urban and highway outlets. By the end of 2011-12, the company's tally of outlets across the country will have reached nearly 10,800.

For its highway outlet plan, HPCL has tied up with the National Highways Authority of India in many locations and this has helped from the viewpoint of getting land. “Fast-track projects in the refinery help revenue generation while marketing investments will enable us to grow even if there is no return on investment. We have to eventually strike the balance,” Mr Roy Choudhury said.

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