Different narrations has created stress on Auto Sector: MK Surana, CMD, HPCL

There is an improvement in diesel and motor spirit (MS) cracks, says Mukesh Kumar Surana, Chairman & Managing Director, Hindustan Petroleum Corporation Limited (HPCL). In a candid chat with Anurag Shah, Zee Business, Mr Surana said, “HPCL is establishing a biofuel refinery in Bhatinda to produce 2G (second generation) ethanol via lignocellulose methodology by using agri-wastes that remains after the crops are harvested”. Edited Excerpts:

Q: If we look quarter-by-quarter then there is a significant decline in the company’s profits. Tell us about the pressure areas which led to this decline and what is expected in future?
A: HPCL has made a profit of more than Rs6,000 crores in the last three years and it is among the highest-profit series of the company. Profit keeps changing quarter-by-quarter as it depends on many situations like inventory gain/loss, exchange rate variation, product cracks and cost of the crude itself. Cracks were quite low in the last quarter and there were inventory losses, and this is something that led to a decline in profits for every company. But HPCL’s fall is quite less when compared to our customers. So, the narration changes in accordance with the existing situation and leads to a fall or increase in profits in every quarter and same is the story of inventory losses or gains.

Q: Do you think that falling crude prices may increase inventory losses? Also provide your outlook on GRMs, which is under pressure at present?
A: As far as product cracks are concerned then there is an increase in diesel cracks, and it is better than the past. Similarly, there is an improvement in Motor Spirit (MS) cracks - not as good as they should be - but it is better than before. But other products haven’t seen much boom yet. Crude prices have increased or decreased daily, for instance, they have moved up in the last three days but was decreasing for continuous three days before this increase. It is happening daily. Inventory loss and gains too depend on the date when the crude was bought, processed and turns up to be a product. Thus, its net - whether there is an inventory loss or gain - can be calculated only after completion of the quarter. As I was saying about the previous year that started and ended at $68 levels but in between this period crude prices went up to the mark of $80 and down to $56, which led to inventory loss in some quarters and gains in others.  

Q: Has the ongoing sales decline in the auto sector in the last four months had any impact on your sales?
A: The Auto sector has been under distress for the past few days because several narrations that are in the market and creating confusion. Maturity of these narrations will bring a semblance and provide a direction. People are confused about the future of electric vehicles (EVs) and the industry is hesitating in introducing new models due to BSVI norms, which will be rolled out in the near future. Same is the case with the buyers, who are thinking about whether they should buy a BSVI vehicle or go for BSIV. These ongoing narrations have fuelled consciousness in the market and the consumer. This has an impact on supplies and then to sub-assemblies and ancillaries and overall on the entire ecosystem. As far as our industry is concerned, which is correlated to the auto industry as every new vehicle buys additional fuel from us. We are getting the growth that should come from the existing vehicle market but there is a difference in the additional growth in demand from new vehicles. However, I feel that this is a temporary phenomenon and our growth will pick up once the ongoing narration is clear, and people get a direction. There is a short of economic degrowth/recession kind of condition in the world but still, there are growth opportunities in India and India’s growth rate is the best one when compared to rest of the world. Even pessimists in their forecast suggest better growth rate for India vis-à-vis other countries. We feel that the growth of 6% is less because we think about the growth of around 8-9% but 6% growth is better than the growth of 2%.

Q: IOCL and other companies in your segment are expanding themselves in green energy projects. So, do HPCL has any plan to expand itself the segment?  
A: Yes, we have wind firms of 101 megawatts in Rajasthan and Maharashtra. We have also installed solar power projects and have a capacity of 11megawaat. Besides, 2,000 of our petrol pumps are solar self-sufficient to operate them with solar power. We are also going into biofuel and in the process are establishing a biofuel refinery in Bhatinda, which will use the agri-waste (non-edible fractions) - that remains after the crop is harvested and create pollution after they are burnt – to produce 2G (second generation) Ethanol via lignocellulose methodology. 1G (first generation) Ethanol is produced by sugar via molasses while 2G can be produced through agri-wastes. It will reduce pollution, increase the availability of additional ethanol and bring a new source of energy in the system, which is more renewable as it is being created from agri-wastes. So, it will not bring any additional carbon-footprints for us.

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Q: What is your outlook on competition amid Reliance-BP Plc joint venture? Update us about innovations, where the companies will focus from now?
A: Additional players like Reliance, Shell and Nayara have been there in the market since 2007-08. Competition increases with the entry of new people in the system and this is something that will make existing companies more efficient in terms of work as well as cost. This is a good thing for the industry as it will increase sharpness. At the same time, existing companies have their strength and new entrants will have their strength. So, in terms of market reach, understanding and infrastructure the existing companies have invested money and they should be able to compete with the competition. Even today, you can’t say that there is no competition as there is huge competition between the existing companies. Interestingly, all these companies are not PSUs and they have already worked in a competitive environment in the past as well and at that time too, multinational companies were present in India. So, we have originated through competition and I think that we will be able to come out with our narration in this competitive environment with more efficiency, more cost leadership.