HPCL has a CapEx plan of Rs 14,500 crore for FY22: MK Surana, CMD, HPCL

Mukesh Kumar Surana, Chairman & Managing Director, Hindustan Petroleum Corporation Limited (HPCL), talks about Q4FY21 numbers, Outlook for FY22, CapEx and expansion plans, and plans related to the EV sector among others during an exclusive interview with Zee Business Executive Editor Swati Khandelwal, Zee Business. Edited Excerpts

Q: Congratulations on Q4FY21 numbers. There is a significant rise in the margins and profit. What led to this rally and is it going to be sustainable in the future?

A: HPCL’s fourth quarter and annual numbers have been good. The profit after tax (PAT) stood at Rs 3,018 crore and the annual profit stood at Rs 10,664 crore, which is the best profit in the history of HPCL. I think, two-three things have helped us in achieve these numbers and they are

(i) Company’s operational performance has been good on the refinery and marketing side.

(ii) Refinery GRS increased slightly and there was some agility in our supply management.

(iii) The fluctuation in the foreign exchange rate.

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These factors led to an increase in profit. Amid today’s situation, the refinery cracks are improving a bit because petrol and diesel cracks were running quite low for a long time. It was running at around $2-3 per barrel and at present it is running at around $7-8 per barrel. This is why, the Singapore GRMs, which went down a lot last year has increased a bit, and has just reached $2.18 barrel Singapore GRMs, which is the benchmark GRM. Going forward, I think, the Singapore GRM, which is the benchmark, will increase. HPCL’s GRM in the previous quarter (Q4FY21) stood at $8.11 and if inventory gains are removed from it then also it stood at $3.5. If we have a look at an annual GRM then it stood at $3.86 and after removing the inventory gains then it stood at $1.87. The other reason for it is that our refineries were running at 104% capacity although the industry average was less than 90%.

If we have marketing degrowth of the entire industry then there was around degrowth of around 9% last year due to the lockdown. Last year’s petrol consumption was 51% compared to the previous year but in the case of HPCL degrowth stood at just 6.6%. So, a combination of all these factors led to a robust performance in financial terms.

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Q: Going forward, what is your outlook and do you think that the performance is sustainable or can be even better? Also, how demand is panning out and do you think that local lockdowns in different states will have any impact on demand? 

A: By the way, providing future guidance on profitability has not been the policy of the company. But, I will see it in different parts (i) refinery side (ii) marketing side and (iii) other businesses side. So, an improvement is being seen in the margins of the refinery and I have already talked about it. And, cracks of petrol and diesel, which were down due to inventory overhang. And, as the demand in the US, Europe and Asian countries have increased, inventory sock up has opened and led to improvement in cracks. I feel, the cracks of petrol and diesel will improve further due to which the refinery GRMs in which Gasoline and Gasoil is a major component is likely to lead to an increase in the Singapore GRM and Refinery GRM. As far as the crude oil price is concerned, a lot of ups and down has been seen in crude prices in the last 4-5 days in which it went up to $70/barrel to $65/barrel.

The discussions with Iran may have some positive impact on it. So, fuel prices can decline a bit and it will have a positive impact on the entire industry and it will decrease the pressure on marketing margins. The product demand on the marketing side, as I informed earlier that last year in April it fell to 50% has once again a slight fall due to the second wave, as this led to lockdown in several states in April and May. However, we have seen the petrol consumption is almost 20% higher as compared to May 2020. Similarly, diesel consumption is around 6-6.50%. But, if compared with May 2019 - because May 2020 was a complete lockdown period – then petrol and diesel consumption are around 30% low. However, it is a momentary situation.

Now, it is being seen that there is some improvement in the high rate of infections and aggressive vaccination will also benefit. The lockdowns in states, which was till mid-May have been extended till May-end at places due to which slight contraction is visible in demand. But I expect that there will be an improvement in it in June and it will be back to normal in Q2FY22. Going forward, there will be an improvement in demand.

Q: What kind of CapEx and expansion plans you will have for FY22? You said that the current capacity utilisation stands at 104%. So, when do you plan to fully start the Mumbai refinery?

A: The Mumbai refinery expansion plan will be completed in this quarter, i.e. by June 2021, and we have plans to commission it in July itself. With this, the Mumbai refinery capacity will increase by 2 million tonnes. And Vizag refinery’s expansion is also likely to be completed in this financial year and the bottom Upgradation project will be completed in the calendar year 2022. Last year, we had a CapEx of around Rs 14,000 crore and this year it stands around Rs 14,500 crore including refinery, marketing, pipelines, everything. Some part will go for CGD, natural gas and bio-fuel.

Q: Some of your peers are having huge plans for EV. What is your company doing in the EV space? 

A: Electric vehicle is a new arrangement and it will take some time in entering the Indian system. But, we are quite conscious about the developments that are happening in this one new thing. Today, the EV charging facilities have been provided at 87 petrol pumps of HPCL. In different modes, like battery charging and battery swapping, we have signed MoUs with different companies which are engaged in manufacturing electric vehicles, batteries or are present in this field. At the same time, we are also working with some start-ups. Apart from this, HPCL is also working a lot in the biofuel segment. We are also working on a 2G bio-refinery – that will make ethanol through agri-base – in Punjab.

In addition, we have a plan to set up three ethanol units. The new arrangement that is coming in the field of bio-fuel that is good for the environment, reduce the imports and utilize the agri-waste to produce ethanol or bio-fuel and bio-gas. And HPCL is working a lot in that direction. In addition, at our R&D centre, we work a lot of process units where hydrogen is also used. Recently, we have established a hydrogen plant that operates on electrolysis and renewable power.

Going forward, whatever hydrogen will be used in the R&D centre of HPCL will be green hydrogen. HPCL has its R&D centre in Bangalore, where a number of research works are carried on. Last year, we got around 44 patents for a new process of technology.

Q: Update us on the merger of HPCL and MRPL and is it on track, if yes, what is its timelines? 

A: We will inform you about the developments as they occur. As I have earlier informed you, that first the merger of OMPL and MRPL is happening and its process is on. The merger of MRPL and HPCL will be seen only after the merger process of OMPL and MRPL is completed.