Inventory Loss & low margins on Petrol & Diesel led to a loss in Q4FY20: Sanjiv Singh, Chairman, IOC

Sanjiv Singh, Chairman, Indian Oil Corporation (IOC) Limited, talks about March quarter results and what led to a fall in profit and CapEx for FY21 during an interview with Swati Khandelwal, Zee Business. Edited Excerpts: 

Q: IOCL has posted disappointing numbers for March quarter FY20. Of course, there is an onetime loss of Rs 11,300 crore, which led to a net loss of Rs 7,780 crore Vs profit of about Rs 6000 crore posted in the corresponding quarter of last year. So, let us know that have you taken an entire hit or we may see a similar hit of the last fifteen days in the Q1FY21?  

A: The work-ups have been made according to the accounting procedures. As far as GRMs is concerned, GRM stood at – (minus) 9.64 in the fourth quarter and inventory loss was a major cause behind it. If the inventory loss, which has an impact on the GRM, is removed/ negated then the GRM stood at around $2.15 / barrel. It is a very moderate GRM. Two things kept the GRMs low predominantly inventory loss is one reason and the low margins on petrol and diesel for a long time is the second reason. Movement of prices in an upward trend helps in negotiating the inventory losses and moves towards inventory gains. It not just improves the margin but also improves the GRMs. 

Q: What is the Capex for FY21 and what is your outlook for the next three years in terms of investment, expansion of retail outlets or electric charging stations? Do you think that OMCs have an opportunity to go for a price cut, which has moved up in the last 15 days?

A: We had an original CapEx plan of around Rs 26,000 crore. And, we have revisited it after looking at the current scenario of recovery in demand and we feel that there is a need for reprioritization of the projections but as far as annual CapEx is concerned then we stand by the previous target of Rs 26,000 crore and we think that it will remain same. As far as prices are concerned, the prices are worked out for the Indian market according to the international prices. Apart from international price component, duties and taxes, like central taxes, central excise duty, state VAT taxes among others, are a big component for it.

It also includes some fixed charges like transportation and handling charges along with depot handling, operating charges and dealer margins. So, only 30% of such prices vary due to international prices. Petrol and diesel prices were quite suppressed in the international market in the last few months. Their prices were quite low when compared to the actual price at which crude generally remains. This suggests that there are chances of firming up and it will be linked with the crude prices.

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So, it is hard to predict the trend in which this price will move but indication from international experts and agencies about crude prices suggest that it will remain range-bound at this range. But there are chances that the product prices can firm up independently although the crude remains range-bound. It will have an impact on Indian domestic prices.