UP election impact: HPCL Q4 net drops 40% on losses due to holding fuel prices

• HPCL CMD said the company earned USD 12.44 on turning every barrel of crude oil into fuel in the fourth quarter
• But these gains were wiped away by losses on petrol, diesel and domestic LPG sales

New Delhi: State-run Hindustan Petroleum Corporation Ltd (HPCL) reported a 40 percent drop in net profit on Thursday in the quarter ended March 31 as higher refining margins were wiped away by losses on auto fuel sales incurred due to maintaining the status quo on fuel prices during the recent Assembly elections in five states. HPCL and other public sector oil companies had held petrol and diesel prices for a record duration despite a surge in the global crude oil prices as Uttar Pradesh (UP), which is a key state for the ruling Bharatiya Janata Party (BJP) government, went into elections, along with four other states.

Officially, the government does not have any interference in deciding fuel prices. However, whenever state elections are underway, public sector oil marketing companies (OMCs) freeze fuel prices. They started raising prices only on March 22, around 12 days after results of UP elections had been announced.

HPCL reported net profit of Rs 1,795.26 crore in January-March as opposed to Rs 3,017.96 crore a year back, the company said in a stock exchange filing.

Gains on GRM wiped away by loss on petrol, diesel, LPG sales

At a media call, HPCL Chairman and Managing Director (CMD) Pushp Kumar Joshi said the company earned USD 12.44 on turning every barrel of crude oil into fuel in the fourth quarter of the fiscal 2021-22 as against a gross refining margin (GRM) of USD 8.11 per barrel in the same quarter a year back. After removing inventory gains arising out of processing crude oil bought at lower rates, the core GRM came to USD 6.42 per barrel in Q4.

But these gains were wiped away by losses on petrol, diesel and domestic LPG sales.

Even after the Rs 10 per litre increase in petrol and diesel prices between March 22 and April 6, they continue to make losses as international crude oil prices have stayed above USD 100 per barrel.

Similar is the story with cooking gas LPG, where prices were hiked by Rs 50 per cylinder on March 22, but this was not enough to cover the gap between the cost of production and sale price.

Another Rs 50 a cylinder increase happened on May 7 and rates went up by Rs 3.50 on Thursday.

HPCL looking to pass increased cost to consumers

Without getting into details, HPCL's Director (Finance) Rajneesh Narang said there have been concerns on pricing which have reflected on lower profit in the fourth quarter.

"We are looking on passing on increased cost (to consumers)," he said, adding the increase in price that will be passed on to consumers will depend on an "integrated view" after looking at the gains from refining margins and losses on marketing.

"Currently the prices are so volatile. Two days back, the GRM on diesel was USD 48, yesterday it fell to USD 37. Spikes are so big, we need to see some stability… Also, we need to take a longer-term view as regarding pricing… Let's see how prices fare," he said. "In the long term, we will see fuel prices are aligned with cost."

Joshi said the company earned a net profit of Rs 6,382.63 crore on a revenue of Rs 3.72 lakh crore in the full fiscal (April 2021 to March 2022).

This was lower than the Rs 10,663.88 crore net profit on a revenue of Rs 2.69 lakh crore in the previous year.

"The year 2021-22 has been a remarkable year with world economies recovering," he said. "Demand revival coupled with improved economic activities resulted in crude prices gradually strengthening from USD 62-65 per barrel at the beginning of the year to USD 85 per barrel by October 2021."

"Thereafter, rising geopolitical tensions and the Russia-Ukraine conflict resulted in crude price touching multi-year high of USD 138 per barrel in March 2022 before retreating to USD 110-115 per barrel towards the end of FY22," he added.

Crude oil prices to hover around USD 103-111 in Q2

The company expects oil to stay above USD 100 for most of the year. It expects oil to trade in the USD 103-111 range in Q2 of the current fiscal before dropping to USD 98-109 in Q3 and 89-105 in Q4.

He further said the domestic sales of HPCL for January-March 2022 stood at 10.26 million tonnes as compared to sales of 9.83 million tonnes in the previous year's corresponding quarter, showing a growth of more than 4 percent.

During the entire financial year, HPCL achieved a domestic sales volume of 37.45 million tonnes as compared to 35.20 million tonnes in the same period of the previous year, representing a growth of more than 6 percent.

"During the year the company registered market share gain for total motor fuels sales among the industry with petrol and diesel sales growing by 10.6 percent and 5.1 percent respectively over FY21," said the CMD.

With the highest-ever LPG sales of 7.7 million tonnes during FY22, HPCL continued to be India's second-largest LPG marketer, posting a growth of 4.4 percent over FY21. With the aviation sector picking up momentum, ATF sales witnessed a growth of 30.7 percent over FY21.

For the year 2021-22, HPCL has proposed a final dividend of Rs 14 per share.

(With agency inputs)

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