Inventory gains happen when a company buys crude oil at a particular price but by the time it is able to ship it to India and refining it into fuel, the rates have gone up.
State-owned Hindustan Petroleum Corp Ltd (HPCL) today reported 4 per cent drop in its March quarter net profit on lower refining margins and inventory gains. Net profit in the January-March quarter of the fiscal year 2017-18 at Rs 1,748 crore compared with a net profit of Rs 1,819 crore in the year-ago period, HPCL Chairman and Managing Director Mukesh K Surana told reporters here. “The profit decline was because of lower inventory gains compared to the previous quarter,” he said. HPCL, which operates oil refineries at Mumbai and Visakh in Andhra Pradesh, earned USD 7.07 on turning every barrel of crude oil into fuel in the fourth quarter as compared to a gross refining margin of USD 7.99 per barrel a year ago.
Also, the company had lower inventory gain of Rs 157 crore in the three months ended March 31, 2018, as against Rs 460 crore last year, he said. Inventory gains happen when a company buys crude oil at a particular price but by the time it is able to ship it to India and refining it into fuel, the rates have gone up. Since fuel prices are decided on the basis of prevailing international rate, the resultant gain is classified as inventory gain. There occurs an inventory loss when the reverse happens.
Surana said cracks – the difference between the price of crude oil and petroleum products, were lower in case of LPG, naphtha and fuel oil. Only diesel showed a rise in cracks, he said. While sales rose 13 per cent to Rs 66,351 crore, the firm’s refineries processed 4.63 million tonnes of crude oil during the January-March quarter. He said the company commissioned 669 new petrol pumps in 2017-18 to take the total number of retail outlets to 15,062. It plans to commission 500 more outlets during the current fiscal, 2018-19. For the full fiscal 2017-18, the company posted its highest ever net profit of Rs 6,357 crore on a turnover of Rs 2.43 lakh crore.
In 2016-17, the company had reported a net profit of Rs 6,209 crore on a turnover of Rs 2.13 lakh crore. “Despite lower inventory gains in the financial year 2017-18, the growth in profit is mainly due to increased refining throughput, higher domestic market sales, better-operating efficiencies and improved cracks,” he said. While the two refining processed a record 18.28 million tonnes of crude oil, inventory gains were only Rs 674 crore in the full fiscal year as compared to Rs 2,300 crore in 2016-17.
They earned a gross refining margin (GRM) of USD 7.4 per barrel in 2017-18 as compared to USD 6.2 in the previous fiscal. Also, during the financial year 2017-18, HPCL achieved the highest ever sales volume of 36.87 million tonnes, including exports of 0.68 million tonnes, with a growth of 4.7 per cent.