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Standalone refineries: 1QFY04 review

Sep 4, 2003

Standalone refineries have performed well both on the Indian stock markets as well as financially in the June quarter. Higher crude prices and parental support has been the drivers of growth for these companies. Let us review the consolidated financial performance of BRPL, MRPL, CPCL, KRL in 1QFY04.

(Rs m)1QFY031QFY04Change
Net Sales66,05868,9614.4%
Net claim from oil pool account(65)- 
Other Income4751,192151.3%
Expenditure62,72464,3392.6%
Operating Profit (EBDIT)3,2694,62341.4%
Operating Profit Margin (%)4.9%6.7% 
Interest2,4041,430-40.5%
Depreciation1,5391,5641.7%
Profit before Tax(200)2,820 
Tax(133)851 
Profit after Tax/(Loss)(66)1,970 
Net profit margin (%)-0.1%2.9% 
No. of Shares2,239.62,239.9 
Diluted Earnings per share (Rs)* 3.5 
P/E 14.9 
*(annualised)   

On a consolidated basis, the companies reported an increase of about 4% in its topline. Volumes in fact declined during 1QFY04. However, as BRPL was able to significantly raise its volumes, due to sourcing agreement with parent, fall in volumes was arrested to a certain extent. The major reason for the marginal rise in topline was due to higher crude prices as compared to the same period last year. This led to higher realisations and a consequent improvement in sales during 1QFY04.

Expenses also rose in line with sales. However the increase was at a lower pace as compared to increase in topline and this resulted into higher operating profits for the companies. Rise in expenses was primarily on account of higher output and consequently higher raw material requirements by BRPL and MRPL. The companies managed to reduce their other expenses and this further aided in the improvement of operating margins of these companies (up by 180 basis points).

Apart from higher operating margins for the group, the companies were able to reduce their interest expenses significantly during the quarter and this resulted into similar improvement in profitability. MRPL has restructured it debt and this resulted into significant reduction in interest outgo. On a consolidated basis, the companies reported a net profit of about Rs 2 bn as compared to net losses of about Rs 66 m in the same period last year.

The crude prices after being stable post the war have again started moving north and this would further benefit standalone refining companies in terms of higher refining margins. This apart continuing support from their parent companies (likely to lead to higher volumes) would help the companies to get a shield as far as their sales are concerned. As survival of independent refineries was becoming increasingly difficult in the wake of rising competition in the marketing front most of the standalone refineries are now integrated with larger refinery players having their own marketing infrastructure. Hence parental support will be a key factor in the survival of these companies in the long-term.

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