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Hindustan Petroleum Corporation Ltd.

BSE: 500104 Sector: Oil & Gas
NSE: HINDPETRO ISIN Code: INE094A01015
BSE 15:43 | 19 Jan 416.55 5.50
(1.34%)
OPEN

412.55

HIGH

419.70

LOW

409.65

NSE 15:59 | 19 Jan 416.20 4.45
(1.08%)
OPEN

413.90

HIGH

419.95

LOW

409.55

OPEN 412.55
PREVIOUS CLOSE 411.05
VOLUME 135963
52-Week high 493.00
52-Week low 326.33
P/E 10.46
Mkt Cap.(Rs cr) 63,475
Buy Price 416.55
Buy Qty 2330.00
Sell Price 0.00
Sell Qty 0.00
OPEN 412.55
CLOSE 411.05
VOLUME 135963
52-Week high 493.00
52-Week low 326.33
P/E 10.46
Mkt Cap.(Rs cr) 63,475
Buy Price 416.55
Buy Qty 2330.00
Sell Price 0.00
Sell Qty 0.00

Hindustan Petroleum Corporation Ltd. (HINDPETRO) - Chairman Speech

Company chairman speech

Dear Shareholder

It is with great pride and immense pleasure that I present to you the65th Annual Report on the performance of your company for the year 2016-17.

The year 2016-17 was a year of continued transformation towards higherperformance of your company by creating value for customers. The company scaled new peaksin terms of profitability market sales and return to shareholders and registered thebest ever all-round performance since formation. For the first time ever the profit aftertax for the year crossed ` 6000 crore mark on standalone basis and ` 8000 crore onconsolidated basis. Your company exceeded previous year's all time high profit aftertax by 67% to reach ` 6209 crore resulting in a significant increase in the earning pershare to ` 61.12.

The stellar performance of 2016-17 hinged on the strong financial andphysical performances of the refinery and marketing divisions and our two-pronged approachof achieving business goals with responsibility. HPCL's refineries at Mumbai andVisakh achieved the highest ever combined refining throughput of 17.8 MMT with a capacityutilization of 113% and recorded a healthy combined GRM of USD 6.20 per barrel. Againstthe backdrop of rising competition in domestic market your company registered highestever market sales of 35.2 MMT with a growth of 3% over historical. The excellentperformance reflected in HPCL being conferred with Petrofed Oil & Gas Marketingcompany of the year award among the many recognitions and awards received.

The outstanding performance of the company was also recognized by thecapital markets with the market capitalization more than doubling during the financialyear to reach a level of Rs 53380 crore by 31st March 2017. Your company hasdeclared/proposed total dividend of ` 30.00 per share(ex-bonus) for 2016-17 and issuedbonus shares twice for the year totalling to 7 equity shares (Rs 10/- each) for every 2equity shares (` 10/- each) held. The results of 2016-17 have made us more ambitious aboutour future and confident of continuing the performance momentum.

For the Global Oil and Gas Industry the year gone by was challengingwith interplay between economic political and social forces; a thrust towards low carbonfuture and advent of digital technologies to drive down costs. It was yet another year oflow crude oil prices. However Oil prices recovered from the 12-year low witnessed in theprevious year to US$ 54-55 per barrel during Jan-Feb'17 and witnessed declinethereafter. The production cut agreement between OPEC and non-OPEC countries at the end of2016 partially assisted in reversing the prevailing global supply glut. For another yearin succession lower oil prices posed challenge for oil exporting countries; howeverthese favoured oil importers including India by reducing the cost of imports. Lower crudeoil prices also had a positive impact on inflation and economic growth of India.

The Indian economy maintained its momentum and registered impressiveGDP growth rate of 7.1% aided by a better growth in agriculture sector on the back of anormal monsoon. Foreign exchange reserves increased by about USD 22 billion during 2016-17to reach about USD 370 billion by March 2017. Rupee-US dollar exchange rate which wasabout 66 in the beginning of financial year ended at about 65 at the end of the year asportfolio inflows went up. Various reforms and land mark policy initiatives undertaken byGovernment of India laid a strong foundation for future growth and saw a major thrust ondigital payment transactions. Another major development on economic front last year wasdemonetization of high value currency. It did create initial difficulties for informal andcash intensive sectors of the economy. However intended long-term benefits in terms ofgreater formalisation of economy better measurement greater tax compliance revenuegeneration and increased flow of savings to financial instruments are likely to outweighshort term costs of demonetization.

Accelerated economic activities coupled with low oil prices helpeddrive strong demand growth for petroleum products in India. India is now the world'sthird largest oil consumer and has become a key driver of global oil demand growth. During2016-17 Petroleum product consumption in India increased with an annual growth of 5.2% toreach 194 MMT. All major products recorded a positive consumption growth during the yearwhile Kerosene Naphtha Bitumen and Lubricants recorded a de-growth. Petrol consumptionrecorded a strong growth of 8.8% on the back of increased passenger vehicle & twowheeler vehicle sales. Continuing the last three year's trend Diesel consumptionrecorded a positive growth of 1.8% during 2016-17 owing to increased usage of publictransport & improvement in medium and heavy commercial vehicle sales. Keroseneregistered a de-growth of 21% during the year which is the highest ever de-growth in last46 years mainly because of enhanced LPG penetration in rural areas through Pradhan MantriUjjwala Yojana and voluntary surrender of kerosene quota by some states. LPG consumptionincreased with a growth of 9.8% due to Government's impetus to provide clean cookingfuels by enhancing LPG penetration through various schemes. Aviation fuel consumptionrecorded a growth of 12.1% highest growth during last decade on the back of growth inpassenger traffic due to rising income levels and government's thrust to promote lowcost air travel. Fuel oil witnessed a growth of 8% due to increased use by Power Steeland Small & Medium Enterprise Sectors. Slowdown of construction activities led to amarginal de-growth of 0.8% in Bitumen consumption during the year.

To cater to the increased demand HPCL's refineries at Mumbai andVisakh recorded combined distillate yield of 75.8% with highest ever production of PetrolDiesel & Lube Oil Base Stock and achieved lowest ever specific energy consumption.Both the refineries successfully completed planned turnaround cycles within the scheduledtimelines enhancing reliability and ensuring product availability. Both HPCL refineriesprepared well ahead of the schedule to ensure supply of BS IV MS and HSD from 1st April2017. Continued strategic expansion of pipeline network judicious expansion and revamp ofprimary distribution network of Terminals Depots & LPG Plants coupled with strategiccommissioning of new dealerships / distributorships helped us leverage the opportunity ofincreased demand and increase our domestic market sales by about 2.5% in 2016-17 to reach34.7 MMT.

Your company recorded a growth of 1.3% in total motor fuel basisdespite the re-entry of private players in fuel retailing after deregulation of retailfuel prices. Your company maintained No. 2 position in LPG Sales with a double digitgrowth of 11.1% and continued the market leadership position in Non-Domestic Bulk LPGsegment. The strategy to focus on maximising volumes in three focus products of Fuel OilConsumer Diesel and Bitumen helped HPCL outperform industry growth and cross 1 milliontonne sales in these three products in the same year for the second consecutive year. Inthe highly profitable segment of lubricants your company rolled out a systematic processto appoint channel partners to strengthen and increase the presence in bazaar and MSMEsegment. Your company continues to be India's largest lube marketer for the fourthconsecutive year with 9.5% growth in total lubricants sales. In Aviation fuel salesinternational airlines and carriers like Lufthansa Aerologic Brussels Airlines DHLGroup and Aeroflot were added to the existing customer portfolio which helped your companygain 0.20 percent market share with growth of 13 % over historical.

To enhance our distribution and logistics capabilities throughexpansion of pipeline network your company commissioned and commenced operations of 355km long Mangalore Hassan Mysore Yediyur LPG pipeline taking the total cross countrypipeline network to 3370 km.

To enhance the ethanol production and improve blending of Ethanol inpetrol your company has laid the Foundation stone on 25th December 2016 for India'sfirst 2G Bio Refinery to be set up at Bathinda Punjab.

To align our business to the changing patterns of demand and leveragepotential opportunities as the country transitions to a low carbon economy your companyis strengthening its presence in Natural Gas & Renewables and has commissioned a 50.5MW wind power project in Rajasthan during the year.

In line with your company's vision to provide high qualityproducts and innovative services Green Research and Development Centre (HPGRDC) has beenset up at Bengaluru. A total of eight products / technologies were demonstrated by HPGRDCtill date which will help HPCL achieve significant cost advantages and efficiencyimprovements. HPCL is also the first company to launch Petrol with 99 Octane rating inIndia. Further to nurture an eco-system conducive for innovation ‘HP Startup'initiative has also been launched. Your company constantly strives to be a model ofexcellence in all endeavours be it in business excellence or in societal and environmentalstewardship. HPCL undertook implementation of Pradhan Mantri Suraksha Bima Yojna PradhanMantri Jan Dhan Yojna Pradhan Mantri Jeevan Jyoti Bima Yojna at locations. Under PMUYover 53 lakh new LPG connections to BPL families were released.

To enhance transparency and bring in better visibility of informationto stakeholders various e-initiatives like cashless payment facilities at retail outletsthrough various mobile wallets and online payment platforms migration of subscriptionvouchers of 4.3 crore LPG consumers to Digi-Locker platform on-line and cashless paymentfacilities for LPG refill Crude procurement through e-platform 100% e-procurementcompliance etc. were implemented by your company.

In efforts to create a competent workforce and develop technicalskills HPCL in consortium with Oil PSUs has partnered with Government of India to set upin the state of Andhra Pradesh the "Indian Institute of Petroleum & Energy(IIPE)" an institute of national importance for imparting technical education andpromote research activities and "Skill Development Institute (SDI)" for trainingunemployed youth and enhancing their technical skills.

During the year your company continued the Integrated MarginManagement (IMM) approach of maximising Net Corporate Realisation by improving the crossfunctional decision making across the organization. It has brought tight control overinventory and logistic cost. To stabilize the margins activities of Oil Price RiskManagement (OPRM) were resumed during 2016-17 through IMM group.

HSE Management systems have been put in place across all locations ofHPCL to strengthen HSE governance & compliance through surveillance auditsbenchmarking & Safety Index. Safety is a Non Negotiable Pillar of the core strategy ofHPCL and your company strives to ensure zero Incidents in business operations.

Your company secured ‘Excellent' rating with a Memorandum ofUnderstanding (MOU) score of 99.36 in terms of the MOU signed with the Government of Indiafor the year 2015-16.

All the subsidiaries and joint venture companies of your companycontinued the successful business partnerships and achieved growth in their respectivebusiness spheres which resulted into highest ever consolidated net profit of Rs 8236 crorefor HPCL with 76.2% growth over historical.

The superior performance was made possible by our committed andcompetent workforce of more than 10000 employees and business associates who enable us tooperate effectively in the highly competitive environment. Our human resource managementinitiatives are aimed at developing a vibrant workforce and enhancing the value to variousstakeholders.

As per IEA estimates Global oil demand in 2017 is expected to grow by1.3% as compared to 1.7% in 2016. China and India are expected to lead in consuming theadditional demand garnering a share of about 45% in global incremental oil consumption.Crude oil prices have decreased by 17% by the end of Q1 of 2017-18 from the levelswitnessed in Feb'17. The main reasons for this downfall are the consistentlydecreasing breakeven prices of Shale Gas resumption of supplies from African countrieseconomic concerns in China and build-up of product inventories. Brent prices are expectedto remain range bound in US$ 45-55 per barrel range during 2017. Most forecasts projectIndia's GDP to grow around 7.0 percent to 7.5 percent during 2017-18 withconsumption continuing to drive the Indian economy.

As India is poised to become one of the fastest growing economies inthe world there will be more opportunities. To leverage and capitalize on theseopportunities freewheeling discussions were held with employees across levels during theyear to gain critical insights from the ground level on the challenges facing our companyidentify focus areas and undertake actions and finalise investment plan to stay ahead ofthe performance curve in the changing scenario. This helped us develop a 5-year road mapnamed T20 (Target 2020) ushering the beginning of a new journey which will set HPCL on ahigher and accelerated trajectory of growth and profitability.

To participate in the growth your company have undertaken investmentsfor enhancing refining capacity and build marketing infrastructure. Environmentalclearance for Visakh Refinery Modernization Project (VRMP) for enhancing the refinerycapacity to 15 MMTPA and Mumbai Refinery expansion Project (MREP) for enhancing therefinery capacity to 9.5 MMTPA have been received. Project activities for both theprojects are on track. On the Marketing front expansion of Mundra Delhi (MDPL) VisakhVijayawada Secunderabad (VVSPL) Ramanmandi Bahadurgarh (RBPL) Pipelines Extension linefrom Palanpur to Vadodara with associated terminal facilities new POL Depots LPG Plantsand Lube Blending plants have been planned. Your company is taking steps to create andgrow our presence in the new business of Petrochemicals. HPCL has signed a RevisedMemorandum of Understanding (RMOU) with the government of Rajasthan for setting up of anIntegrated Petroleum cum Petrochemical Refinery in Rajasthan. The planned Capex outlayduring the period 2017-21 is about ` 61000 crore.

Recently Government of India has announced its decision to considerstrategic sale of its 51.11% of total paid up Equity holding in your company to Oil andNatural Gas Corporation Ltd (ONGC) as a part of integration of Oil Public SectorUndertakings announced in the Union Budget for 2017-18. It is envisaged that even afterproposed acquisition of GOI's equity holding in HPCL by ONGC HPCL will continue tobe Central Government Public Sector Enterprise (CPSE) retaining its cultural uniquenessand Brand identity. It has been your Company's resolve to build an Institution forIndia that will truly be an engine of growth for the national economy. HPCL'sunshakeable commitment to serve national priorities enjoins on us the responsibility toensure that this growth is inclusive creates meaningful sustainable livelihoods and asecure ecological environment.

Your Corporation has indeed traversed a remarkable journey oftransformation to create an incredible company with boundless potential. I have tremendousfaith in HPCL's world-class team of dedicated professionals and I know that theywill leave no stone unturned in their continuing quest to take the Company to new heights.

Our customers employees business associates and shareholders havealways been a source of strength and I thank them for their continued trust and support.The Ministry of Petroleum & Natural Gas Departments of Central / State Governmentsand local authorities have guided and supported us in all our efforts ensuring smoothconduct of the business I look forward to their continued support and guidance in all ourendeavours.

We look forward to your continued support for our shared success bycreating value in the eyes of customers and deliver Happiness.

Thank you

Mukesh Kumar Surana