OMCs' subsidiaries, joint ventures in good health

Improvement largely fuelled by better refining margins

Three state-run oil marketing companies (OMCs) saw improved financial performance of their subsidiaries and joint ventures in 2015-16, leading to a higher consolidated profit than their standalone performance.

The rise in consolidated performance is largely being attributed to better refining margins reported by the refining subsidiaries of the three OMCs.

For instance, Bharat Petroleum Corporation Ltd (BPCL) in 2015-16 reported a consolidated profit of Rs 8,463.98 crore higher than Rs 7,431.88 crore, it reported as standalone profit in the same period. This was the first time at least in the past three years that the company had reported a higher consolidated profit compared to its standalone performance. “The rise is mainly due to better refining margins,” said an analyst with a domestic brokerage firm, who did not wish to be identified. BPCL’s average gross refining margins (GRMs) were higher at $6.59 per barrel for 2015-16 against 3.62 per barrel reported for in 2014-15.

Gross refining margins for oil companies have been on the rise on the back of higher demand for petroleum products due to the fall in crude prices. The other two OMCs — Indian Oil Corporation Ltd (IndianOil) and Hindustan Petroleum Corporation Ltd (HPCL) — reported a higher consolidated profit than the standalone profit reported in 2015-16.

In terms of contribution of subsidiaries to the consolidated performance, HPCL’s subsidiaries and joint ventures reported the highest contribution compared to IndianOil and BPCL. For 2015-16, HPCL’s subsidiaries and joint ventures contributed over 20 per cent to the overall consolidated profit, against 11 per cent for IndianOil and 12 per cent for BPCL.

“Both BPCL and HPCL have joint ventures for Bina and Bhatinda refineries. There will not be much change for IOC,” said the analyst quoted earlier.

HPCL in its annual report for 2015-16 said the company reported its highest-ever consolidated net profit as all the operating joint ventures and subsidiaries improved their financial performances during the year. “The year saw HPCL-Mittal Energy Ltd (HMEL) achieve its best-ever operational and financial performance. HMEL processed 10.71 mmt of crude oil with capacity utilisation of 119 per cent and registered a profit after tax of Rs 1,826 crore,” HPCL said in its annual report.

“Till the time Singapore GRMs remain healthy, this trend is likely continue for the OMCs,” said a second oil and gas analyst with a domestic brokerage firm who did not wish to be named.

With the rise in refining margins, analysts are also hopeful both BPCL and HPCL will gain from their investments made in subsidiaries and joint ventures. “BPCL’s fair value will increase by Rs 25 a share owing to revaluation of its investments and HPCL’s fair value will increase by Rs 42 a share owing to revaluation of its investments,” analysts Satish Mishra and Deepak Kohle wrote in a HDFC Securities report. “We see a case to reassess the value from BPCL’s two investments in Numaligarh Refinery Ltd and Bharat Oman Refineries Ltd owing to strong refining outlook. Investment in HMEL will be upgraded owing to a strong refining outlook,” the HDFC Securities analysts said in their report.