IOC Q2 net drops 83 pc on lower refinery margins, inventory losses

State-owned Indian Oil Corp (IOC) on Thursday reported an 83 per cent drop in second quarter net profit on the back of slump in refinery margins and inventory losses.

Net profit in July-September at Rs 564 crore was 82.6 per cent lower than Rs 3,247 crore net profit in the year-ago period, IOC Chairman Sanjiv Singh told reporters here.

"The major reason for the decline in net profit was inventory losses in Q2 as against inventory gain during corresponding quarter of previous year," he said.

The company earned USD 1.28 on turning every barrel of crude oil into fuel in July-September as compared to gross refining margin of USD 6.79 per barrel in Q2 of the previous fiscal.

Without accounting for inventory losses, the GRM was USD 3.99 per barrel in Q2.

He said the company recorded an inventory loss of Rs 1,807 crore in the quarter as opposed to an inventory gain of Rs 2,895 crore a year back.

A company suffers inventory loss when it buys raw material (crude oil in case of IOC) at a particular price but by the time it is able to ship it to refineries and process it into fuel, global rates have fallen. Because pump rates are benchmarked at prevailing international rate, it books an inventory loss. Inventory gains are booked if the reverse happens.

Singh said the company also booked a forex loss of Rs 1,135 crore in Q2.

Turnover slipped to Rs 1.32 lakh crore from Rs 1.51 lakh crore due to dip in prices.

Petroleum product sales stood at 21.4 million tonnes while refinery throughput was 17.5 million tonnes in Q2.

The drop in profit in Q2 also pulled down overall profitability of the company in the first half of the current fiscal year that started in April. Its net profit dropped to Rs 4,160 crore in April-September 2019 as compared to Rs 10,078 crore a year back.

"This was mainly on account of lower refining margins, lower inventory gain during current period partly offset by lower exchange losses," Singh said.

Revenue from operations also fell to Rs 2.82 lakh crore in the first half of 2019-20 fiscal year as compared to Rs 3.01 lakh crore in the corresponding period of the previous financial year.

GRM during the first half of current fiscal was USD 2.96 per barrel as compared to USD 8.45 a barrel a year back.

Singh said IOC's refineries have started producing International Maritime Organisation's (IMO) low sulphur compliant fuel for ships.

The first such supply was made on October 26, 2019 to an LPG tanker at Kandla port and same quality bunker fuel deliveries at other Indian ports in Mumbai, Mangalore, Tuticorin, Chennai, Visakhapatnam, Paradip and Haldia shall start by mid-November, he said.