IOC Q2 profit drops 12.6pc on forex losses, low margins

Indian Oil Corp (IOC), the nation's biggest company, Friday reported a 12.6 per cent drop in its second-quarter net profit on the back of foreign exchange losses and lower refining margins.

Net profit of Rs 3,246.93 crore, or Rs 3.43 per share, in July-September compared with a net profit of Rs 3,696.29 crore, or Rs 3.90 a share, in the same period of previous year, IOC Chairman Sanjiv Singh told reporters here.

The company suffered a foreign exchange loss of Rs 2,600 crore in the quarter as rupee depreciated, making repayment of loans as well as crude oil purchase costlier, he said.

Foreign exchange loss occurs when a company borrows, for example, USD 1 at an exchange rate of 70 rupees to a US dollar. But by the time it is obliged to repay, the exchange rate has fallen to 73 rupees to a US dollar and since the company has to repay USD 1, its outgo is now Rs 73 - a loss of Rs 3.

Similarly, when the company buys crude oil at a particular exchange rate but when the payment is due - say in 15 days or 30 days, the rupee has depreciated, resulting in higher outgo and a foreign exchange loss.

Singh said IOC earned USD 6.79 on turning every barrel of crude oil into fuel as compared to USD 7.98 per barrel gross refining margin in the second quarter of previous fiscal.

The forex losses were neutralised by inventory gains of Rs 4,408 crore in the July-September quarter as opposed to a gain of Rs 1,056 crore in the same period of previous fiscal, he said.

Inventory gain arises when a refiner buys crude oil at a given price but by the time it is able to process it and take the fuel to the market, rates would have gone up. And since the pump rates are benchmarked to prevailing international prices, the fuel gets a higher price, resulting in inventory gain. Inventory loss arises when the reverse of this happens.

Sales rose 47.9 per cent to Rs 1,32,357.08 crore in the quarter ended September 2018 as against Rs 89,498.77 crore during the previous quarter ended September 2017.

Brent crude averaged USD 75.89 per barrel in the quarter, a 1 per cent increase compared with the previous quarter.

Inventory gains fell 44 per cent quarter-on-quarter to Rs 4,408 crore.

Crude throughput rose 21 per cent to 21.37 million metric tonnes but sales volume fell 8 per cent to 19.82 million metric tonnes.

For April-September, the company reported a net profit of Rs 10,078 crore on a turnover of Rs 3,01,313 crore. "IOC sold 44.462 million tonnes of products, including exports, during the first six months of 2018-19. Our refining throughput for H1 18-19 was 35.483 million tonnes and the throughput of the corporation's countrywide pipelines network was 44.217 million tonnes during the same period," he said.

The gross refining margin (GRM) during the period April-September was USD 8.45 per barrel as compared to USD 6.08 per barrels in the corresponding period of FY 2017-18.

Employee cost jumped 56 per cent to Rs 3,706 crore, due to one-time contribution for superannuation benefits.

The rupee depreciated 5.87 per cent in the period.