IOC Q4 net slumps 60%

Indian Oil Corporation (IOC), the country's largest refiner and marketer, has posted 60 per cent drop in net profit to Rs 1,610 crore from Rs 4,030.57 crore in the year-ago period, while its turnover was up 15 per cent to Rs 55,549 crore. The numbers are, however, not strictly comparable for two reasons.

During the previous year 2005-06, the company received oil bonds for the whole year in the January-March quarter, thus inflating the quarterly profit numbers. The bonds were issued in an evenly balanced manner in 2006-07, according to an analyst who tracks the company.

Secondly, last year's numbers do not include the financials of marketing company IBP, which is now stands merged with IOC.

When questioned on the numbers, IOC chairman Sarthak Behuria said, "profits are not at all related to income. Profits are "a function of many things, the refining margins, marketing margins, inventory gains and losses,exchange rate, the quantum of oil bonds issued by the government and the extent of subsidy burden shared by upstream companies," he explained.

For the whole year, IOC posted a 53 per cent jump in net profit to Rs 7,499 crore during 2006-07, while its gross turnover crossed the $50 billion mark (Rs 200,000 crore).

The board has recommended an additional dividend of 130 per cent (Rs 1,550 crore) for the year. This would add to the interim dividend of 60 per cent (Rs 701 crore) declared in December 2006.

Though the average gross refining margins of the Fortune 500 company with a ranking of 153 in 2006, were down to $4.19 per barrel during the year from $4.60 per barrel in 2005-06, "net under-recovery for 2006-07 (after relief in the form of bonds and discounts) was Rs 2,190 crore," chairman Sarthak Behuria told reporters at a conference.

Analysts said the "net subsidy" burden on oil refining and marketing companies such as IOC in 2006-07 has been lower compared with the year before, leading to better numbers. "As against a subsidy burden of 75 per cent in 2005-06, over 90 per cent of the under-recovery burden was taken by oil bonds and upstream companies in 2006-07," said an analyst tracking the sector.

IOC has projects worth over Rs 50,000 crore under various stages of implementation, Behuria said. For 2007-08, about half of the capex worth Rs 3,732 crore is earmarked for the petrochemical sector.

While making progress in its forward integration into petrochemicals, IOC is also upgrading and expanding refineries, and extending its footprint upstream. "Exploration is in progress in five countries including Iran, Libya, Gabon, Nigeria and Yemen," said Behuria.

Though the company's refining margins are currently at an all-time high, "they could be more than $7-8 per barrel," said Behuria, IOC is reporting under-recoveries of about Rs 80-85 crore a day.

"We are losing Rs 6.13 per litre on petrol, Rs 3.76 a litre on diesel, Rs 14.67 a litre on kerosene and Rs 167.14 on a single LPG cylinder," he said.

Analysts expect the current year to be better than the previous one for refining and marketing companies as the refining margins are at all-time-highs.

IOC, which is owned by the government to the extent of 82 per cent, however declined to comment on the future. "It is difficult for me to say what the profit will be (because of the volatility in crude oil prices and uncertainty in retail pricing). We are optimistic though, since the refining margins are good and the rupee appreciation has helped us," said Behuria.

The company has targeted a turnover of $60 billion by 2011-12, going by its vision plan.

The shares of IOC closed up 1.35 per cent at Rs 481.10 on the Bombay Stock Exchange.