Mukesh Kumar Surana, Chairman & Managing Director, Hindustan Petroleum Corporation Limited (HPCL), talks about Q1FY22 numbers, plans related to the EV sector, expansion of Mumbai refinery & Visakh refinery, demand situation, and ethanol blending among others during an exclusive interview with Swati Khandelwal, Zee Business.
Q: How will you summarize the numbers of this quarter where pressure was felt in income and GRM, but profit and margin were better than the estimate?
A: As far as income is concerned, the income of the oil companies depends on crude and products prices internationally and it moves forward accordingly. As far as the volumes are concerned, the volumes have been good and there has been an increase in main products like petrol has increased by 36%, diesel has increased by 22%, LPG has grown by 3% and aviation by 118% as compared to the same quarter of the last year. An increase in volume means sales have increased and demand is picking up. The sales revenue is directly linked to international prices. In terms of profits, there are two things, Marketing sector and refinery sector. You would know that HPCL took a shutdown in its Mumbai refinery in the first quarter. The shutdown was for revamping and hook-up the Mumbai refinery expansion project due to which, we were not able to get the refinery’s throughput in the duration. In the context of marketing, the volumes have been good, and the main products have been good and have been better than the rest of the industry. In the case of LPG, we did maximum sales of Q1 in this quarter. As far as industrial products are concerned like lube and bitumen has a direct relationship with the refinery supplies and as there was a shutdown at the refinery, there is a slight fall in it. Otherwise, especially, amid the second wave of CORONA, marketing and sales have been good and meanwhile, we were able to do important work related to the refinery expansion project and a complex revamp. I think, due to all these factors the result is good and is achievable according to market expectations.
Q: You talked about the Mumbai refinery by when it will become operational and what is an update on Visakh refinery?
A: The expansion work on the Mumbai refinery has been completed and it is likely to be commissioned this month. The commissioning work has been started, it may take a month to one and a half months’ time to stabilize, otherwise, we will try to commission it this month. As far as expansion work of Visakh refinery is concerned, it is in a strong position and I expect that we will be able to commission that unit in this financial year, as well. As far as bottom upgradation is concerned, it is expected to be completed by the end of the calendar year of 2022. So, the expansion units of the Mumbai refinery will be completed in this financial year.
Q: COVID has had an impact in this quarter, but have we reached the pre-COVID levels from the point of view of business and demand? It is being said, petrol sale has crossed the pre-COVID levels, but it has not happened in the case of diesel and ATF sales. Is it true, if yes, by when do you expect that it will reach the pre-COVID levels?
A: Rightly said, that the demand for petrol has reached to the pre-COVID levels in July. The demand for petrol in July 2021 is around 5% more than the demand for petrol in July 2019. But the demand for diesel in July 2021 is more than the demand in July 2020 but is around 10% less in comparison to July 2019. ATF is still short by 50% in relation to pre-COVID. The demand for petrol is increasing as the lockdown is opening up, demand for diesel remains less in August in comparison to July due to monsoon and other factors. After that it picks up again as the industrial activities will open up, the festive season will start, the activity of truckers increases and harvesting starts. So, the demand for diesel is likely to pick up and by the year-end, it will reach the pre-pandemic levels. Demand for ATF will depend on the international flights and by when it will start.
Q: The company has focused well on the new energy avenues. To what extent is ethanol blending been done now and how does it benefits you from the point of finances? Also, the company has plans to set up a grain-based ethanol plant. What is an update on it, how much investment will involve in it and by when it will be operational?
A: In the context of ethanol, 9.1% ethanol blending has been done in this quarter at HPCL and you would have heard that the government is trying to do 10% blending all over India and from that perspective it is good progress in ethanol blending. To increase the availability of ethanol earlier only molasses-based ethanol was made but now the government has allowed making grain-based ethanol. And in it, HPCL has made provisions to set up four plants in which grains, like a surplus maze and surplus rice or damaged food grains, will be used to make ethanol. So, there is a provision for that project as well and we will take it ahead.
Q: Recently the company has signed an agreement with Tata Power for providing end-to-end EV charging solutions to customers across HPCL’s retail outlets. Can you tell us more about this JV and how it will pan out? Also, the company has signed a deal with State-run Convergence Energy Services Ltd for EV Charging. Tell us about this deal and how does it benefit HPCL? What is the long-term plan for EV?
A: EV is a new area and is being developed as the government’s policy is taking a shape on EV mobility. As people’s understanding is being built on it but still, it will take a long time for complete penetration for EV. It is the company’s endeavour to make all those options available to the customer so that he can meet all of these energy requirements. In the same direction, we are building EV charging infrastructure so that if people are buying EV vehicles, then they may not face issues in charging them.
With respect to the same, we have created MoUs and agreements with different companies. There is a different kind of models like fast-charging, slow-charging, battery swapping. In the same direction, we have signed an agreement with Tata Power under which we will establish EV charging facilities at 100 retail outlets with them. They have a strength in it, and we also have a strength in it and will see how it is being accepted in the market and accordingly, will take it forward. This is not an exclusive agreement with Tata but is an important agreement. We also have some agreements in certain things with other companies as well because different companies have their own strengths at different places geographically and technologically. So, we are trying to leverage it with others, and we have an important agreement with Tata.
Q: What is your view on Crude oil and Petrol price? Do you see petrol prices sustaining above Rs 100 only?
A: Crude prices are currently running in the range of $70-75. In this, there are certain reasons on both the sides, supply and demand sides. On the demand side, the demand is recovering but a different variant of COVID is coming and there is fear against it. In other countries, like China and the US, the impact of the pandemic has been seen now and it has also been seen in some states of India. Otherwise, overall, demand pick up has been good.
On the supply side, there has been some agreement among the OPEC Plus countries on the supply restrictions due to which the supply of crude will increase output each month by 400,000 barrels per day. So, there are certain issues on both sides due to which it is expected that crude prices will stay in the range of $70-75 for few more days. The domestic prices run in accordance with the international product prices in which the product crack and exchange rates have an important contribution. Product cracks have strengthened a bit now, earlier they were very low. Now the crack of petrol stands around $10 and diesel is close to $7 and crack value below this is not good for the refinery sector either. Accordingly, product prices are likely to stay in the same range for the near future.