Indian Oil Corporation posts 3-fold jump in Q1 profit on refining margins, inventory gains

Indian Oil Corporation (IOC), the country's top oil firm, on Friday reported a three-fold jump in its June quarter net profit on the back of higher refining margins and inventory gains.

Standalone net profit of Rs 5,941.37 crore in April-June was up 210 per cent when compared with Rs 1,910.84 crore a year earlier when lockdowns due to the Covid-19 pandemic hammered fuel demand and squeezed margins.

The profit was down 32 per cent in comparison to the preceding quarter, mostly because of mobility being hit by the onset of the second wave of Covid-19 in April and May, the company's stock exchange filing showed.

Talking to reporters on the earnings, IOC Chairman Shrikant Madhav Vaidya said the company earned $6.58 on turning every barrel of crude oil into fuel in June quarter.

This is compared with a loss (negative gross refining margin) of $1.98 per barrel in the same period last year.

The refining margins included a component of inventory gain, IOC Director (Finance) Sandeep Gupta said without elaborating.

Inventory gains arise when crude oil is bought at a particular price but by the time it is shipped to India and processed into fuel, rates would have gone up. And since the refinery gas prices are benchmarked to global rates, an inventory gain is booked.

Inventory loss is booked when the reverse happens. After netting out inventory gain, the core gross refining margin (GRM) was $2.24 per barrel.

Revenue from operations was up 74 per cent at Rs 1.55 lakh crore.

IOC and its unit, Chennai Petroleum, control close to a third of India's 250 million tonne refining capacity.

Vaidya said petrol consumption reached pre-Covid levels in first week of July while diesel is at about 88 per cent of the pre-Covid levels.

"If a third wave does not strike, we should reach pre-Covid levels for diesel by Diwali," he said adding ATF, which is at 50 per cent of the pre-pandemic levels, may take by the end of the fiscal to reach normal consumption levels.

Air travel continues to be restricted, impacting sales.

Refinery run-rate, or capacity utilisation, is likely to touch near normal in a quarter, Vaidya said.

IOC refineries operated at 88.5 per cent of their capacity in April-June mainly because of the lower demand of fuel by consumers.

"The run-rate is closer to 90 per cent in the current month," he said.

Last year, when a nationwide lockdown was imposed to curb the spread of coronavirus infections, refinery run-rate had almost halved.

Petrol sales rose 32 per cent in the quarter to 2.7 million tonne and diesel by 22 per cent to 7.8 million tonne.

Cooking gas LPG sales however fell 1.8 per cent to 3 million tonne as lockdown last year had made people eat at home more than outside, he said.

"Petrol sales are up due to rise in personal vehicle use as public transport is not fully operational and people have concerns about using public transport," he said.

IOC has planned a capital spending of Rs 28,500 crore in the fiscal year to March 31, 2022. Of this, it spent about Rs 4,000 crore in the first quarter (April-June).

Vaidya said global crude oil prices had fallen to around $70 per barrel from $75 after producers and their partners, called OPEC+, earlier this month agreed to raise output. But they have crept back to $75 levels.

Product cracks or the margin on diesel have narrowed to $4.67 per barrel in July from $5.14 in the previous month. The same on petrol widened to $7.64 from $4.78 while that on jet fuel (ATF) shrunk to $2.12 from $2.34.