HPCL plans to spend Rs 45,000 crore for expansion over next five years

State-owned refiner Hindustan Petroleum Corporation (HPCL) plans to spend Rs 45,000 crore over the next five years (2015-20) for capital expenditure, the company told analysts. The company had incurred a capex of Rs 4,852 crore during 2014-15.

According to the company, out of the total Rs 45,000 crore, Rs 21,200 crore would be spent on refineries which include the Mumbai and the Vizag refineries, Rs 10,000 crore for marketing, Rs 1,000 crore for renewables and other areas.

The rest of the amount will be spent for refinery, natural gas and exploration and production joint venture projects. While the Mumbai refinery expansion would include expansion to 9.5 mmtpa, compliance to Euro V/VI fuels and addition of value added units and bottom upgradation units.

According to a note by Motilal Oswal post the analyst meet, HPCL expects expansion at the Vizag to be completed by April 2020, and will expand GRM by $4-5/bbl, while Mumbai expansion is likely to be complete in three years and Bhatinda by February 2017.

HPCL has invested Rs 6,214 crore and Rs 6,113 crore in Mumbai and Vizag refineries respectively over the past five years.

In its note, Motilal Oswal states that HPCL has already started testing dynamic pricing. “HPCL has begun dynamic pricing (based on location, demand, competition) in some test markets to be future ready to roll out the same on pan-India basis. This will help the company to sweat the marketing assets better and improve profitability further,” states  Motilal Oswal in its note.

“While refining will continue to be cyclical, marketing (including pipelines) gives earnings stability and lubes business also contributes meaningfully (10-20%),” adds Motilal Oswal.

According to the note, the management also highlighted that since de-regulation, auto fuels marketing margins have been 10-15% above normal levels and that the Bhatinda refinery in which the HPCL has a stake of 49%.

It is expected to post profits in FY16 with profits for the nine months in the current fiscal (FY16) at around Rs 1,000 crore (compared with loss of Rs 1,600 crore in FY15) and GRM at around $12/bbl.