DESPITE facing a lot of problems — stemming mainly from subsidy on petroleum products — the Indian petroleum industry has put up an impressive show during the quarter ended September 2007.
The group, which includes companies engaged in crude oil production, refining and marketing, reported 23% spurt in aggregate PAT despite a mere 2% improvement in net sales. Profit growth was driven by strong operational performances by standalone refiners and private players. Other income also came handy as it jumped by 71% during the quarter thanks to foreign exchange gains due to appreciating rupee.
The main sub-group of companies that outperformed the sector was the state-owned standalone refineries. These companies — Mangalore Refinery (MRPL), Chennai Petroleum (CPCL) and Bongaigaon Refinery (BRPL) — were forced to give discounts to downstream marketing companies till September 2006 quarter but were relieved from the same since the quarter ended December 2006.
Thus, considering the lower base of last year, the group of three posted a huge 331% jump in PAT during the current quarter.
The two private sector refiners — Reliance Industries and Essar Oil — too came out with encouraging results. Thanks to higher refinery throughput and improved refinery margins, RIL posted a 28% PAT growth to Rs 3,837 crore.
The performance of the public sector oil marketing companies was dampened due to the reduction in the assistance they received from government and upstream oil companies. The aggregate oil bonds were lower by 17%, while the discounts extended by the upstream companies was down by 26%. However, despite these odds Indian Oil posted a better-than-expected 25% PAT growth. IndianOil’s refining margins during the quarter were substantially higher on y-o-y basis as the company had written off loss on valuation of inventory in the corresponding previous quarter. However, both BPCL and HPCL recorded fall in profits.
The group of companies in the petroleum exploration and production segment performed better lead by the industry leader ONGC. In this quarter ONGC became the first Indian company to cross Rs 5,000 crore in quarterly profits. However, the performance was not in line with the strong surge in the international crude oil prices due to ONGC’s discounts on the one hand and the rupee appreciation on the other. Since the billing is done in dollars, the domestic oil producers suffer when rupee appreciates against the dollar.
Going forward, the performance of state-run OMCs will continue to depend on the support they receive from the government. The standalone refineries, which had stopped offering discounts from December 2006 quarter, won’t enjoy the benefit of small base. Their performance will directly depend on the refining margins, capacity utilisations and the fluctuation in rupee. The private sector refiners — free from pricing restrictions — are likely to continue their strong performance. The upstream companies will continue to benefit from strong upsurge in oil prices, while some of the profits may get eroded due to higher rupee.
Manufacturing brake on IIP growth
Industrial production grew by 6.4% in September, significantly lower than 12% growth recorded a year ago. Deceleration in manufacturing and lower production of electricity was responsible for 11-month low growth figures. Twelve out of 17 two-digit manufacturing industries recorded a single digit growth while two industries recorded a decline in their production. Last year in the same month there were only five industries recording single digit growth and only one industry had reported a decline.
A fall in production of manufactured food products and transport equipment and parts has played a spoilsport in September 2007. Moreover, lacklustre performance by machinery and equipment other than transport equipment, non-metallic mineral products, metal products and parts and basic chemical industry has dragged the industrial growth further during this month.
Whether, it is a beginning of a downward trend or an aberration is yet to be seen. In October, industrial production is likely to be revived. The effect of higher festive demand may raise the industrial production. In addition, lower growth in October 2006 may help it record strong number in next month. But, still there are concerns over the progressive growth for the remaining months of the current fiscal. It has been observed that the production index is easing on m-o-m basis. Secondly, the industrial production during April-September 2007 has grown by 9.2%, lower than 10.8% in the corresponding period last year. Thirdly, credit offtake by industries from banks has decelerated.
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