Essar Oil’s September 2012 quarter numbers failed to satisfy the market. The company showed an improvement on some operational parameters, but the bottom line was barely in black. However, things could start improving in the next couple of quarters once its coalbased power plant is commissioned and the company arranges for lowcost foreign borrowings.
Essar Oil posted a net profit of . 105 crore on a turnover of . 21,023 crore. The company operated its refinery at full capacity through the September quarter and increased its heavy oil intake to nearly 64% of the total. This enabled it to post a gross-refining margin of $7.86 per barrel — its best so far. Its operating profit stood at . 1,037 crore against a loss in the year-ago period.
However, the entire operating profit was wiped out by interest and depreciation costs that together stood at . 1,064 crore. It was mainly . 132 crore of other income that helped it post profit in absence of any taxes. On the other hand, the company’s balance sheet saw a sharp worsening. Its net worth dropped to . 658 crore — lower than a third of what it was just six months ago. A simultaneous increase in borrowings by 26% to . 20,208 crore meant that the debt-equity ratio looked horrible at 30.7 at end-September 2012. Notwithstanding these factors, the management is unfazed.
“Essar Oil’s refinery with 20-mtper-annum capacity and the 11.8 complexity index was built at a capex of . 25,000 crore. A similar refinery today would cost twice that,” said LK Gupta, MD & CEO, Essar Oil. He assured that Essar Oil’s bankers are not in any way anxious about the balance sheet since operating cash flows would be sufficient to meet the debt repayment schedule.
The company will shortly commission its coal-fired power plant, which will reduce the fuel cost for running the refinery, and is planning to raise cheaper external commercial borrowings to part-finance its rupee-denominated high-cost borrowings. Both these steps should push profitability up to a level, where it won’t be dependent on other income.
Essar Oil posted a net profit of . 105 crore on a turnover of . 21,023 crore. The company operated its refinery at full capacity through the September quarter and increased its heavy oil intake to nearly 64% of the total. This enabled it to post a gross-refining margin of $7.86 per barrel — its best so far. Its operating profit stood at . 1,037 crore against a loss in the year-ago period.
However, the entire operating profit was wiped out by interest and depreciation costs that together stood at . 1,064 crore. It was mainly . 132 crore of other income that helped it post profit in absence of any taxes. On the other hand, the company’s balance sheet saw a sharp worsening. Its net worth dropped to . 658 crore — lower than a third of what it was just six months ago. A simultaneous increase in borrowings by 26% to . 20,208 crore meant that the debt-equity ratio looked horrible at 30.7 at end-September 2012. Notwithstanding these factors, the management is unfazed.
“Essar Oil’s refinery with 20-mtper-annum capacity and the 11.8 complexity index was built at a capex of . 25,000 crore. A similar refinery today would cost twice that,” said LK Gupta, MD & CEO, Essar Oil. He assured that Essar Oil’s bankers are not in any way anxious about the balance sheet since operating cash flows would be sufficient to meet the debt repayment schedule.
The company will shortly commission its coal-fired power plant, which will reduce the fuel cost for running the refinery, and is planning to raise cheaper external commercial borrowings to part-finance its rupee-denominated high-cost borrowings. Both these steps should push profitability up to a level, where it won’t be dependent on other income.
KEY POINTS Company showed an improvement on some operational parameters, but the bottom line was barely in black
Things could start improving in the next couple of quarters once its coal-based power plant is commissioned
The company’s balance sheet saw a sharp worsening
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