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Hindustan Petroleum Corporation plans Rs. 61,000 cr Capex

by Suman Gupta

Hindustan Petroleum Corporation (HPCL) is planning invest as much as ₹61,000 crore over the next five years to augment its refining and marketing capacity to become India’s second-largest state-owned refiner after Indian Oil Corporation. Of the ₹61,000 crore, the company intends to invest ₹7,110 crore this year alone or 21% more than capex of ₹5,860 crore in the last fiscal.

HPCL Chairman, M.K. Surana said, “With a huge potential for growth amid rising energy demand and due to low per capita consumption base, the oil and gas sector is poised for an exciting and challenging future. We are adapting to this changing energy mix and are well positioned to create value for all stakeholders in the future with a capex of over ₹61,000 crore over the next five years.”

The government has approved HPCL’s merger with ONGC with the latter buying out the government’s 51.11% stake in HPCL. Talking about the merger, Mr. Surana said, “The government has formed an advisory panel which would decide the valuation (share price) for the acquisition.”Post merger, HPCL will become a subsidiary of ONGC and will remain a listed company with its brand identity and HPCL’s board will continue to remain in place.

Company registered gross sales of Rs. 2,13,489 crore during 2016-17 and achieved the highest ever profit after tax of Rs. 6,209 crore which has substantially exceeded the previous high of Rs. 3,726 crore achieved last year by 67%. Company continues to be a Fortune Global 500 Company with a ranking of 384 and is ranked 48th in the list of Platts Top 250 Global Energy Companies.

The excellent financial performance led to increase in the earnings per share to Rs. 61.12 in 2016-17 from Rs. 36.68 in 2015-16. The Company has declared/proposed total dividend of Rs. 30.00 per share(ex-bonus) for 2016-17 and issued bonus shares twice for the year.Borrowings continued to be low at Rs. 21,250 crore mainly on account of lower crude oil prices and were mainly short term, reducing the long term debt to equity ratio from 0.96:1 in the previous year to 0.51:1 as on 31st March 2017.

Recently during the month of July 2017, Company made foray into the international bond market with the first foreign currency bond issue that was oversubscribed by 6 times by attracting offers of over 3 billion US $ against requirement of 500 Million US $. This also witnessed the tightest priced public issuance for 10-year US $ bond from the Indian oil and gas sector and also the tightest 10-year spread paid by an Indian corporate in the last decade in the international bond markets.

Both refineries at Mumbai and Visakh maximized crude processing and achieved the highest ever combined refining throughput of 17.81 million tonnes with a capacity utilization of 113%. Company’s refineries achieved combined Gross Refining Margin of US $ 6.20 per barrel during 2016-17.

 

Refineries also recorded the highest ever production of Petrol, Diesel, LPG, Bitumen & Lube Oil Base Stock with the lowest ever specific energy consumption. Both refineries put in enormous efforts to ensure uninterrupted supply of Petrol and Diesel while simultaneously preparing to upgrade infrastructure, and successfully supplied Petrol and Diesel conforming to BS IV specifications from 1st April 2017.

The Company excelled further in sales performance by achieving the highest ever total sales volume of 35.2 million tonnes with a sales growth of 2.9%.

In Retail Sales, the Company continued to deliver excellent performance with a total sales volume of 22.8 million tonnes, and a growth of 1.3% in total motor fuels despite heightened competitive intensity in fuel retailing market. Various customer centric initiatives helped in enhancing total motor fuel sales. HPCL has launched 99 Octane rating Petrol to cater to the premium segment which will boost branded petrol sales.

In LPG sales, HPCL  continued its number two position with highest ever sales volume of 5.63 million tonnes and a double digit growth of 11.1%. Your Company continues to be market leader in Non-Domestic Bulk LPG segment with over 46% of market share.  During the last year your company has issued 87 lacs new LPG connections out of which 53 lacs connections were issued to PMUY beneficiaries. As of date the total LPG connections provided to BPL families under PMUY scheme is over 75 lakh.

In the competitive lubricants segment, the Company continues to be India’s largest Lube marketer for the fourth consecutive year.  During the year, there was a systematic process to appoint channel partners to increase presence in bazaar and MSME segment, which helped grow total lubricants sales by 9.5% to 607 TMT.

The strategy to concentrate on maximizing volumes in focus products of Fuel Oil, Consumer Diesel and Bitumen helped the Company to outperform industry growth and cross 1 million tonne sales in each of these three products in the same year for the second consecutive year, and helped grow Industrial & Consumer sales by 5.4% to 5.51 MMT.

In the rapidly expanding aviation fuel segment, the Company recorded a sales volume of 691 TMT with a substantial growth of 13.4%. Operations & Distribution team has effectively & efficiently managed the supply chain network of Pipelines, Terminals and Depots to make products reach to various demand centers across the country while ensuring quality, timeliness and safety which played a key role in maximizing the sales of the Company. Distribution network of your Company handled over 47 MMT of petroleum products during the year at the lower operating cost through various productivity enhancement initiatives.

Following the Government’s thrust on the Ethanol Blending Program (EBP), the Company achieved ethanol blending ratio of 3.5% in 2016-17 and has recorded Biofuel blended Diesel sales of 210 Thousand Kilo Liter through 773 retail outlets during the year.

HPCL is effectively leveraging its pipeline network to reap multiple benefits in product distribution including cost efficiency, carbon footprint reduction and enhanced safety. Highest ever pipeline throughput of 17.91 million tonnes was achieved during the year which helped in optimizing the logistics cost. Newly commissioned Rewari-Kanpur Pipeline became the first cross country pipeline in the country which is fully protected through PIDS (Pipeline leak detection system).

In the area of renewable energy, the Company has achieved wind energy generation of 96.2 Million kWh from its Wind Farm projects set up in Maharashtra and Rajasthan. In addition, total 21,648 Nos of Renewable Energy Certificates (REC) were accrued during 2016-17.

For imparting technical education and promoting research activities in Energy sector, the Company in consortium with other Oil PSUs has set up “Indian Institute of Petroleum & Energy (IIPE)” at Visakhapatnam. In line with Skill India initiative a “Skill Development Institute (SDI)” was set up in Andhra Pradesh for training unemployed youth and enhancing their vocational skills. To support the Startup India initiative, the Company has launched ‘HP Startup’ Scheme.

To support the digitalization of economy, Company has undertaken proactive measures across all facets of business activities. Various e-initiatives like cashless payment facilities at retail outlets through various mobile wallets and online payment platforms, migration of subscription vouchers of 4.3 crore LPG consumers to Digi-Locker platform, on-line and cashless payment facilities for LPG refill have been implemented. To create presence in the new business line of Natural gas, the Company has got registration with the Empowered Pool Management Committee (EPMC) which will enable your Company to supply RLNG to fertilizer industry in India.

The excellence in performance across all spheres of business has resulted in the Company being bestowed with a number of prestigious national and international awards during the year. To name a few ; “Oil & Gas Marketing Company of the Year 2016” & the coveted “Responsibly Growing Corporate of the Year 2016” by Federation of Indian Petroleum Industry (FIPI), SCOPE Meritorious awards for “Environmental Excellence and Sustainable Development” & “Best Women Empowered Company” and “Platts Global Energy Award 2016 for Corporate Social Responsibility”.

All operating subsidiaries and joint ventures achieved robust physical and financial growth in their respective business spheres which resulted into highest ever consolidated net profit of Rs 8,236 crore for HPCL, registering a growth of 76.2% over the previous year.

Projects Completed during the year

To achieve growth and cater to the increasing fuel demand, the Company is strategically investing in infrastructure across the oil & gas value chain.

Recently, Hon’ble Prime Minister dedicated the newly commissioned 443 KM long Rewari-Kanpur Pipeline with receiving terminal at Kanpur to the Nation in December 2016.

Another significant milestone was the commissioning of 355 km long Mangalore-Hassan-Mysore-Yediyur LPG Pipeline. This is the first LPG pipeline commissioned by your Company and will help in catering to the growing LPG demand in southern India and reduce the transportation cost in an environment friendly manner.

The state of the art Green Research & Development Center (HPGRDC) at Bengaluru built at a cost of approx. Rs. 395 crore was dedicated to the Nation by Hon’ble Minister of State (Independent charge), Petroleum & Natural Gas on 14th October 2016. The R&D Centre will help the Company create value by developing innovative technologies and products. HPGRDC has filed 13 Indian and  International patents during 2016-17 taking total patents filed by HPCL so far to 68. Turnaround activities were completed on time at Mumbai and Visakh refineries which helped in maximizing the throughput and consequent GRMs. In effort to reduce Sulphur emission, Tail Gas Treating Unit (TGTU) was commissioned at Visakh Refinery and mechanically completed at Mumbai Refinery.

The POL supply infrastructure was augmented by commissioning a new Tank Wagon Decantation Facility at Mughalsarai depot in Uttar Pradesh & a new Tank Truck Gantry at Manmad depot in Maharashtra.

LPG infrastructure was strengthened with the commissioning of a new 60 TMTPA LPG bottling plant at Bhopal. Storage & bottling capacity expansion projects were completed at Ajmer, Loni and Patna LPG Plants taking the total installed LPG bottling capacity to 4.4 million metric tonne per annum.To leverage the business opportunity from regional connectivity scheme introduced by Government of India, aviation fuel facilities were set up at Dehradun, Jaipur, Pune and Vijayawada and supplies to Bengaluru Airport were augmented by providing hook-up to ATF pipeline.To align to the vision of transiting to a low carbon economy, a 50.5 MW wind power project was commissioned in Rajasthan.

Strategy & Business Plans

Integrated Margin management ensured focussed attention for adding value to the Corporation by achieving the core objective of maximizing the Net Corporate Realization (NCR).To continue the growth momentum and position HPCL ahead of performance curve, a strategic plan named “T20” was formulated during the year. “T20” strategy is aimed at creating value in the eyes of customers and for achieving exponential growth & accelerated profit by focusing on distinct identified themes keeping safety and integrity at the core of all operations.

Company is focussed on enhancing the Refinery foot print to increase self-sufficiency, diversify into the profitable segment of petrochemicals, strengthen and expand the core business of Refining and Marketing and create presence in the future business line of Natural gas for achieving growth and superior financial performance.

To increase competitiveness, Company has undertaken investments for enhancing refining capacity. Visakh Refinery Modernization Project (VRMP) has received Environmental clearance for enhancing the refinery capacity from 8.33 MMTPA to 15 MMTPA at a cost of Rs 20,928 crore. It includes bottom upgradation facilities and will make Refinery capable of producing BS VI compliant motor fuels. It will improve the complexity of the Refinery and add to the overall GRM. Under Mumbai Refinery expansion Project (MREP) refinery capacity is being enhanced from 7.5 MMTPA to 9.5 MMTPA with capabilities to produce BS VI fuels at a cost of Rs.4199 Crore. Project activities for both the projects are on track.

HPCL has recently signed a Revised Memorandum of Understanding and Joint Venture Agreement with Government of Rajasthan for setting up of a 9 MMTPA Refinery cum Petrochemical Complex at Barmer, Rajasthan at a cost of Rs. 43,129 crore. In this Joint venture HPCL holds 74% stake while Government of Rajasthan holds 26% stake. This will be the first integrated grass root Refinery cum Petrochemical complex being set up in the country capable to cater to BS VI fuel specifications right from inception.

The Company is also participating in the 60 MMTPA Integrated Refinery-cum-Petrochemical complex at west coast in Maharashtra with 25% equity partnership. A Memorandum of Understanding is also signed with Government of Andhra Pradesh for setting up of a 1.3 MMTPA Petrochemical complex at Kakinada in Joint Venture with GAIL (India) Ltd.

To grow presence in the new and attractive Petrochemicals business and develop a resilient business portfolio especially considering addition of Petrochemical manufacturing facilities to the Company in future, HPCL has formed a marketing group for petrochemicals.

New pipeline projects planned include capacity expansions of Visakh-Vijayawada-Secunderabad Pipeline, Mundra Delhi Pipeline and Ramanmandi Bahadurgarh Pipeline. Extension line from Palanpur to Vadodara including a Green field Terminal at Vadodara and another extension line from Vijayawada to Dharmapuri with a Green field Terminal at Dharmapuri have also been approved. Project activities for all the projects are under progress.

To strengthen the presence in natural gas business, your Company is investing through Joint Venture companies in 3 Natural Gas pipelines and a 5 MMTPA LNG Regasification terminal at Chhara in Gujarat. The Company is also expanding its CGD network through participation in CGD biddings to cater to the growing gas demand.

Company has plans to judiciously expand the renewable portfolio and will capture the value opportunities in upstream business through strategic investments. With huge potential of growth amidst rising energy demand in country and due to low per capita consumption base, Oil & Gas sector is poised for an exciting and challenging future. HPCL is adapting to this changing energy mix and is well positioned to create value for all the stakeholders in the future business environment with a Capex of over Rs. 61,000 Crore over 5 years period.

 

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