Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Companies / News/  Short-term borrowings by oil marketers may fall this fiscal
BackBack

Short-term borrowings by oil marketers may fall this fiscal

Lower global crude prices and reduced subsidies help firms pare their reliance on external funding

For the nine months to December, short-term borrowings of oil marketing firms such as HPCL have dropped by between 30-40%. Photo: Mint (Mint)Premium
For the nine months to December, short-term borrowings of oil marketing firms such as HPCL have dropped by between 30-40%. Photo: Mint
(Mint)

Mumbai: Short-term borrowings of oil marketing companies (OMCs) are likely to drop by half in fiscal 2015 as lower global crude prices and reduced subsidies allow these firms to cut their reliance on external funding.

For the nine months ended December, short-term borrowings of the three OMCs—Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—have dropped by between 30-40%, according to analysts and company officials. This could fall further in the fourth quarter, bringing the savings to nearly 50%, they said.

At HPCL, short-term borrowings so far this fiscal are at 15,000 crore, a 37% drop compared with 24,000 crore during the same period last year, said an official with the company.

“...considering the crude is likely to stabilize around $60 per barrel, for the full year too, we expect a similar or a little less fall in our borrowings for the fiscal," said an HPCL official, requesting anonymity because company policy bars the person from speaking to reporters.

When crude prices are high and OMCs are forced to sell some petroleum products at regulated prices, they incur operating losses and do not have cash flows to pay for crude oil purchases. As a result, they have to resort to short-term loans of three-six months from banks. This, in turn, leads to an increase in the company’s interest expenses.

With crude prices falling and subsidies on diesel removed, part of the pressure has eased. In addition, compensation for losses incurred on sale of regulated products such as kerosene and cooking gas have also become more regular.

“Unlike earlier times, the government is providing timely compensation of subsidy while the subsidy burden itself is coming down and this has helped in bringing down the short-term loans of OMCs," said the HPCL official quoted above.

According to an 18 February report by Antique Stock Broking Ltd, the company’s net debt and interest cost have fallen by 33% and 58% respectively for the nine months ending December 2014. The under-recovery—or the subsidy HPCL claimed from the government (including unpaid subsidy from earlier quarters)—stood at 500 crore compared with 3,907 crore last year, an 87% fall.

BPCL may stand to benefit ever more.

The OMC expects its short-term borrowings to fall by almost 73% in the current fiscal, its management indicated in a conference call on 16 February, said an analyst with a domestic brokerage who attended the call. He declined to be identified as he is not authorized to speak to media on companies under his coverage.

A mail sent to BPCL last Thursday seeking details remained unanswered.

A 16 February note by Elara Securities said BPCL’s debt has reduced from 20,300 crore in the year ended 31 March to 14,000 crore in the first nine months of the current fiscal, primarily due to the receipt of outstanding compensation from the government (on a year-on-year basis), diesel deregulation and the fall in crude prices, resulting in working capital cycle improvement. Its interest cost, too, declined 61% from a year earlier.

IOC, too, expects a 40-50% drop in short-term borrowings this year when compared with last year, said a company official who declined to be identified. He, however, added that inventory losses incurred by OMCs may offset any boost to profitability from lower borrowings.

OMCs incur inventory losses when crude prices fall sharply in a short period of time, which leads to a discrepancy between the cost of purchase of crude and the sale price of the refined petroleum products.

An email sent to IOC on Thursday remained answered.

Without sharing specific numbers, a senior official at a public sector bank said, “OMCs had budgeted for a $110 per barrel of crude oil, while it came down to $40 on an average. Hence, the short-term borrowings of these companies would have also come down by that extent. We are yet to see the full impact of this, but it is surely happening."

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 06 Mar 2015, 12:38 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App

Chat with MintGenie