Essar Oil profit falls 45% on inventory loss

The Ruias-controlled Essar Oil Ltd, which operates a 20 million tonnes per annum (mtpa) refinery at Vadinar in Gujarat, on Monday said stand-alone net profit for the March quarter fell 45% due to heavy inventory losses.
Refiners such as Essar Oil import and stock crude for processing and incur inventory losses when crude prices fall below the price at which stocks were purchased. Essar Oil has marked `326 crore as inventory losses for the March quarter.
The company did not give consolidated quarterly figures.
Stand-alone net profit stood at `546 crore against `1,008 crore a year ago. Net revenue fell 38.2% to `15,609 crore in the fourth quarter from `25,274 crore in the quarter ended March 2014. The fall in revenue was mainly due to a 48% drop in crude price in the fourth quarter against the same period a year ago.
According to Bloomberg, the price of benchmark Brent crude averaged $55.89 per barrel in the fourth quarter of the last financial year against $107.92 per barrel seen in the fourth quarter of 2013-14.
However, for the fiscal year 2014-15, the company posted a consolidated profit of `1,527 crore, up 12-fold from last fiscal’s `127 crore. This was mainly due to a near-50% fall in the company’s depreciation and amortization costs and an over `700 crore fall in finance cost due to lower interest outgo.
“FY (fiscal year) 2015 has been a very successful year where our refinery has delivered stellar operating performance and our financing cost has declined significantly. This enabled us to declare highest-ever GRM (gross refining margin), Ebitda (earnings before interest, tax, depreciation and amortization, or operating profit) and profitability. We continue to look at opportunities to further reduce interest cost and strengthen our balance sheet,” Suresh Jain, chief financial officer, Essar Oil, said in a press note.
In the March 2015 quarter, Essar Oil posted a quarterly average GRM of $10.41 per barrel, marginally higher than the year-ago quarter.
GRM is the average difference in the purchase price of crude oil and the sale price of refined products. It is the single most important determinant of a refinery’s profitability.
Reliance Industries Ltd (RIL), the only other private oil refinery and a direct competitor of Essar Oil, made a GRM of $10.1 per barrel for the fourth quarter. Its 20 mtpa refinery operated at above 100% capacity utilization and processed 20.49 mtpa of crude oil for the full year.
“We are happy to close the financial year with robust figures, both operationally and financially. Going forward, we expect further improvement in our product mix in favour of a higher proportion of light and middle distillates post completion of gas oil maximization project, which is expected by end of October 2015. On the retail front, we are witnessing encouraging response and improvement in sales,” said L.K. Gupta, managing director and chief executive officer, Essar Oil.
Source: Mint; 26 May 2015
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