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Edited Transcript of BPCL.NSE earnings conference call or presentation 14-Feb-20 5:30am GMT

Q3 2020 Bharat Petroleum Corporation Ltd Earnings Call

Mumbai Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Bharat Petroleum Corporation Ltd earnings conference call or presentation Friday, February 14, 2020 at 5:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jenny C L

* Neelakantapillai Vijayagopal

Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director

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Conference Call Participants

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* Anubhav Aggarwal

Crédit Suisse AG, Research Division - Associate

* Bhavin Gandhi

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Miten Lathia

HDFC Asset Management Company Limited - Fund Manager of Equities & Senior Equity Analyst

* Nafeesa Gupta

BofA Merrill Lynch, Research Division - Research Analyst

* Nitin Tiwari

Antique Stockbroking Ltd., Research Division - Research Analyst

* Pinakin M. Parekh

JP Morgan Chase & Co, Research Division - Associate

* Rakesh Sethia

HSBC, Research Division - Analyst of Indian Oil & Gas Sector

* Rohit Ahuja

BOB Capital Markets Limited, Research Division - Analyst

* S Ramesh

* Varatharajan Sivasankaran

Systematix Shares & Stocks (India) Ltd., Research Division - SVP of Oil, Gas, Telecom and Strategy

* Vidyadhar Ginde

ICICI Securities Limited, Research Division - Oil and Gas Analyst

* Vijayant Gupta

Edelweiss Securities Ltd., Research Division - Research Analyst

* Vinit Joshi

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Vishnu Kumar A.S.

Spark Capital Advisors (India) Private Limited, Research Division - VP

* Yogesh Patil

Reliance Securities Limited, Research Division - Research Analyst

* Dayanand Mittal

SBICAP Securities Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day. And welcome to the Bharat Petroleum Corporation Limited Q3 FY '20 Earnings Conference Call, hosted by SBICAP Securities Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Dayanand Mittal from SBICAP Securities Limited. Thank you, and over to you, sir.

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Dayanand Mittal, SBICAP Securities Ltd., Research Division - Research Analyst [2]

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Thank you, moderator, and thank you, everyone, for joining today's call. So we have with us the entire senior management team of BPCL, represented by Mr. Vijayagopal, our Director Finance; Mr. S. K. Agarwal, CGM Corporate Treasury; Mr. V.R.K

Gupta, GM Corporate Finance; Jenny C L, CFM, Pricing and Insurance; Mr. Ganesan Jaibal, Senior Manager Pricing and Insurance; and Mr. Girwar Bhattad, Manager Pricing and Insurance.

So with this, I would like to hand over the call to the management for the opening remarks, which will then be followed by a Q&A session. Over to you, sir.

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Unidentified Company Representative, [3]

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Thank you, Deyanand. Good morning, one and all. Before we begin, I would like to mention that some of the statements that we will make during this con call may be forward-looking in nature, and we believe that the expectations contained in the statements are reasonable. However, their nature involves a number of risks and uncertainties that may lead to different results. These forward-looking statements represent only the current expectations and beliefs, and we do not provide any assurance that such expectations will prove correct.

Our results were published yesterday, and we had circulated the handout containing major highlights yesterday evening.

On the physical front, our refinery's throughput for this quarter stood at 8.41 million metric tonnes, which is higher than the 7.49 million tons, which we processed in the corresponding quarter of the previous year, mainly due to the shutdown in the corresponding quarter of the previous year. Distillate is far better at 83.97% as compared to 80.06% in the comparable quarter.

We have closed the Q3 FY '20 quarter with a profit after tax of INR 1,261 crores as against INR 495 crores in the comparable quarter last year.

Earnings before interest, tax, depreciation and amortization, EBITDA, amounted to INR 3,218 crores for the quarter versus INR 1,705 crores for Q3 FY '19. Our weighted average gross refining margin for the 2 refineries for this quarter stood at $3.23 per barrel as compared to $2.78 per barrel for the same quarter last year.

Inventory gains for the quarter amounted to INR 537 crores as against a loss of INR 3,333 crores in the same quarter last year. Gross under-recoveries on sale of SKO PDS were at INR 38 crores for the quarter as against INR 256 crores for the corresponding quarter last year. Net under-recoveries after accounting subsidy have been nil for the quarter.

The CapEx for the quarter has been at INR 2,254 crores, and the year-to-date number is INR 6,284 crores. We are well in line with the target, and we continue to maintain our earlier guidance of INR 8,000 crores for CapEx for the year -- financial year FY' 20.

On the market front, our domestic sale was slightly higher at 11.02 million metric tonnes as against 10.67 million metric tons in the comparable quarter. The growth was mainly led by petrol 5.5%; LPG, 14.5%; and aviation around 8.8%.

Exports during the quarter were at 1.32 million metric tonnes as against 0.79 million metric tonnes in the comparable quarter of last year.

Our market share of PSUs for the period April to December 2019 in MS has been 28.62% versus 28.64% in the corresponding period. In HSD, our share is 28.83% among the PSUs as against 28.97% in the comparable period.

We are now open for the question-and-answer round. As this is a post results conference call, we request you to kindly restrict your questions to the quarterly performance alone. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Pinakin Parekh from JP Morgan.

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [2]

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Sir, I have 2 questions. First is on the CapEx program. Now the company has a large CapEx program regarding petchem in Kochi, but given what the government is moving in terms of the stake sale, would the company at this point of time put on hold the CapEx program and wait for any ownership change that might take place? Or will it go ahead with its CapEx program? And second is on the fee -- the Numaligarh divestment. How long does the company expect the entire process to take place in terms of valuations and in terms of the completion of the stake?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [3]

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Our CapEx -- I'm Vijayagopal. Our CapEx plans are as planned. We are not putting any restrictions for CapEx plans, and we have the (inaudible) well because we feel that the (inaudible) has to continue. And it is only a stance of ownership from the (inaudible) owner. And the petrochemical source, a good potential for us as we perceive this. And also, we need to, in any case, convert this propylene that comes out of PSUs. And we have identified about this processing and work is progressing very satisfactorily. We have a CapEx plan of about INR 8,000 crores this financial year, we'll achieve that. And we have a CapEx plan of about INR 12,000 crores for next financial year. So CapEx plan is on, and it is not affected by the decision regarding India to sell its stake, 86% BPCL to a strategic buyer.

But coming to NRL, the government has decided that BPCL has to divest its stake of 61.65% it holds in NRL. The Board has actually met yesterday and decided to actually give the opportunity to (inaudible) first because they have a write-off first [fusion] and the (inaudible) has already gone. And depending on the response, we'll take further [calls] to ensure that the sale is made to a government company in the oil sector after the [PCEA] decision. The same analysts, same -- I'm sorry, same advisers, thisgovernment has appointed for the stake sale, which -- for completing sales will be doing the valuation, both asset valuer and the transaction adviser. And once that is done, then they will refer to (inaudible) and this will be invited after offering the data [rules], depending on the response and the process will be exactly at the end as the (inaudible) guidelines in this regard. As for time lines, we are really confident that it will be a far most inter excessive convert of the BPCL stake sale. And therefore, it is not going to result in any overlap. And we ideally would like to convert both of these concurrently.

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Operator [4]

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The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [5]

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First question was on the export volumes. They were very high this quarter. Any particular products which dominants this fiscal?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [6]

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Export is essentially excessive, we had to export a few partners because the Q3 -- the demand of diesel in this country was very subdued. We had a negative growth in the diesel consumption. And therefore, we had a quite a few shortages for HSD, and there was also (inaudible) in this quarter. We don't expect it is going to continue.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [7]

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Okay. And sir, on the refining side, can you just highlight the refining cost per unit, how this would have trended over the last -- just the 2 quarters?

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Unidentified Company Representative, [8]

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You are asking about the operating cost?

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [9]

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Operating cost, yes.

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Unidentified Company Representative, [10]

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Yes. So operating cost is around $2. So we decided for the April to December period for MR equals $2.06 and for KR equals $1.89.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [11]

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And this is April to December, but let's say, if one were to look at within the quarter trends because our utilization was very significant this quarter?

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Unidentified Company Representative, [12]

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So for the quarter, it was $1.85 for MRs and $1.84 for KR.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [13]

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Sorry, how much you mentioned for MR?

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Unidentified Company Representative, [14]

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$1.85.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [15]

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$1.85? Sorry, I missed that number.

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Unidentified Company Representative, [16]

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$1.85.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [17]

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$1.85. Okay, sure, perfect.

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Operator [18]

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The next question is from the line of Vijayant Gupta from Edelweiss.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [19]

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I had a couple of questions. Firstly, we have seen a very sharp decline in your -- in the core GRM, quarter-on-quarter. Has there been any impact of the BS-VI shutdown on GRM?

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Unidentified Company Representative, [20]

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There is no impact of BS-VI shutdown. Because we've hardly had any major shutdown during this period. The prices are getting impacted because the crack is not being [higher]. Actually diesel cracks have gone down from the previous year. So that is what is impacting the GRM.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [21]

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Sir, quarter-on-quarter, other than HSFO, there was not a significant decline in other product cracks?

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Unidentified Company Representative, [22]

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No. If you look at gasoil crack, gasoil crack has gown down. And certainly the (inaudible) got impacted because certain quantities of HSD were exported. And the increase in freight costs for crude, which has -- had impacted because of the sanction on some (inaudible) company by USA. So all this combined put together has had an impact on our GRM.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [23]

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If you could just -- so I mean, you've given the distillate yield, could -- can you just break this up into, to say, diesel and gasoline yields?

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Unidentified Company Representative, [24]

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Yes. Distillate yield, if you look at our MS in MR, it was 17.25% in Q3. And in KR, it was 17.37%. And gasoil, it was 47.63% in KR and 38.75% in MR.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [25]

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So MR diesel yield is very less. I mean I think you used to do 48% of...

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Unidentified Company Representative, [26]

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Actually diesel yield to be around 40%.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [27]

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In KR?

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Unidentified Company Representative, [28]

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In MR. KR is 48% because of expansion and facilities have been enhanced and capacities have been enhanced.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [29]

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All right. And what about VLSFO, sir?

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Unidentified Company Representative, [30]

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VLSFO, we are making very small quantity, and that has started only in the current quarters.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [31]

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Okay. And what is the booking capacity right now across both refineries?

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Unidentified Company Representative, [32]

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There is no coker in MR, whereas the booking capacity in KR is actually about 2.3 million tonne capacity.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [33]

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Okay. So I mean, is there any plan to, say, purchase HSFO, put it through the coker and sell VLSFO and take advantage of the entire spread of 30-odd dollars?

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Unidentified Company Representative, [34]

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Yes. We are actually having a potential to utilize the capacity in Kochi. But then the problem is that because of the GST impact, that does not appear to be economic because there is -- if you move from MR or if both, and at the same GST and then the products which come out of this are not covered by GSTs. So there's a (inaudible) under-recovery of GSTs. That's the reason why we are unable to utilize that. We are actually expecting the government to do something about this because individual streams we can utilize better if the GST issues [happen]. We are still awaiting the government response in this regard. Unless that happens, we'll (inaudible).

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Operator [35]

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The next question is from the line of Nafeesa Gupta from Bank of America.

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Nafeesa Gupta, BofA Merrill Lynch, Research Division - Research Analyst [36]

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My first question is, is the BS-VI transition complete? And what amount of CapEx have we spent over the last 1 or 2 years on this?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [37]

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We are [awaiting] the BS-VI and we have in Cochin as planned, which is being set up as part of BS-VI for actually converting the entire (inaudible) into MS. Removing that, the CapEx will be around INR 3,000 crores in KR, and not much I think. And INR 500 crore in MR, not much.

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Nafeesa Gupta, BofA Merrill Lynch, Research Division - Research Analyst [38]

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INR 3,000 crore in KR and INR 500 crore in MR?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [39]

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Right, right, right.

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Nafeesa Gupta, BofA Merrill Lynch, Research Division - Research Analyst [40]

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Is that the overall CapEx in BS-VI so far?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [41]

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Yes. Of course, as part of the IREP, we have already made the products, the major part of production ready for BS-V, which was -- and actually BS-V and BS-VI, there is not much difference. But we have set for an [amount] while we set up the IREP in the period from 2015 to '17. But otherwise, we are also with the (inaudible).

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Nafeesa Gupta, BofA Merrill Lynch, Research Division - Research Analyst [42]

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Sure, sir. And sir, the second question is on the dividend. The company did not declare an interim dividend, sir. So what kind of dividend -- final dividend can we expect, sir, in the next quarter?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [43]

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This dividend is (inaudible), and we have -- we see [gas line] request, a minimum 30% of the the profit after tax in declaring dividends. Basically we have to always give the highest possible dividends to the shareholders. We have declared 58% dividend last year. We expect the dividend trend to continue to improve.

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Nafeesa Gupta, BofA Merrill Lynch, Research Division - Research Analyst [44]

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Sure, sir. And sir, final question. Any update on the BDPP plant in Kochi, sir, because there are reports of a significant delay?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [45]

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BDPP project is on schedule. Actually, the commissioning has started. And we expect the product to be out in about a couple of months, maybe in the months of May, June.

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Operator [46]

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The next question is from the line of Rakesh Sethia from HSBC Securities.

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Rakesh Sethia, HSBC, Research Division - Analyst of Indian Oil & Gas Sector [47]

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Sir, one question on market share on diesel, if we look at your diesel volume and we divide it by the industry's volumes sold over the last quarter, it seems like there's a significant market share loss. And the market share in the diesel looking at a low point of at least last 3 to 4 years. Was there any one-off on that side? Or is it something more structural, which is going in the market? And if you could just generally talk about the competitive scenario because in the industry, considering [power play] seems to be gaining a lot of market share on that side.

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [48]

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The diesel demand is actually slowing down in this country. It's a fact. And for the quarter, at an industry level, the difference in the diesel, 1% and for the simulated diesel against 0.85%. And basically, we have lost some volume to competition in the last quarter because we have taken a decision essentially in order to actually compromise more -- compromise [for this] volume that has turned out well and in the month of Jan, we have recaptured our position as the highest growth in the region among the PSU players. We have set ourselves (inaudible).

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Rakesh Sethia, HSBC, Research Division - Analyst of Indian Oil & Gas Sector [49]

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Understood, sir. If you could just throw something more on the discount side, have the discounts increased in the last couple of months? And what's the scenario now as we speak in the Jan-Feb months?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [50]

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We don't respond to the specific discounts which we offer our products. We have (inaudible) also. We have decided in the third quarter, that we won't compromise all the profitability of selling the products for the sake of increasing the volume. And industry has accepted us for the point. That is the reason why I'm saying that in the month of Jan, our market growth -- the growth is the highest for this year, which was always the case. So the third quarter was a one-off incident. Once the level plains, because all of us are offering similar amounts of discounts on large (inaudible). And I would not like to comment on a specific amount because this is a -- actually there are a number of factors regarding the discounts in this industry.

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Operator [51]

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The next question is from the line of S. Ramesh from Nirmal Bang Equities.

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S Ramesh, [52]

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First of all, just to understand what is the expectation on the supply from China because we understand Chinese refineries have turned down operating rates by about 20%. So do you see the situation taking reverse, say, in the next 1 or 2 months? Or do you think it will continue for a while?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [53]

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The Chinese growth in demand has actually impacted in the sense that the last weeks, the prices of crude oils and products have fallen significantly. But India did not import or did not export products or crude oil to China. The global prices could be impacted, but it is anybody's difference of how long it is going to continue. We do not anticipate that this is a matter which is going to have a major impact if it is contained as a (inaudible).

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S Ramesh, [54]

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Okay. And on the refining margins, you did explain the reason for the lower performance, but there is an increase in your distillate deal. But in spite of that, your margins are lower. So is it just the spread? Or are there any operating factors involved in the lower refinery margin performance?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [55]

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No. I actually explained the physical performance of both the refineries have been excellent. The GRMs do not reflect this, essentially, because of price factors. If you see the [MR] crack which were earlier in the maybe $10 to $12 range is now hovering around $5to $6. And even the diesel IMO has not created any impacts. And the diesel cracks have also been around $11 for this quarter. So unless the crack spreads improve, we expect physical performance will not get converted to an improved GRM. And our GRMs are not as bad as it is made out to be because in the public sector space, there was around (inaudible).

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S Ramesh, [56]

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Yes. That's a fair point. Just one last question. In terms of the retail margins, what was the performance in the third quarter? And how do you see it in the current quarter?

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Unidentified Company Representative, [57]

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So the retail margins have been fairly stable, and we expect that in the long term, the margins would be stable around INR 1.8 to INR 2 per liter, excluding the freight.

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S Ramesh, [58]

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And if there is an increase in the prices for the Bharat Stage fuel, would at least a part of that be captured in higher retail margins after addressing your operating costs?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [59]

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We have not been able to so far decide on how to pass on the increased cost for production of the BS-VI fuel. We are incurring a CapEx as well as increased OpEx because it requires, the better the cash flows then the more operating cost. We're still in discussion with the industry as to how we can probably pass on a cost of a (inaudible) to consumers. We are -- need to come to a conclusion on this at this stage. And just -- the rollout will happen only from 1st of April of 2020.

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Operator [60]

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The next question is from the line of Bhavin Gandhi from B&K Securities.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [61]

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Can you give us an update on the upstream portfolio? What are the developments there?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [62]

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We have significant investments in, as you know, Mozambique and Brazil. Mozambique is actually progressing very satisfactorily. The total has come in, and therefore, we expect the completion of the projects to happen on schedule or maybe slightly faster. And we also have been able to get that a higher allocation of the project financing for this has come to towards the discussion earlier when EnCana was a partner, and we have already have awarded the EPC contracts on January 15th in Mozambique. As far as Brazil is concerned, the EWT has -- is to commence. And it will take another 5 months for the EWT to be completed then there will be more visibility about the price and quality of the reservoir.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [63]

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Got it, sir. And sir, if you can share the Bina and NRL profitability for the quarter and 9 months?

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Unidentified Company Representative, [64]

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Yes. So for Bina, the GRM for the quarter was $7.9. And whereas for the 9-month period, it was $6.8. The profit after tax for Bina for the quarter was INR 96 crores. For the 9-month period, it was INR 34 crores. As far as NRL is concerned, the GRM was $10.9 for the quarter and $9.9 for the 9-month period. After including the northeast benefit, the GRM was $34 for the quarter and $27 for the 9-month period. The profit after tax for NRL was INR 647 crores for the quarter and INR 1,443 crores for the 9-month period.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [65]

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And sir, if you can quantify any inventory impact in Bina?

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Unidentified Company Representative, [66]

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So there would be some minor inventory gains in Bina, but the numbers we don't have right now, can give you offline.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [67]

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Sure. And just one final question, sir, is it possible to kind of quantify the impact of freight on the GRM since the tanker rates have now come off quite sharply? Will it help meaningfully change the trajectory?

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Jenny C L, [68]

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We can give the figures offline later.

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Operator [69]

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The next question is from the line of Vinit Joshi from Goldman Sachs.

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [70]

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Sir, you mentioned that freight has been impacting your narrative in the last quarter. What about crude premiums because you've also seen crude premiums elevated in the last quarter and which has started to come down along with the freight as well? Do you think in the current quarter, both these crude premiums and freight could actually be a positive impact as compared to last quarter?

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Unidentified Company Representative, [71]

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See any reduction in premium and in freight, both will have positive impact. But the issue which we are facing currently is that the price of crude has suddenly come up in last 3 weeks, and if continues at the same level, we may have an impact on inventory. It is difficult to predict what will be the final scenario for the quarter.

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [72]

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All right. And sir, have you seen marketing margins expand because of the decline in crude prices, which could partly offset the impact from inventory loss?

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Unidentified Company Representative, [73]

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So it was (inaudible) during the fallen prices, there will be -- I mean, you would know that the refinery prices are fixed once in a fortnight and the retail selling prices are fixed on a daily basis. So in a falling scenario, definitely the marketing margins would expand and that would set off the inventory to some extent.

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [74]

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Okay. And sir, my last question is on your cash operating cost for the refineries at around $1.9 per barrel. And I remember when we were having the Kochi expansion, at that time, I think one of the guidance was that cash operating costs will probably go up by almost $0.50 for the company. So just wanted to understand that, I mean, this cost that you have right now includes that increase, which has happened? And second part of the question is that do you see this cost increasing because of the BS-VI fuel that you start producing, will the cost increase because of that in future?

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Unidentified Company Representative, [75]

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So traditionally Kochi has been having an operating cost of $1.3 to $1.5, which has now increased to around $1.8 to $1.9. There might be a slight increase on account of BS-VI standards.

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Operator [76]

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That next question is from the line of Vishnu Kumar from Spark capital.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [77]

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Firstly, on the marketing margin increase, I mean, the returns for your BS-VI investments you mentioned, that you're still not decided. Is there a time line to it? And we want to know would it happen in coordination with the other OMCs? Or if you could just elaborate a little on that.

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Unidentified Company Representative, [78]

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We are still in discussions. We have -- we would not be able to (inaudible) specific time lines. We will ensure that the increases, if it happens, is not very sharp and sudden.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [79]

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Got it, sir. And I mean, like the previous participant also asked, on the crude premiums, if you could just broadly say, ex the crude price movement, how much would your crude cost would have gone up the last 2, 3 quarters because of the premiums impacting your GRMs?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [80]

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See, I don't understand that the profit on the premiums, [so for us] what matches our premiums] is the largest cost of crude. If the crude prices come down and premiums goes out of ditch, it is a (inaudible) major impact. It's a fact that (inaudible) has been charging a premium on supply (inaudible). It's a fact that is -- we are aware of that. The government is aware of that. We are trying to make an impact to make that reduce. But if the prices of crude oil [come] down, for example, (inaudible) $14 per barrel in the last 3 weeks, even in the premium of (inaudible) by $0.50, how does this impact our GRM? So I don't understand the focus on the [premiums] as a major issue impacting the GRMs of the refinery. It's a political issue basically. And our government is aware of that, and the government is trying to (inaudible) to the different [countries] to make the premium, reduce the levels which is comfortable to us.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [81]

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Okay. And sir, you mentioned the -- there is a GST issue, I mean, in terms of Kochi, if you could just elaborate a little on that?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [82]

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Actually, what I was mentioning that it is not a specific issue of Kochi, it's an industry issue. Because there are opportunities in the industry, where there are capacities available for processing secondary, tertiary level, where products and work process tools can go from one refinery to other. Within a same company, if the 2 refineries are situated in 2 different states, because of the reason that in products like diesel, petrol are outside GST and the [indiscernible] impact (inaudible) coming in the GST, we use a substantial amount in terms of GST laws (inaudible) when I move an individual stream, that is [18%] GST. And after transportation costs, when I convert that into diesel or petrol, I am unable to set off the GST (inaudible) on to products that are sell. And therefore, the margin is the sufficient for making less of a difference in terms of the process improvements. So unless the government changes and (inaudible) that GST has actually resulted in a reduction in our efficient utilization of our plant capacities figure. So (inaudible). So this is not a Kochi-specific issue. In -- within BPCL, Kochi has a fair capacity in the coker, for example.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [83]

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Got it. Sir, in case if you move, let's say, a diesel or a petrol from, say, Kochi to, say, to Karnataka, even there, GST will be -- you -- it will be there? And is that part of your price buildup? I understand it's part of your cost.

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [84]

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(inaudible) Diesel and petrol are not included in GST as of now. In all of the [current] GST, all products are sold. The problem is that 85% of market leadership was in GST. And the intermediate streams are considered coming between GST because it does not considered products, petroleum product. And therefore, the movement of the intermediate streams for value addition and processing in a certain plant which are for capacity (inaudible) even economic cooperation, but for the tax issue.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [85]

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Got it, sir. And just one final question. Roughly, when do you expect this NRL transaction to be closed? And anything that you could give us on the main -- I mean BPCL stakes itself? Any thoughts on that?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [86]

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The NRL stake selling decision taken by the Government of India as part of its decision to divest its stake (inaudible) BPCL. We have actually, in the Board meeting, decided to also, first of all, to say, the opportunity for the government of (inaudible), we had a right of first offer and once that process is complete (inaudible) government (inaudible) partially interested in (inaudible) which is posted (inaudible). We offered the shares to the government company in the oil sector, which is the decision of the (inaudible) and the price traction (inaudible) revenues (inaudible) of BPCL is valuation for NRL and the reserve rate will be determined. And office (inaudible) will be offered. And we think that this will be a much similar jobs compared to the stake sale of BPCL. And (inaudible), we are very confident that this can be done concurrently with BPCL (inaudible). We will (inaudible) thing than concurrently.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [87]

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Okay. And will even concurrently would like 1, 2 quarters or any broad time line?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [88]

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So that concurrently and this has to be in the quarter, (inaudible) happens. So that a matter that Deepam only can answer. How long it takes because they have to call their resources. As for BPCL, we understand that expression of interest will be published, certification will come out in this month. So in the question of how the response is and how much timely process be with it? We'll need to study the data and then not something that there. So I don't know how to put a time line to that process. So we are a bit confident that in (inaudible) transaction is not going to upset the Government's time schedule for BPCL disinvestment.

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Operator [89]

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(Operator Instructions) The next question is from the line of Nitin Tiwari from Antique Stockbroking.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [90]

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My question, again, is related to NRL' stake sale. So does this stake sale impact your CapEx plan in NRL where you were planning to increase the capacity to 9 million tonnes? So does that go on hold? One question is that. And secondly, the cash that is going to accrue to you suppose if the sale still happens. I mean, how do you plan to treat that cash? Would that be paid out as a higher dividend to shareholders? Or would that be making a huge looking CapEx for the company. SO if you can throw some light on that?

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Neelakantapillai Vijayagopal, Bharat Petroleum Corporation Limited - CFO, Director of Finance & Additional Director [91]

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Yes. Another divestment will result in definitely BPCL (inaudible) participating in the CapEx plan of NRL. Obviously, because NRL will be a different company by then. How the capacity expansion of NRL will take place will depend entirely on new (inaudible) to select requirements. So we won't be able to comment on that. If you are continuing with BPCL, it makes tremendous sense for us in terms of synergy, and we would have supported and ensured that the capacity expansion happens for the time in which we have decided. So that's the first part of the question. Second question as to where -- because if -- concurrently that these (inaudible), the (inaudible) of the sale proceeds will result in extra or incremental value creation for BPCL and that is reflect in the (inaudible). Whether it is going to be taken out as dividend or not is a question which the Government of India has to decide. We will distribute it and obviously the value which the Government realizes for indiscernible]. So safe to say it's a [sub-zero game] (inaudible). We are (inaudible). Can we distribute the dividend (inaudible) CapEx cash (inaudible) we can reduce our that -- that valuation of BPCL (inaudible). So it is methodology of utilization (inaudible). It has no impact on the value for BPCL.

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Operator [92]

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The next question is from the line of Vidyadhar Ginde from ICICI Securities.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [93]

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Just a couple of things. One, did you basically say that there was somewhat high discounting -- discounts offered in the third quarter, and that's not changed in Jan. Is that what you said?

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Unidentified Company Representative, [94]

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At the industry level, we were offering a certain part of the -- some (inaudible) were offered (inaudible) cooperate. (inaudible) That component part of the (inaudible) BPCL has decided to (inaudible) on the consumer price in the first quarter because we decided that -- that offering higher discounts for (inaudible) volume is not sustainable for sufficient in the long term. And that is reflected in a reduction in the growth for HFC for -- in the third quarter. But for January onwards we understand that (inaudible) followed our rule, and therefore, that is reflected in BPCL regaining its position as the highest growth or almost negative growth in the results in the month of Jan.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [95]

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So actually, you are saying that in December, you were not offering discounts, other than that, and from January, nobody is offering discount.

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Unidentified Company Representative, [96]

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I am talking about a corporate discount.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [97]

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Fair enough. Fair enough. That's one. Secondly, just to confirm that in case of Numaligarh, you are saying that your preference is that Nummaligarh stakes (inaudible) and government decided to (inaudible) new owner that you would prefer it to happen at the same time. And you are also saying that whether the timing of this will be decided by Deepam when this happens as well as what to do with the Nummaligarh proceeds will be decided by government? Is this like what you are roughly saying?

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Unidentified Company Representative, [98]

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You're right. All the proceeds (inaudible) I just have (inaudible) are correct. Yes.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [99]

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Lastly, on the -- just to confirm the numbers you gave on BORL and Numaligarh. So Numaligard you said that GRM is 10.9% this quarter, 9.9% in (inaudible) and profit INR 647 crores in Q3 and INR 1,443 crores (inaudible), is that correct?

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Unidentified Company Representative, [100]

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Perfect.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [101]

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And BORL INR 96 crore Q3, INR 334 crore [9M], GRM 7.9% Q3 and 9M 6.8%?

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Unidentified Company Representative, [102]

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Yes.

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Operator [103]

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The next question is from the line of Miten Lathia from HDFC Mutual Fund.

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Miten Lathia, HDFC Asset Management Company Limited - Fund Manager of Equities & Senior Equity Analyst [104]

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Hello.

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Unidentified Company Representative, [105]

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Yes.

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Miten Lathia, HDFC Asset Management Company Limited - Fund Manager of Equities & Senior Equity Analyst [106]

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I'm sorry, there seems to be some error, I didn't push for the question.

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Unidentified Company Representative, [107]

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Okay.

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Operator [108]

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The next question is from the line of Yogesh Patil from Reliance Securities.

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Yogesh Patil, Reliance Securities Limited, Research Division - Research Analyst [109]

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Kochi refinery is still posting a lower adjusted GRM compared to Mumbai refinery. The same same which is continued in the last 2 quarters. So can you please explain us when will the Kochi refinery improve the the performance?

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Unidentified Company Representative, [110]

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Kochi refinery has been excellently run in difficult part of quarter 3. And from the very beginning, that first year commissioning itself the throughput of Kochi refinery was more than 100% of the capacity. So the problem is such a refinery is actually based on 2, 3 factors, which we know. One is that we have anticipated a largest (inaudible), which means that high sulphur fuel prices lower than the low sulphur fuel prices that is a sign of (inaudible) plan. Secondly, the Kochi refinery has to refine sulphur to have (inaudible) configuration involves more [LCP] and if (inaudible) is not giving as much (inaudible) as other's (inaudible) are giving, Kochi's LCP make will be -- it is not used for petrochemical, about about 7%, whereas MR is 4%. That difference -- that therefore -- the improvement in IREP can happen only after the successful complete utilization of the [propylene] into (inaudible). And large franchises will take some more time to produce (inaudible).

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Yogesh Patil, Reliance Securities Limited, Research Division - Research Analyst [111]

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So any guideline or time line, sir, from your side?

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Unidentified Company Representative, [112]

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So to deliver the promise which we thought the prices have to change. Situations have to change. High sulphur will have to have a lower price and low sulphur will have to have a higher rate. That is essentially what we want. We are also planning 2, 3 things, which are possible. One is that, of course, (inaudible) index submission in the first part the next year, our volume (inaudible), our LPG transportation to powerplay in that project will get submission with (inaudible) this year. So there will be some further improvements there. And also, we have tried to take steps like process improvement to see how we can try to probably (inaudible) this opportunity, which is available in Kochi. And one of the other matters which we discussed (inaudible) the process can be transferred from one to another (inaudible).

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Yogesh Patil, Reliance Securities Limited, Research Division - Research Analyst [113]

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Sir, my second question is related to -- do you see any gains on a falling spot in the prices, which you are, right now, continuing for the Kochi refinery, any gains do we expect on that side?

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Unidentified Company Representative, [114]

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What at -- the (inaudible), we have, as a company, actually believe in the story of the (inaudible) and as a country, we are expecting that they are still actually, the (inaudible) of energy faster (inaudible) still improve. So we have certain long term (inaudible) at the BPCL. And the (inaudible) prices reduction has no major impact. Only thing that we are trying to do is that when the prices come at a certain level in the refinery figure for (inaudible), (inaudible). So that gives certain improvement. But for the core cost of the (inaudible) has been making in Kochi, we need (inaudible), and therefore, we can afford to have a decent higher price for that. Whereas if you have (inaudible), then the price has to be at the current level of less than $4 per (inaudible).

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Operator [115]

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The next question is from the line of Rohit Ahuja from BOB Capital Markets.

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [116]

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You've mentioned about NRL sale happening concurrently, or could happen concurrently, the BPCL sale. So just to follow-up on that how does this work. If let's just say, there are 2 scenarios. If NRL sale were to happen before the BPCL sale then what sort of -- how does that cash gets addressed, and for us, if it's concurrently, then how -- what happens (inaudible)?

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Unidentified Company Representative, [117]

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Actually, this is a results call and most (inaudible) is the chemical analysis thing where these limitations (inaudible). I explained, once again, I try to explain that our (inaudible) is synergies within BPCL and NRL. And the Government also recognizes this. The decision needs to as far as (inaudible) concurrently. For any reason, if that is not going to happen, hypothetically, and if NRL disinvestment happens much before BPCL is concluded, the money will come into BPCL. We can retain the BPCL to reduce its debt, and therefore, the valuation of its assets. We can (inaudible) shareholder (inaudible) will get it share (inaudible) the Government of India for (inaudible) purpose. Therefore, the value of BPCL will come down. And therefore, to us, that disturb like any significant difference to the government or to the stakeholders of BPCL. So they distribute (inaudible) for some of the debt reduction. (inaudible) concurrently going to happen or not is a matter which you just have to wait and watch. I don't have an answer to that. I cannot give a positive answer to that. (inaudible)

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [118]

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Right, sir, but Oil India is also a shareholder in that. So you said Assam Government has first right of refusal, what about Oil India as a shareholder?

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Unidentified Company Representative, [119]

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Oil India do not have a right of first refusal. (inaudible) hold about 12.35% shares in NRL, they have a right of first offer. Oil India has 26% shares in this company. They don't have first right of offer. They can be a contender for taking the shares from BPCL. The government of Assam does not have a first right of refusal.

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [120]

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Right. So Oil India can also be in contention to buy (inaudible), right? On that angle sir, so BPCL's stakes and (inaudible) we've been hearing a lot of names. But is there certain assurance that it would go to definitely an external buyer and not any of the other oil [POCs]. Do you have some kind of clarity on that?

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Unidentified Company Representative, [121]

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There is a prohibition for even Indian companies dealing for BPCL as well as I understand. Also, as I understand, the Indian Government can (inaudible) for BPCL.

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Operator [122]

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The next question is from the line of Vijayant Gupta from Edelweiss.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [123]

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Just wanted to confirm, on your export volumes, the track would be lower by around $2 to $3 versus domestic?

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Unidentified Company Representative, [124]

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Sorry, can you repeat?

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Unidentified Company Representative, [125]

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Yes, (inaudible) the type of export has various (inaudible) that has (inaudible), will be export and when the financials are actually moving down, will get benefited also. Over (inaudible) on a trend basis, export is actually not as dominant as spending domestically. If you want the correct and specific export growth, I'll get into (inaudible) you okay for quarter 3.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [126]

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Okay. All right. And on LPG (inaudible), we've seen a significant spike in LPG prices, and you have also taken a hike on LPG prices. How sustainable do you think this would be?

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Unidentified Company Representative, [127]

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So we are not taking any hike. This is actually based on the Saudi [CP] prices (inaudible). If the prices go up there, the prices go up here. If prices come down there, and it will be reflected in Indian consumer prices.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [128]

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Yes, sir. But how sustainable do you think this surge in Saudi prices would be?

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Unidentified Company Representative, [129]

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Difficult to answer in what will be the movement of price in the international market.

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Vijayant Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [130]

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And what was the reason behind this spike?

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Unidentified Company Representative, [131]

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In international demand and supply, normally, we see that from the cycle inventors prices go up and then it's -- somebody comes down. That is a cycle that we see and this means on international demand...

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Operator [132]

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The next question is from the line of Varatharajan Sivasankaran from Systematix Shares.

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Varatharajan Sivasankaran, Systematix Shares & Stocks (India) Ltd., Research Division - SVP of Oil, Gas, Telecom and Strategy [133]

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Sir if you can explain what has happened to fuel oil sales since January? Have you been able to place volumes and everything that has been at a significant discount to the normal prices we charge vis-à-vis international prices?

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Unidentified Company Representative, [134]

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Can you repeat the question?

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Varatharajan Sivasankaran, Systematix Shares & Stocks (India) Ltd., Research Division - SVP of Oil, Gas, Telecom and Strategy [135]

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Yes. Fuel oil sales since January, high sulphur fuel oil, have you been able to place volumes? And what has been the pricing differential with international prices. We know how it used to be before January. And what it is now?

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Unidentified Company Representative, [136]

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You mean furnace oil?

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Varatharajan Sivasankaran, Systematix Shares & Stocks (India) Ltd., Research Division - SVP of Oil, Gas, Telecom and Strategy [137]

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Yes. That's right.

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Unidentified Company Representative, [138]

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(inaudible) we'll keep that offline.

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Varatharajan Sivasankaran, Systematix Shares & Stocks (India) Ltd., Research Division - SVP of Oil, Gas, Telecom and Strategy [139]

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Okay, sir. And I also like to know if you can give us some idea as to how the project cost is achieved for PDP and (inaudible) project? Are we looking at a escalation in the cost?

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Unidentified Company Representative, [140]

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No.

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Operator [141]

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Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

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Unidentified Company Representative, [142]

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Yes. Thank you, everybody, for participating in the (inaudible) conference call, and we wish to thank SBICAP for attending this call. Thank you so much.

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Operator [143]

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Thank you. On behalf of SBICAP Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.