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Edited Transcript of BPCL.NSE earnings conference call or presentation 8-Nov-19 5:30am GMT

Q2 2020 Bharat Petroleum Corporation Ltd Earnings Call

Mumbai Nov 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Bharat Petroleum Corporation Ltd earnings conference call or presentation Friday, November 8, 2019 at 5:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jenny C L

Bharat Petroleum Corporation Limited - CFM of Pricing, Insurance and IR

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Conference Call Participants

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* Bhavin Gandhi;B&K Securities;Analyst

* Chinmay Gandre;Bharti AXA Life Insurance;Analyst

* Dayanand Mittal

SBICAP Securities Ltd., Research Division - Research Analyst

* Manikantha Garre

Axis Capital Limited, Research Division - Assistant VP of Energy

* Mayank Maheshwari

Morgan Stanley, 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

* S. Ramesh;Nirmal Bang Securities;Analyst

* Tarun Lakhotia

Kotak Securities (Institutional Equities) - Senior Analyst

* Vidyadhar Ginde

ICICI Securities Limited, Research Division - Oil and Gas Analyst

* Vikash Kumar Jain

CLSA Limited, Research Division - Research Analyst

* Vinit Joshi

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Vipul Shah;Sumangal Investments;Analyst

* Vishnu Kumar A.S.

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

* Yogesh Patil;Reliance Equity;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 BPCL Q2 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. Thank you, and over to you.

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

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Thank you, too. Thank you, everyone, for joining in today's call. We have with us the senior management team of BPCL represented by Mr. Vijayagopal N., our Director Finance; Mr. [S. K. Agrawal], PGM Corporate Treasury; Mr. V.R.K. Gupta, GM Corporate Finance; Ms. 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'd like to hand over the call to the management for the opening remarks, which will be followed by Q&A. Over to you, sir.

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Unidentified Company Representative, [3]

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

Our results were published yesterday, and we have facilitated a handout containing the major highlights yesterday evening.

For the typical trend, our refinery throughput for this quarter stood at 7.66 million metric tonnes, which is slightly higher than the 7.57 million tonnes we processed in the corresponding quarter previous year. The select yields were better at 85.36% as compared to 84.07% in the comparable quarter. We have closed the Q2 FY '20 quarter with a profit after tax of INR 1,708 crores as against INR 1,219 crores in the comparable quarter last year.

Earnings before interest, tax, depreciation and amortization, EBITDA, amounted to INR 3,246 crores for the quarter, which is higher than the INR 2,958 crores for the same quarter last year. Our weighted average GRM for the 2 refineries, Mumbai and Kochi , for this quarter stood at $3.38 per barrel as compared to $5.57 per barrel for the same quarter last year. After adjusting the net [regained] loss, the core GRM have improved to $3.81 per barrel from $3.31 per barrel in Q2 FY '19.

Inventory losses for the quarter amounted to INR 26 crores as against a gain of INR 1,435 crores in the comparable quarter. Gross under-recoveries on sales of SKO PDS were at INR 57 crores for the quarter as against INR 246 crores for the corresponding quarter last year. Net under-recoveries after accounting subsidy have been nil for the quarter.

CapEx for the quarter has been at INR 2,270 crores, and the year-to-date number is INR 4,030 crores. We maintain our earlier guidance of INR 8,000 crores of CapEx for FY '20.

On the market front, our domestic sales was slightly higher at 10.25 MMT as against 10.08 million metric tonnes in the comparable quarter. The growth was mainly led by petrol around 7% and LPG, 6%.

Exports during the quarter were at 0.56 million tonnes as against 0.51 million tonnes.

Our market share amounts for the period April-September 2019 in MS has been 28.62% versus 28.58% in the corresponding period. Activity of our market share is 28.94% among the PSU as against 29.02% in the comparable period.

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

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Questions and Answers

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Operator [1]

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We will now begin the question-and-answer session. (Operator Instructions) Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first 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 [2]

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Can you provide a breakup of the EBITDA between Refining and Marketing business? I mean, the other oil marketing companies have been providing this on a regular basis. So would it would be great that BPCL also provides this.

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Unidentified Company Representative, [3]

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So we have been maintaining that we operate in a single segment, the downstream petroleum sector. We do not have -- we do not -- we have not been disclosing this breakup as such.

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [4]

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Okay. All right. So you have provided the cash flow statement for the first half of the fiscal year this time. All right. So in that -- in the item purchase of property, plant and equipment, the item there is around INR 9,700 crores. So I'm just trying to understand, how does that tie in with the overall CapEx guidance for the full year?

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Unidentified Company Representative, [5]

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Just one moment. Can you repeat your question?

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [6]

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I'm saying that in the cash flow statement that you've provided that shows purchase of plant -- property, plant and equipment at around INR 9,766 crores.

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Unidentified Company Representative, [7]

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This is impacted by implementation of Ind AS 116 to the extent of around INR 5,500 crores. So if you exclude that, then it will come to around INR 4,000 crores, which is in line with the CapEx, which we have indicated.

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Operator [8]

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

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Bhavin Gandhi;B&K Securities;Analyst, [9]

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First question is, so if you can just give us the breakup of the liability impact on the P&L above the EBITDA line item and below the EBITDA line item?

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Unidentified Company Representative, [10]

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Yes. For Q2, it's -- EBITDA is coming INR 139 crores less. And finance cost, there is EBIT of INR 116; and depreciation, EBIT of INR 84 crores. So the net impact is INR 62 crores on P&L.

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Bhavin Gandhi;B&K Securities;Analyst, [11]

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Could it be very dissimilar in the first quarter as well?

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Unidentified Company Representative, [12]

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It was slightly more because of the interest costs. So for first half, it is INR 303 crores for the reduction in rent, INR 242 crores debit to finance cost and INR 175 crores debit to appreciation and the net impact to the P&L is INR 114 crores.

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Bhavin Gandhi;B&K Securities;Analyst, [13]

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Sure. And sir, the second question is, if you can give us the schedule of BS-6 shutdown that you are expecting?

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Unidentified Company Representative, [14]

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For our shutdowns in the month of September, so they are ready for BS-6 already. Mumbai scheduled for a shutdown in the month of -- now for 15th December. They will be redistributing -- there will be [a correction]. Oil, there will be plenty of this [product] for the national gas and regional, in all. They will convert to BS-6 100% after the completion of the shutdown. So maybe by end of the calendar year.

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Bhavin Gandhi;B&K Securities;Analyst, [15]

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Got it. And sir, just one final thing from my side. If you can just help us with the diesel and FO in the overall slate for us.

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Unidentified Company Representative, [16]

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Yes. So for the Q2, in the overall slate, we will work around 48% and FO is around 4.5%.

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Operator [17]

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Next question is from the line of Pinakin Parekh from JPMorgan.

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [18]

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So my first question is that what is the status on the Kochi project in terms of -- I mean, we have continued to see refining margins in Kochi being lower than Mumbai. So to that extent, now with what is happening in the refining complex on IMO, light, heavy spreads are widening and fuel oil cracks have collapsed sharply. Can we expect Kochi refining margins to improve from here? Or will Kochi remain below Mumbai for the foreseeable future till the petchem expansions are completely in place?

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Unidentified Company Representative, [19]

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Margins are dependent on, as [Raji] said, the crack spread. And also, we mentioned the 2 brands to buy. There is also a need to ensure that the LPG production, which is not yielding significant (inaudible) When the service is reduced. That will happen only after the completion and commissioning of the 2 projects, which are -- one is getting commissioned in the fourth quarter of this year, PDPP; and the second one is already started its portfolios. So in PG, it's a matter of content for us. And second is that there is a significant quantity of naptha which is coming out of Kochi. We have a project to complete in the month of maybe late June of the next year, which actually make Kochi refinery a [zeroed-out refinery]. And therefore, the margins are expected to go up.

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [20]

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Understood. Understood. And my second question relates to BS-6. So can you quantify between Mumbai and Kochi, what has been the total CapEx on the BS-6 transition? And you mentioned that there are some BS-6 volumes which have started to move. So in terms of pricing, when do you expect or do you expect the BS-6 volumes will get a differential pricing compared to the other fuels. Do you think it's going to be likely? And when do you see that happening?

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Unidentified Company Representative, [21]

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So as far as the investments are concerned, for diesel, both the refineries are already ready. For MS, Mumbai had a small project of around INR 550 crores for the BS-6 MS production. And Kochi has an MS block project, which was a INR 3,300 crores project. However, the full INR 3,300 crores cannot attributed to BS-6 because it contains 2 parts. One is for the BS-6 product of MS. And the second is for converting them and upside to ML to do isomerization. So between the 2 companies the BS-6 part will be over by December and MLPP project will go until June 2020 for the naptha conversion. So this was as far as the CapEx is concerned. Regarding your question on pricing, pricing diligence has yet to be taken. It will be in line with the existing framework [open].

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Operator [22]

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

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S. Ramesh;Nirmal Bang Securities;Analyst, [23]

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So when you talk about the BS-6 projects, what is the increase in the operating costs compared to the average around $3.5 that we understand is the way in the industry?

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Unidentified Company Representative, [24]

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On the question of cost we do [think we can] because we are only making very minor changes. A catalyst change is all that is needed for conversion of -- for the BS-6 from BS-4 [needed]. And even we anticipate $2.5 kind of range is needed there.

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S. Ramesh;Nirmal Bang Securities;Analyst, [25]

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And secondly, do you expect any increase in your overall refining process after this BS-6 projects? Like in are you -- I'm thinking about global warming function. Is there any update in your volumes?

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Unidentified Company Representative, [26]

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No, we don't expect any upturn in our volumes.

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S. Ramesh;Nirmal Bang Securities;Analyst, [27]

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Okay. And one final thought. If you do look at the refining investment. Now we are seeing the expectations on the [INP-led] implementations come and go. So what is you reading in terms of is there an expectation of when the [INP] related upturn in the related margins for 2 years in terms of the refining margin outlook?

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Unidentified Company Representative, [28]

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We expect that IMO will have a certain positive impact on SMR margins. The Quantum will be known only when we -- is exact happening. Currently, we have seen that there is some improvement in the margin -- the price for that oil for the future for the fourth quarter. We expect that some improvement will happen. How long it will take is difficult to answer at this stage.

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Operator [29]

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Next question is from the line of Rakesh Sethia from HSBC.

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Rakesh Sethia, HSBC, Research Division - Analyst of Indian Oil & Gas Sector [30]

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Two questions from my side. First, what was the refinery operating cost during the last quarter, excluding depreciation on a per barrel basis, if you can tell us? And secondly, if you can highlight to us what your refinery expansion plan either within the Mumbai, Kochi refinery or into your subsidiary and joint ventures? That would be very helpful. And what is the expected time lines? And if you could give some color on the coming projects that will be very helpful.

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Unidentified Company Representative, [31]

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So OpEx is around $2.20 per barrel for the related September quarter.

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Unidentified Company Representative, [32]

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Excluding depreciation?

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Unidentified Company Representative, [33]

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Excluding depreciation. On the expansion side, that we have no immediate plans coming for Kochi. The problem is still the portfolio quality is happening, and BPCL will get commissioned. We have an expansion plan approved by the Board for another of our subsidiary, going up from 3 million to 9 million tonnes. That's a 4-year project. It is -- because it also includes a substantial amount that we spent on the prior expansion project to [amalgamate] for [CuRo] and back products from that side to this side. In the Mumbai refinery plant, we are going to spend about INR 11,000 crores on improving the margins by replacing the excess [2-3 FCC] units with a resident [CGU] units, which is expected to be commissioned in a matter of about 3 years from the date of we've already given.

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Rakesh Sethia, HSBC, Research Division - Analyst of Indian Oil & Gas Sector [34]

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Sir, if I could follow up has the EPC awarded for any of these 2 projects, either through Numaligarh or Mumbai?

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Unidentified Company Representative, [35]

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No. The EPC projects have not been awarded yet. For Mumbai, also its credit is not reached. The licenses have actually been completed. PMC has been selected, it will still take some more time.

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Rakesh Sethia, HSBC, Research Division - Analyst of Indian Oil & Gas Sector [36]

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And sir, on the Numaligarh, if I could just probe a little bit more. One of the factor for the Numaligarh refineries great margins has been the excise duty benefits, right? Now if you could highlight also because you want to commit substantial amount of Mumbai project, is it contingent on some sort of, let's say, commitments in the government on continuity of the excise duty benefit?

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Jenny C L, Bharat Petroleum Corporation Limited - CFM of Pricing, Insurance and IR [37]

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There is no time set clause for that NRE benefit.

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Rakesh Sethia, HSBC, Research Division - Analyst of Indian Oil & Gas Sector [38]

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So if the benefits are not there, do you think this project of expanding 9 million would be viable without the source of excise duty benefits?

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Unidentified Company Representative, [39]

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Our margins are even otherwise robust, to the excise question. We have the best margin MLP refineries in the country and are about $10 for the Q2, for example. So excise duty 10% is an added incentive for further ebulliency in our margins. But we have no reason to believe that excise duty concessions need to be drawn. Because it's started only in [naptha], all-in-all concessions apparently have been [suspended].

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Operator [40]

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

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Yogesh Patil;Reliance Equity;Analyst, [41]

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So for the related GRM for the year '20 was in the range of $3.80 per barrel, compared to benchmark $6.5 level. So first of all, is this a comparable? And the second question is, when I figure into the final year, we have seen that BPCL-supported data are mostly in line with Singapore benchmark. Now since last 2, 3 quarters, we have seen that what happened between the BPRL and the Singapore level has increased. So what is the reason behind that? And what would be the outlook?

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Unidentified Company Representative, [42]

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Well, we are eliminating the inventory, differential is more or less in line with the changes in the crack spreads. If you see what year-on-year basis, the MS crack has dropped by about $2 per barrel. And diesel crack up has gone by $1 to barrel. So it means that the refinery margins in the second quarter of this year should be almost the same as that of the second quarter of the previous year, excluding the inventory adjustments. Our core GRM, excluding the inventory differentiation has actually gone up by $0.5 from $3.31 in the last -- second quarter to the $3.82 in this current quarter. This is actually the best year and I'm very comfortable refinery of IOC and also of HPC are (inaudible). Now Singapore CRM are the pattern and the metrology is different from ours. And therefore, it is not a fair way to compare the ERM of Indian refineries between Singapore refineries.

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Yogesh Patil;Reliance Equity;Analyst, [43]

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My second question is related to CapEx. Could you please provide a CapEx guidance for '20 and '21? And also, if you could also provide a breakout?

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Unidentified Company Representative, [44]

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Can you repeat your question?

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Yogesh Patil;Reliance Equity;Analyst, [45]

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Regarding your CapEx (technical difficulty) Hello? Can you provide the CapEx guidance for '20 and '21? And also, if you could please provide a breakup.

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Unidentified Company Representative, [46]

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The CapEx plan for the current year is INR 7,950 crores. For FY '21, it is INR 12,488 crores. On breakup, if you want, refinery for the current year, refineries at INR [2,002] crores; percental INR 1,825 crores; pipeline, INR 310 crores; marketing 2,490; and around INR 800 crores for exploration and production. That is on other investment in joint venture and subsidiaries.

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Operator [47]

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The next question is from the line of Mayank Maheshwari from Morgan Stanley.

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Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [48]

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So a couple of questions from my side. One was regarding your crude slate. Can you just highlight of how you're kind of managing the crude slate, especially the movement that you're seeing on the product side? How has been the changes in crude sourcing as well as what is your outlook on that considering Kochi kind of started the petrochemical project.

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Jenny C L, Bharat Petroleum Corporation Limited - CFM of Pricing, Insurance and IR [49]

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We are processing high sulfur crude around [60%] of our total crude slate. That there says 90% for Q2, 90% high sulfur crude, while [Mumbai] is processing high sulfur crude of 44%.

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Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [50]

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Okay. And any view in terms of how you are looking at the sweeter grades crude as well in terms of the overall mix for next year? Considering Mumbai will still have a reasonable amount of HSFO output. And are you thinking of real SFO output? Like I think [IOC] started selling in SFO. What's your plans on that?

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Unidentified Company Representative, [51]

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So depending upon the demand projection which are entered into the system, we get outputs and the viability crude markets that are there and their prices. We get the optimum mix of crude. And depending upon market conditions, those crudes are [tools] and [coppers] .

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Unidentified Company Representative, [52]

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Actually, I just will supplement by saying that our plan is to actually come out of BS-4 in the foreseeable future for -- from Mumbai refinery as well. That's why we're putting up a residency 2 unit. In the interim, we will have to probably meet the specifications of (inaudible) either by adding catalyst or gasoline. We have no plans for an SFO plant.

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Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [53]

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Okay. And could any impact of this shipping rate hike that you've seen in third -- in the last quarter for -- on the margins for you? And how are you kind of managing that?

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Unidentified Company Representative, [54]

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So, critically, the transportation rates have increased and we have not seen a corresponding increase in the interest rate, which we use for pricing our petroleum products. But this has been there for a few -- I mean, a short kind of time. We do not see any significant adjustment of cost for the entire year.

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Operator [55]

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The next question is from the line of Tarun Lakhotia of Kotak Securities.

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Tarun Lakhotia, Kotak Securities (Institutional Equities) - Senior Analyst [56]

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Questions, I have a couple of them. One, what is the total CapEx guidance for this year?

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Jenny C L, Bharat Petroleum Corporation Limited - CFM of Pricing, Insurance and IR [57]

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INR 8,000.

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Tarun Lakhotia, Kotak Securities (Institutional Equities) - Senior Analyst [58]

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In your cash flow statement, somehow I see a number of INR 9,766 crores, which you have already spent in the first half of this year. So like, correct me if I'm wrong, is that number higher for some reason?

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Unidentified Company Representative, [59]

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INR 5,500 crores on account of a onetime impact.

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Tarun Lakhotia, Kotak Securities (Institutional Equities) - Senior Analyst [60]

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Isn't that a noncash item?

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Unidentified Company Representative, [61]

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For the cash, it's a contingent. I will look into that and come back to you.

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Tarun Lakhotia, Kotak Securities (Institutional Equities) - Senior Analyst [62]

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Sure. Do let me know. I'll appreciate that. Second is, I understand that you have not moved to lower taxes because of the MAT credit which you have. That number which I recall from your annual report is about INR 248 crores. So maybe that would have changed a bit in first half? But can we say that broadly in a matter of a couple of quarters, you'll move down to lower -- I mean, tax rates, when this whole MAT credit is replaced, and when you expect that to happen, I mean, roughly?

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Unidentified Company Representative, [63]

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That would be a solution. But we are also bringing the option to the major CapEx spend we are having. So we come to a conclusion of opting for the lower tax rate by the time the returns for the year are supposed to be filed. As of now, we have a maturity of about INR 460 crores.

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Tarun Lakhotia, Kotak Securities (Institutional Equities) - Senior Analyst [64]

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Understood. So CapEx being higher, it is possible that you would have adequate MAT credit, so in which case, there's no reason for you to move to lower tax rate any time soon?

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Unidentified Company Representative, [65]

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Exactly.

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Unidentified Company Representative, [66]

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Tarun, that means that we are prudent on cash flow. You can see whether that whole financing activity, it was 9 long-term borrowings, including lease obligation, INR 5,903.

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Tarun Lakhotia, Kotak Securities (Institutional Equities) - Senior Analyst [67]

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Understood. So that is a counterbalancing item?

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Operator [68]

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That next question is from the line of Vidyadhar Ginde from ICICI.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [69]

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Can you just give us the GRMs, and the profit for both your Numaligarh and BORL refineries for Q2 as well as H1?

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Unidentified Company Representative, [70]

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Yes. So for BORL for Q2, the GRM was around $4.70. And there was a loss of INR 144 crores. For NRL, there was the GRM without [ED] benefit is around $8.70 per barrel. With ED benefit, it's almost around $35 per barrel. The profit after tax for NRL is around INR 390 crores.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [71]

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Can you give us H1 also?

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Unidentified Company Representative, [72]

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For H1?

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [73]

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And can you just confirm, profit you said is 3...

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Unidentified Company Representative, [74]

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INR 390 crores.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [75]

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INR 390 crores. Okay.

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Unidentified Company Representative, [76]

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For H1, BORL, the GRM was $6.20; loss after taxes, [INR 52 crores]. And for NRL, the GRM is $9.60, including [ED] benefit it is around [$35.6]. PAT is [INR 806 crores].

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Operator [77]

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The next question is from the line of Manikantha from Axis Capital.

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Manikantha Garre, Axis Capital Limited, Research Division - Assistant VP of Energy [78]

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So this mid-term [Amand] stake in our company (inaudible) anything has been [worked out]? Can someone comment there?

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Operator [79]

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Mr. Manikantha, can you speak closer to the handset, please? Your voice is breaking up.

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Manikantha Garre, Axis Capital Limited, Research Division - Assistant VP of Energy [80]

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(inaudible)

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Operator [81]

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No, sir, it's still breaking up. Can you move to a better reception area?

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Manikantha Garre, Axis Capital Limited, Research Division - Assistant VP of Energy [82]

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I'll come back later.

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Operator [83]

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Sure, sir. Thank you. 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 [84]

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So my question is related to your upstream assets. Can we have the dividend that you would have received for the first half from Vankor and Zakum? And also, what's -- so we are broadly aware of the, what's happening in Mozambique, but if you can give us some color on what's happening with your assets in Brazil and like is there any progress? What are the time lines and what spend status they are in right now?

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Unidentified Company Representative, [85]

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The numbers we have? (inaudible) We will take the second part first because different numbers will be used. As far as the Mozambique is concerned, we are going ahead major for that, getting awarded after FID was announced.

On the Brazil side, on the Farfan, there is [choose this area for] elaborate testing to comments, it is going to be scheduled to comment on the month of -- later part of this month of November. It will be a 4- to 5-month exercise. And based on that, by end of this calendar year 2020, we are expected to have a POD, which is called a proposal for development of this area, and it has been submitted to the authorities. And once the clearance is given, an FID can be expected to be announced in the year 2021.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [86]

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Sorry. So this was for which area?

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Unidentified Company Representative, [87]

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It is actually -- there is a concession called SEAL. In this area, there are 2 major discoveries. One is Farfan, the other is Barra. Farfan is what I was talking about.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [88]

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Right. So any reserve numbers that you can help us with on this development?

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Unidentified Company Representative, [89]

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No. Reserve numbers are not announced yet. Going forward, as I was mentioning, (inaudible) and that, that is expected to be completed by end of April or middle of May. Then only there's more clarity and analysis of the results of that has to be done by the third quarter of 2020, we'll be able to go for a final development. By that time, the numbers would be properly done. I think we (inaudible) numbers or plans.

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

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Yes. All right. And I missed the first half and basically, the quarter GRM for NRL, if you can help me with that again?

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Unidentified Company Representative, [91]

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Yes. Sure. So for the quarter, NRL was 6.7.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [92]

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Right. And for the first half?

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Unidentified Company Representative, [93]

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9.6.

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Operator [94]

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

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S. Ramesh;Nirmal Bang Securities;Analyst, [95]

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(inaudible) In terms of the share of JV, can you give us which are the 3 contributors for the first half wherein the [yield of] results of the companies which you brought on, they have delivered good numbers. So just give a sense in terms of how it's performing larger-than-expected or similar from the share of JV?

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Unidentified Company Representative, [96]

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For the (inaudible) numbers, share of JV, (inaudible). Just a moment. (inaudible) Do you want the holding or do you want the profit share?

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Unidentified Company Representative, [97]

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Profit share.

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S. Ramesh;Nirmal Bang Securities;Analyst, [98]

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Yes. I just want to understand what has contributed to your share of JV and what is the current run rate for the second half and what we can expect. Because as an unlisted company, so [we can't find anything].

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Unidentified Company Representative, [99]

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You want the holding percentage or do you want the profit, how much they have contributed to Q2?

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S. Ramesh;Nirmal Bang Securities;Analyst, [100]

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Yes, we just want the financing number. The holding percentage we have.

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Unidentified Company Representative, [101]

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Okay. Yes. (inaudible)

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Unidentified Company Representative, [102]

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For the Q2, July to September, the total net profit for the group was -- after tax, is INR 1,503 crores.

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S. Ramesh;Nirmal Bang Securities;Analyst, [103]

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Yes. I have the group profit. We're asking in terms of the trend of what has contributed to -- what was the contributed share of JV and what do we expect in the second half?

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Unidentified Company Representative, [104]

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I cannot provide the breakup of the individual JVs performance because they're unlisted. Yes.

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S. Ramesh;Nirmal Bang Securities;Analyst, [105]

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So secondly, in terms of your retail business, can we get some sense in terms of what is the margin for retail and where you see the growth? Is on the highway outlet? Or are you seeing more of the opening of city outlets?

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Unidentified Company Representative, [106]

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See -- if you see, the market is growing as far as MS is concerned, which is largely city dominated, whereas the HSD is de-growing. HSD in the second quarter has de-grown by almost 2.4%, which is largely reflected from the highway segment.

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S. Ramesh;Nirmal Bang Securities;Analyst, [107]

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Do you have the extent in terms of your unit margin services from retail -- [government] retail?

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Unidentified Company Representative, [108]

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These are standard. We expect that we get a margin of around INR 1.8 to INR 2 per liter for both MS and HSD.

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S. Ramesh;Nirmal Bang Securities;Analyst, [109]

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Has that been the trend in the first half? Or higher or lower than...?

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Unidentified Company Representative, [110]

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Almost in the same trend. There's no variation.

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Operator [111]

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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 [112]

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So I just wanted to check on the LPG yield. So you said that you still continue to improve as the petchem projects commissioned. So can you just remind us like what is the yield now? What is the yield that you're targeting, say in 4Q and the PDPP is complete? And you also said that some petchem project has started, so was there any earnings contribution from petchem in this quarter? And how should we think about petchem earnings contribution in coming quarters?

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Unidentified Company Representative, [113]

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The refinery margins, first they will increase by $0.7 once the PDPP comes onstream. We have currently -- we have not worked out PDPP revenues more technically, but market is expected to be good, considering the international numbers.

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Unidentified Company Representative, [114]

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As far as LPG is concerned, it's around 6.7% in Kochi as of now. With the PDPP becoming onstream, right now, there have been only mechanically commissioned -- the mechanically completed, the commissioning will happen in the coming quarters. And after that, the LPG, it would go down because of production of petchem properly.

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [115]

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How much will it go down? Just what will be the advantage your petchem project is fully running, what will be...?

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Unidentified Company Representative, [116]

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I think we had -- PDPP is only taking out 0.25 million tonnes of LPG to PMT. And the other 2 of the deals will come out when the forward is commissioned. So that's a long way. We have a LPG consigned for the (inaudible) Kochi refinery, because it is actually, as just mentioned, it's about 6.8% to 7% of volume of production. And our target is to reduce that as (inaudible) 4%.

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [117]

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Okay. So the first phase will be 0.5 -- 0.25 million tonnes, which will come out once PDPP is fully ramped up? And the second 0.25, when will that happen?

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Unidentified Company Representative, [118]

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So that Polyols project has just been, we have actually selected the licenses, the PMC contract has been awarded just last fortnight to [Britania]. And that project is a very complex projects involving 6 licenses and very niche products and high-tech products, which are not introduced in the country. We expect that project will take at least 4 years to complete, from the date of award of the EPC contract, which has been -- PMC contract, actually. That has been just awarded in the last fortnight, which means that we can expect only by end of calendar year 2023 for Polyols project to actually bring in revenues.

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [119]

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And what is the CapEx for this project?

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Unidentified Company Representative, [120]

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INR 7,130 crores.

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [121]

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Sorry?

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Unidentified Company Representative, [122]

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INR 7,130 crores.

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Operator [123]

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The next question is from the line of Chinmay Gandre from Bharti AXA Life Insurance.

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Chinmay Gandre;Bharti AXA Life Insurance;Analyst, [124]

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So our interest cost has increased sequentially. And our borrowings have not increased to that extent. So what could be the reason behind that?

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Unidentified Company Representative, [125]

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Part of the interest cost is on account of Ind AS 116 accounting impact. For the quarter 2, the impact is INR 116 crores and for the half year, it is INR 250 crores.

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Chinmay Gandre;Bharti AXA Life Insurance;Analyst, [126]

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Yes. So after adjusting for the Ind AS impact also, so your quarter 2 interest cost comes to around INR 522-odd crores. What is...

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Unidentified Company Representative, [127]

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That INR 130 crores is on account of -- I'll explain. That other INR 130 crores is on account of foreign exchange fluctuation. Because rupee has actually depreciated to about INR 1.8 per $1 in the second quarter. That is also reflected in the finance costs, which is about INR 130 crores.

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Chinmay Gandre;Bharti AXA Life Insurance;Analyst, [128]

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But earlier, we used to record this as a part of other expenditure, right? So ForEx fluctuations.

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Unidentified Company Representative, [129]

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So this is under the accounting standard requirements, ForEx fluctuations, to the extent of domestic [ForEx] rate of [hundred] shown as interest cost. The only difference is in terms of CapEx loans, it gets booked as [moving] cost. And currently, this is a working capital loan for which the ForEx [intercept] comes into the interest cost.

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Operator [130]

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The 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 [131]

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This increase in the freight cost, if you -- I mean obviously, we are not able to pass it on at this point in time. So how much would the impact on GRM be for this quarter or on a steady-state basis at the current rates?

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Unidentified Company Representative, [132]

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We do not anticipate the enhanced trading pace to continue on a long-term basis, because it means an impact next year. But we do not anticipate the increased freight rate to continue on a -- for the long term. So I would say it is very difficult to calculate the impact on the GRM for the -- from the freight rate.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [133]

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In rough numbers or at least, let's say, for this particular quarter at least, or this month, if the current run rate is just -- I mean is going to run only for this quarter, if any numbers, like $0.20, $0.30 or a magnitude higher, closer to $1.

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Unidentified Company Representative, [134]

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The freight rates had increased for a very short period. We are now currently at the normal level. We are not seeing that it will have any major impact on GRM.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [135]

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Fair enough. And just on the point of the high sulfur cost, I mean is -- against the benchmark, are we seeing -- have you seen increase against the benchmark? Let's say it was minus $2, $3. Are the current sourcing costs closer to, say -- has the gap narrowed? Any trends that you can -- if you could share.

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Unidentified Company Representative, [136]

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We'll come back here on that, our plan.

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Operator [137]

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The next question is from the line of Vikash Jain from CLSA.

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Vikash Kumar Jain, CLSA Limited, Research Division - Research Analyst [138]

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This is regarding what you just explained on ForEx loss. So the ForEx fluctuation that you report, which is other than -- so it's total of INR 387 crores, other than crude liability is INR 170 crores. So this is over and above the number that you gave for interest expense right now. Is it -- is that correct?

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Unidentified Company Representative, [139]

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Correct.

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Vikash Kumar Jain, CLSA Limited, Research Division - Research Analyst [140]

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So basically, will that total ForEx fluctuation, is INR 130 crores that you just gave, plus INR 387 crores, is that how we need -- I need to look at it, yes?

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Unidentified Company Representative, [141]

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Yes. Correct.

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Operator [142]

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The next question is from the line of Vipul Shah from Sumangal Investments.

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Vipul Shah;Sumangal Investments;Analyst, [143]

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Sir, can you give core refining margin for Kochi and Mumbai for Q1 and Q2?

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Unidentified Company Representative, [144]

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For Q2, Mumbai is 4.12.

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Vipul Shah;Sumangal Investments;Analyst, [145]

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That is core, without inventory?

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Unidentified Company Representative, [146]

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Yes. And Kochi, 3.5. For Q1, Mumbai, 3.57; and Kochi, 3.76.

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Vipul Shah;Sumangal Investments;Analyst, [147]

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Q1, would you repeat? Because you are not audible.

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Unidentified Company Representative, [148]

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Q1 Mumbai is 3.57; and Kochi, 3.76.

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Operator [149]

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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 [150]

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It's regarding CapEx this time. So HSD, we've seen that level of de-growth in this quarter. So when can we like see a sort of a reversal towards growth again? And what do you think is a sustainable growth rate for diesel [polyform] maybe next 3 to 5 years? What is a reasonable way to consider, if we have to consider the growth in diesel market? One is that. And second, you highlighted like on today's call that you will be cutting down the production of LPG in both Kochi and Mumbai refineries. So that's what you're looking forward to. So how does this tie in with the higher basically push towards more diesel LPG through devaluing of GRM had launched because that was the basic idea was making a reduction of more and more LPG already, so how does both of these things tie in?

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Unidentified Company Representative, [151]

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Due to -- one on the detail side, there is a slowing down in the Indian economy. There is no denying that. And that is reflected in the de-growth in the diesel. We do not know how long this slowdown is going to continue. And as of second quarter, the industry has lost -- the loss is in the region of 2.5%. Ours is de-growth of 2.4% minus. And we do not -- we do not know how long it will take for the revival to happen. Ideally, we would expect diesel growth to be 3% to 4%, at least for a country with the growth rate in GDP of about 6% to 7%.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [152]

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All right. So have you also lost market share in this quarter to competitors in diesel market?

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Unidentified Company Representative, [153]

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We haven't. In fact, we're #2 in the market, both among the PSU. The (inaudible), among the 3 of us, we are #2 in the growth in the case of diesel. And we are #1 in growth in the case of [amos]. We have not lost -- as I just mentioned, the country overall diesel is 2.5% minus and ours is minus 2.4%. So we have not lost, but we are losing volumes in economy de-growth. All of us are losing.

On the LPG side, I think at the time, the indications which we gave was not that clear to you. What I meant was our idea is not to cut down on the LPG in the refineries. That is not changed in the Mumbai refinery at all. In the Kochi refinery, what we are going to do, which we have -- on which we have already spent quite an amount of money is PDPP, which will convert a portion of LPG which is not used at the refinery to highly value-added products in the PDPP space, which will take about 0.25 million tonnes of LPG.

At the second phase of petrochemical expansion, take another [250 PMT] and take out of LPG and additional value for us. So 0.5 million tonnes LPG per annum will be reduction in the current rate of -- compared to current rate of production in the Kochi side. That will, for the refinery, improve the GRM, because LPG is not a highly profitable product from the refining point of view.

The country's requirement of LPG, its use have continued to grow, and we are importing, as you must be known, into the country, about 2 million tonnes a year [in good economies]. Our Kochi profitability increase and improvement has nothing to do with the country's growing requirements.

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Vipul Shah;Sumangal Investments;Analyst, [154]

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Basically, your import dependence would improve. I mean increase, yes.

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Unidentified Company Representative, [155]

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Okay. Well, also, as we expand natural gas, that LPG will slightly get reduced to the extent natural gas is being used. So as the country is progressing towards national gas and a lot of course is being given to the government, we don't expect that they will be having any major impact in terms of imports being increased because of change in our usage from LPG to petrochem.

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Operator [156]

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The next question is from the line of Vikash Jain.

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Vikash Kumar Jain, CLSA Limited, Research Division - Research Analyst [157]

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Just one question on other income. So any dividend which came? Because typically, other income, the dividends typically come in 3Q and 4Q. So what was the big dividend which came here in this quarter?

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Unidentified Company Representative, [158]

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We expect dividends to come in the Q3 of the financial.

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Vikash Kumar Jain, CLSA Limited, Research Division - Research Analyst [159]

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I mean so other income has risen a lot, both Q-o-Q and Y-o-Y. So I was wondering, because your interest income, which is separately disclosed, hasn't really gone up so much. So what exactly is the case for that?

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Unidentified Company Representative, [160]

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So other income has risen within -- out of fair valuation of other investment.

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Vikash Kumar Jain, CLSA Limited, Research Division - Research Analyst [161]

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Sorry, on account of?

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Unidentified Company Representative, [162]

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Fair valuation of investments -- to market.

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Operator [163]

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As there are no further questions. I now hand the conference over to the management for closing comments.

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Unidentified Company Representative, [164]

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Thank you. We thank SBICAP for attending the conference call. And thank you to the analysts and investors for participating and asking questions.

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Operator [165]

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Thank you. Ladies and gentlemen, on behalf of SBICAP Securities Ltd., that concludes this conference. Thank you for joining us, and you may now disconnect your lines.