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Edited Transcript of IOC.NSE earnings conference call or presentation 1-Aug-19 6:30am GMT

Q1 2020 Indian Oil Corpn Ltd Earnings Call

New Delhi Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Indian Oil Corpn Ltd earnings conference call or presentation Thursday, August 1, 2019 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Matthew Thomas

Indian Oil Corporation Limited - Chief General Manager of Corporate Treasury

* Rohit Agrawala

Indian Oil Corporation Limited - General Manager of Corporate Finance

* Sandeep Kumar Gupta

Indian Oil Corporation Limited - CFO & Director of Finance

* Sanjiv Singh

Indian Oil Corporation Limited - Chairman & MD

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Conference Call Participants

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* Aditya Suresh

Macquarie Research - Head of HK & China Oil & Gas and Oil & Gas Research Analyst

* Aishwarya Agarwal;Reliance Mutual Fund;Analyst

* Amit Rustagi

UBS Investment Bank, Research Division - Analyst

* Anubhav Aggarwal

Crédit Suisse AG, Research Division - Associate

* Bhavin Gandhi

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

* Nilesh Ghuge

HDFC Securities Limited, Research Division - Research Analyst

* Nitin Tiwari

Antique Stockbroking Ltd., Research Division - Research Analyst

* Pinakin M. Parekh

JP Morgan Chase & Co, Research Division - Associate

* Rohit Ahuja

BOB Capital Markets Limited, Research Division - Analyst

* Sabri Hazarika

Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst

* Sujit Lodha

Aditya Birla Sun Life Insurance Company Limited - Research Analyst

* Vidyadhar Ginde

ICICI Securities Limited, Research Division - Oil and Gas Analyst

* Vishnu Kumar A.S.

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

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. I'm Pavitra, moderator for the conference call. Welcome to the Indian Oil Corporation Limited, 1Q FY '20 Post Results Conference Call, hosted by Batlivala & Karani Securities India Private Limited. (Operator Instructions) Please note, this conference is recorded.

I would now like to hand over the floor to Mr. Bhavin Gandhi from Batlivala & Karani Securities. Thank you, and over to you, sir.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [2]

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Thank you. Good morning, ladies and gentlemen. On behalf of Batlivala & Karani, it gives me great pleasure to host the management of Indian Oil Corporation for this post results conference call.

I would now like to hand over the call to the management for the initial remarks, and then we'll open the floor for a Q&A session.

Over to you, sir.

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Matthew Thomas, Indian Oil Corporation Limited - Chief General Manager of Corporate Treasury [3]

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Yes. Thank you, Bhavin. This is Matthew, Chief General Manager, Corporate Treasury of Indian Oil. I welcome all of you for this conference with respect to the first quarter results of '19-'20.

Along with us in the management team is Mr. Sandeep Kumar Gupta, Director of Finance Designate and the CFO of the company. And along with him is Mr. Rohit Agrawala, the General Manager, Corporate Finance; And Mr. Prabhat Himatsingka, Deputy General Manager, Corporate Treasury; and Mr. Avinash Singhal, General Manager, Corporate Treasury and Investor Relations.

So just to set the tone, let me just remind you that while we speak about the accounts and the numbers that are there, which has been circulated to you, we would request you that we'll keep our questions restricted to the accounts that has been put forward. And the other related questions can be taken separately, as and when the time permits us.

Thank you very much, and I give -- I ask -- I request Mr. Sandeep Kumar Gupta to give his initial remarks on these accounts.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [4]

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Okay, investors and analysts, a very good afternoon to all of you. I take this opportunity to welcome you all to this conference call, post announcement of the first quarter results of financial year '19- '20.

We have uploaded the results yesterday on the website, and you must have gone through that. And you have also, perhaps -- you would have definitely received the updates from our site also. Still, I would like to provide some additional clarity and insights on our results.

Coming to highlights. First of all, the Global Fortune 500 list for 2019 has been announced, and we are pleased to inform that Indian oil has improved its position to 117, that is 1-1-7 with a relevant turnover of $77.6 billion. And this is a jump of 20 spots from the previous year's ranking.

As regards to the crude price, because of various geopolitical factors, which counterbalanced each other, the crude prices remained a range bound and are expected to be so in the near future also.

Petroleum product consumption in the country for this quarter saw a drop of 0.2% as compared to the same period last year. And except for MS and HSD, every other product registered a negative growth.

With respect to the crack spreads of the products, the MS cracks witnessed an upside during this quarter at $5.03 per barrel as compared to the preceding quarter where it was $1.9 per barrel. However, if we compare with quarter 1 of financial year '19, then it is lower by 40%. The MS crack at that time in corresponding quarter was $8.9 per barrel.

Similarly, for HSD, the crack spreads during this quarter was $10.4 per barrel and which is lower by about 10% as compared to preceding quarter where it was $11.5 per barrel and 18% lower than the corresponding quarter of financial year '19, where it was $12.50 per barrel.

In the petrochemical space, also the spreads in dollar per metric tons, have witnessed a declining trend in the last 1 year and spreads for polymers in this quarter were about $556 per metric tons lower, which is 2% less than the previous quarter, and 18% less than the corresponding quarter of financial year '18-'19.

Similarly, in the case of -- like also where the pricing of MEG ISO LAS priced, the decline has been sharper, and it came down by almost 88% in this quarter as compared to the corresponding quarter of last year.

Despite the above negating factors, which does play a crucial role in the profitability of our business, this quarter we have registered a profit after tax of INR 3,596 crores. Though it is 47% lower than the corresponding quarter of financial year '19, but this better performance in the corresponding quarter of financial '19 was primarily because of very high inventory gains of almost INR 7,800 crores.

The revenue from operations during this quarter has registered an increase of about 3.9% as compared to the previous quarter, which translated to INR 1,50,135 crores, revenue is INR 1,44,472 crores and is also slightly higher than the corresponding quarter of financial year '19, which was INR 1,49,747 crores.

Let me touch briefly on the major verticals. Coming to refineries verticals first. The throughput during the quarter was 17.3 million metric tonnes, which is though marginally lower than the preceding quarter of 17.4 million metric ton as well as the corresponding quarter of financial year '19, where it was 17.7 million metric ton. The capacity utilization was more than 100%. And this is -- we believe is commendable considering that there was a major shutdown at our Gujrat refinery owing to our BS-VI preparedness. The distillate yield was at 80.2% during this quarter, which is also in line with our plans.

Consequently, the refineries have registered a GRM of $4.69 per barrel during this quarter as compared to $4.09 per barrel during the previous quarter.

As for practice followed during the earlier quarters also, we have continued to work out the GRMs, where the inventory impacts are stripped off and the price lists are factored in to arrive at the normalized GRMs for comparison with Singapore benchmark margins. Accordingly, our normalized margins for this quarter is $2.27 per barrel as against the Singapore Benchmark margins of $3.5 per barrel.

And we mentioned that the higher Singapore margins are basically because of the movement of cracks, which favored Singapore benchmark margins, considering that the MS proportion in the Singapore benchmark margins is more than our product distillate.

Coming to pipelines, our pipelines continue to generate stable returns, giving an EBITDA of about INR 1,623 crores during this quarter, which is about 2% higher than the preceding quarter.

The capacity utilization was about 92.8% during this quarter, as against 90.2% in the previous quarter. And pipeline capacity utilization, as you would know, most of our captive -- these pipelines are captive, so they are utilized in accordance with the refinery requirements and refinery production.

Coming to marketing. The domestic petroleum product sales during this quarter have been flattish, that is they have maintained the same levels as that of the previous quarter, 20.521 million metric tonnes.

As I stated earlier, though the industry witnessed an overall drop in consumption by about 0.2% as compared to the corresponding quarter of last year, Indian Oil per se has registered an increase of 0.3% as compared to the corresponding quarter of financial year '19. So that way, we have sort of bettered as compared to the industry performance as regards sales are concerned.

Accordingly, the marketing EBITDA for this period -- for this quarter stood at INR 4,565 crores as against INR 6,848 crores in the previous quarter. The marketing EBITDA for the corresponding quarter of financial year '19 was INR 4,369 crores.

On the petrochemical front, the petrochemical vertical is very important vertical for Indian Oil and does contribute handsomely to our profits. However, this quarter because of abnormally low cracks of petrochemical product, our margins were lower. And also, one of our plant, that is PTA Panipat location remained unable to shut down because of an NGP issue.

Though we are glad to inform that it has now -- since now it has commenced operations recently.

Coming to the borrowings. With respect to the borrowing levels, our borrowing as on 30th June 2019, have decreased by about INR 14,000 crores and stands at INR 72,227 crores as compared to INR 86,359 crores as on 31st of March 2019. It may also be noted that this borrowing of INR 72,227 is inclusive of about INR 4,000 crores, which is because of accounting of lease obligations pursuant to Ind AS 116.

And correspondingly, if we exclude this and also an investment of INR 1,600 crores, which stands in our balance sheet as of 30th June 2019, then the comparable borrowings work out to INR 66,627 crores as compared to INR 86,359 crores as on 31st of March, which is a drop of over INR 20,000 crores, and this has been possible only because of settlement of our government dues .

So I end my briefing here, and we will be glad to take your questions. Thank you very much.

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Questions and Answers

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Operator [1]

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Thank you, sir. (Operator Instructions) First question comes from Nilesh Ghuge from HDFC Securities.

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Nilesh Ghuge, HDFC Securities Limited, Research Division - Research Analyst [2]

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Sir, as you are aware that PNGRB is in the process of determining network charges for those JVs where marketing exclusivity is already over. So forensis has been -- had shown the interest in CGD business through their JV and through various bidding rounds, they're participating in the various bidding around and are on the better footing that is what I feel. They already have -- because they already have outlets. So in that case, what are your plans? I mean will you enter into these areas where you have to compete with the incumbents or it is more prudent to go into new areas through upcoming bidding rounds, your thought on that, sir.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [3]

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No, we definitely want to be a player in these GAs also. However, we understand that one of the participants that is ideal, perhaps, has gone into court challenging this end of exclusivity. So this is one factor.

And another factor is that assurance on the availability of gas and the domestic prices to other players after this exclusivity ends is also not very clear. So once these things get cleared out, we are definitely very interested in these GAs also.

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Nilesh Ghuge, HDFC Securities Limited, Research Division - Research Analyst [4]

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But let's assume that government allocate gas to the new entrant as well, that's a hypothetical case, notification is still not yet to come or there is no clarity as I understand. But if that clarification comes, will you -- are you interested or are you interested in increasing your commission rather than entering into -- or the fighting with the incumbent?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [5]

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No, no definitely, we will be interested in these AGs also, which were awarded to other players because the being OMC, we are positioned well to have our significant presence through presence of our ROs, we can have CNG dispensing, et cetera. So we will be interested. However, it is premature to say because these issues are yet to be settled.

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Nilesh Ghuge, HDFC Securities Limited, Research Division - Research Analyst [6]

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And my second question on -- in your LNG terminal utilization, sir. Can you throw some light on that? And who are the anchor customers as of now?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [7]

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As of now, we are supplying to CPCL and Madras Fertilizers and Tamil Nadu Petro Products because the complete pipeline is not yet commissioned. So that complete commissioning will take the time up to maybe February 2021. After which, we will be sort of increasing our capacity utilization of terminals.

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Nilesh Ghuge, HDFC Securities Limited, Research Division - Research Analyst [8]

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So how much it is now and what it will be after February 21? Any number?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [9]

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We are expected to do about, I think, 0.75 -- maybe 0.75 million metric tonnes by the end of this year. And say, about 1.3 to 1.4 by the end of next year. And once this pipeline gets commissioned, then we believe there should be substantial ramp-up of capacity utilization of this terminal.

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Operator [10]

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Next question comes from Sujit Lodha from Birla Sun Life Insurance.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [11]

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Sir, one thing. Regarding the comparison with Singapore GRM vis-à-vis any details on that so in that terms, sir, how does your inventory gain with the supply independent Singapore GRM that product are made assume during the quarter?

Shouldn't the reported GRM class inventory gain be comparable to Singapore GRM, what I'm looking here?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [12]

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No, as you may be aware, Singapore benchmark margins are theoretical margins only, which are reported by auditors based upon 100% high sulfur crude processing and [offenced] the product distillate. This all is theoretical only and this is completed based upon daily prices in the international market that is at Singapore. Okay?

So since these are on real-time prices, daily prices, so they do not take into account any inventory gains/losses, so that is why we strip off our reported GRMs with such inventory gains, losses, prices, et cetera, to make it comparable to Singapore benchmark.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [13]

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I'm aware that it's a theoretical computation. But what I'm saying is that which is more than the inventory gain. What happens is a component -- what is the price like -- shouldn't the inventory gain be taken care of the price lag impact or what is that initiate to normalize your current margins?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [14]

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No, that -- while daily pricing has been implemented for market as far as the transfer pricing from refinery to marketing is concerned that continues on fortnightly basis. So our reported GRM considered this RTP, refinery transfer price, based upon fortnightly pricing. So this price lag is for shipping this also off to make it comparable to daily price.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [15]

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So basically, what you are saying is that the marketing -- the end marketing, which takes care of the [artically] prices are in your calculations, that is a 15-day lag and that is what they are stripping off there.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [16]

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But this does not include marketing. This is only a refining.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [17]

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Right, right, right. Only the RTP price.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [18]

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But assuming that these refinery transfer prices also change on a daily basis.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [19]

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So should not we assume that it will have negative impact moving forward in the rising GRM scenario, what will be the impact of the lag -- will it be a negative impact or will it be a positive impact or there is no impact?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [20]

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In the rising scenario, we will be pricing -- the refinery transfer price will be based upon a lag, so it will be a loss, but we will strip it off. In the rising scenario, there will be inventory gains, but there will be a negative because of price lag. When we strip both off, it will be a comparable with the day.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [21]

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And sir, one more correspondence question which details you're saying in the petro chem PJ plant in Panipat. So what are the number of the days like shutdown, how many days for your shutdown plant?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [22]

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For shutdown in February for a plant shutdown. And it was to come up in March, but it did not come up because we got a notice from NGT. So since March practically it is down.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [23]

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So effectively down quarter...

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [24]

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In last week of August, it has been -- in last week of July, it has been restarted.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [25]

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So the whole of the quarter it was not there.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [26]

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All of the quarter it was not operational, yes.

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Operator [27]

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Next question comes from Aishwarya Agarwal from Reliance Mutual Fund.

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Aishwarya Agarwal;Reliance Mutual Fund;Analyst, [28]

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Sir, just want to know this marketing income, which we see at a very high level versus the earlier regulated one. So how we should see it in the future? I mean should we see it elevated or could we see it as a -- at a regulated level which used to be 9 months before?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [29]

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Last quarter, you can refer. Last quarter was high, and we did say that it will -- there'll be some corrections. And it will be -- we consider these quarter margins to be near-normal levels.

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Aishwarya Agarwal;Reliance Mutual Fund;Analyst, [30]

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Okay. And then how about current quarter, sir, this 1Q FY '20?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [31]

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This is what I'm saying. The first quarter financial in '19-'20 can be considered as normal levels.

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Aishwarya Agarwal;Reliance Mutual Fund;Analyst, [32]

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So effectively, it is INR 4,200 crores for the quarter. And we should multiply it by some 16,000 plus?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [33]

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That is for you to assume. The numbers are...

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Operator [34]

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Next question comes from Aditya Suresh from Macquarie.

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Aditya Suresh, Macquarie Research - Head of HK & China Oil & Gas and Oil & Gas Research Analyst [35]

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Just a follow-up on the same question. In marketing, what is the price lag impact which is booked in the quarter, if any?

And the second question is into IMO, what sort of operational kind of changes are you all making at the refineries? Is any like yield enhancement projects, which you all are thinking about? Any maintenance issue we should be aware of?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [36]

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The first question I'm not clear. Can you repeat the question?

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Aditya Suresh, Macquarie Research - Head of HK & China Oil & Gas and Oil & Gas Research Analyst [37]

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Yes. The first question was that in refining, presumably, the performance has been dragged by these price lag impacts. Conversely, in marketing, the opposite holds true, right? Has marketing performance been kind of enhanced by these price lag impacts which was hampering the refining business?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [38]

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Yes, there will be a corresponding impact, corresponding to the refinery, there will be an impact in marketing. You're correct.

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Aditya Suresh, Macquarie Research - Head of HK & China Oil & Gas and Oil & Gas Research Analyst [39]

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Exactly, sir. If you -- can you help us understand what that underlying marketing performance was ex that price lag impact?

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Unidentified Company Representative, [40]

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[Mr. Suresh,] here. I mean I would just like to intervene and say that probably you can leave that calculations to us, to the company to deal with that because we would not like to drill into the nitty-gritty of things here. You need to excuse us for this because you'll have to see the margins from a -- over a long-term perspective. And you see that on an overall basis, on a year-to-year basis, how this is panning out. Yes, there are impacts but probably, we may not be able to delve much into that.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [41]

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As regards IMO, I will not be able to tell you the technical aspects of the changes which we are making in our plant, but what I can do -- what I can share is that our Gujarat Refinery has been -- will be ready to produce 1 million metric tonnes of IMO compliant FO and Haldia Refinery is also being prepared to supply 0.5 million metric tonnes of IMO compliant FO.

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Operator [42]

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Next question comes from the Vidyadhar Ginde from ICICI Securities.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [43]

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So a couple of questions. One is what is the status of the polypropylene plant and what -- any guidance on production ramp-up and utilization for the current year and next?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [44]

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Yes. The plant has been commissioned in July, though it was mechanically completed long back, but it has been commissioned finally in July. And July production though was low at 2,900 tonnes, but then now that the plant is commissioned, we expect it to produce at the desired levels in the coming months.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [45]

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So any guidance on current year and next year or some guidance, and what kind of ramp-up.

We assume there is 50% utilization for the rest of the year or somewhat higher? And what about next year?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [46]

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We will come back on this. We do not have the exact guidance

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [47]

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Or is it too early to basically...

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [48]

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Because it was commissioned recently for July only, so we need to have this input from technical?

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [49]

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Sure. Second question is on -- what's your LPG kerosene subsidy outstanding from the government right now or as of June and what is it as of now?

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Rohit Agrawala, Indian Oil Corporation Limited - General Manager of Corporate Finance [50]

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The total give away outstandings as on June is 9,700, and it remains at that level.

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Operator [51]

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Next question comes from Sabri Hazarika from Emkay Global.

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Sabri Hazarika, Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [52]

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My question is regarding your crude sourcing, on the back of like changes in the global market. So we have got the light-heavy difference in sinking. So what -- I noticed that your distillate -- your high sulfur crude intake has also fallen to around 49%. So is it because -- are you going for more light crude and what are the economics there and especially U.S. crude, what kind of economics you are seeing there?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [53]

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Definitely. While sourcing crude oil, we do take the differentials into account. And it's not necessary that always high sulfur processing or heavy crude processing may give us better results. So we do optimize on that based upon the differentials.

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Sabri Hazarika, Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [54]

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So do you think the market has become difficult now because it is like more or less stable in terms of the margins that you earned in the refining business?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [55]

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The margins -- refining margins are definitely suppressed as it can be seen from Singapore benchmark margins also. The margins are definitely suppressed. And it is really difficult for the refiners -- it's a difficult period for the refiners.

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Sabri Hazarika, Emkay Global Financial Services Ltd., Research Division - Senior Research Analyst [56]

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So broadly speaking, what kind of guidance would you give -- if we assume Singapore to be around $5. Sir, what kind of margins could you be targeting under such a scenario.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [57]

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As you would have also seen our margins, our own Singapore benchmark margins. So if you're assuming that Singapore benchmark margins will be $5 then we should also be very near to that.

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Operator [58]

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Question comes from Pinakin Parekh from JPMorgan.

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [59]

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Sir, my first question is on diesel and MS market share. If you look at the trend of the last few quarters, I see volume growth on a year-on-year basis has lagged the industry volume growth. But the difference has narrowed. So sir, do you see the market share stabilize again, diesel and petrol or do you think this trend of IOCL growing at a rate lower than the industry could continue for the next few quarters?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [60]

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Look with any entry of a private player, we being the market -- the largest market holders, there is going to be some shrinkage in the market share. But for MS, at least, I can say in Q1 '19-'20 versus Q1 '18-'19, the -- our growth has been 8.8%, whereas the industry growth was only 8.1% but PSU growth was 8.7% However, industry-wise, you're correct that there has been lower growth as compared to industry.

So we do lose if the private payers are very aggressive, but this may not sustain for a very long time. We have ambitious expansion plans in the retail sector, plus, we are doing a lot of improvements in service factors and other product differentiator factors also. So let us see how the things proceed...

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [61]

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Sir, my second question is on the pet chem. While you would come and give a more detailed guidance on the polypropylene plan later through the year, sir, the ongoing projects of energy plant at Paradip and the naptha cracker at Panipat, sir, what are time lines we should look at in terms of commissioning?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [62]

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The energy project at Paradip, the progress is around 12% right now, and the scheduled completion is by October 21 357-KTA capacity plant. And if you're talking about the Panipat naptha cracker, it has just gone to the first stage clearance. And it will take maybe around another 3 years down the line.

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [63]

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Understood. And sir, just 2 more quick questions. Sir, given where the net debt is on an underlying basis of INR 66,000 crores, the visibility that you have over the course of the year, do you think that this will go up sharply, stay flat, come down, how do you -- how are you looking at the debt situation, sir?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [64]

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That largely depends upon the GOI borrowing position -- the GOI dues position, actually. If say presently, the GOI dues are down to 9,200 -- 9,700 levels. So if we get, say, claims settled on regular basis, then definitely borrowings will be at this level. But if the GOI dues go up, at the end of the year, then definitely there will be an increase to that extent.

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [65]

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And sir INR 10,000 crores, INR 9000 crores is basically what a -- the run rate due will always be right, sir, I mean on a steady-state basis?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [66]

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Yes.

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Pinakin M. Parekh, JP Morgan Chase & Co, Research Division - Associate [67]

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Understood. And sir, lastly, just a quick comment on Singapore complex. I mean the last couple of weeks, fuel oil has seen very strong strength. So sir, the IOCL's refining margins to the benchmark, if we have a strength in FO and given where the other product crack, should IOCL report -- still report in line with Singapore complex or you think at that point of time, there could be a material variance, if you have a fuel oil-driven higher refining margin?

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Sanjiv Singh, Indian Oil Corporation Limited - Chairman & MD [68]

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No, our fuel oil production is very low as of now, with FO production will further go down. So we do not see any impact -- any material impact on our GRMs because of the FO cracks. Our FO yield is only 3.8%, 2.7 million metric tonne only for this quarter.

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Operator [69]

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Next question comes from Amit Rustagi from UBS Securities.

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Amit Rustagi, UBS Investment Bank, Research Division - Analyst [70]

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Sir, could you explain us that how much was outstanding from the government at the beginning of this financial year? How much has come through till date, like up to July in the last 4 months? And you have already mentioned that around INR 9,000 crores is still outstanding from the government at this moment. Is that correct?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [71]

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Yes, the opening dues were as of 31st of March '19, the dues were INR 19,121 crores. And they are down to INR 9,772 crores to be precise on 30th of June 2019.

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Amit Rustagi, UBS Investment Bank, Research Division - Analyst [72]

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Yes. So we received around INR 9,300 crores from the government. I think in the last 1 month, in the month of July, have we received anything from the government? And what is outstanding now?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [73]

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Yes, outstanding, I said INR 9,772 crores as of the 30th of June. The amount received...

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Amit Rustagi, UBS Investment Bank, Research Division - Analyst [74]

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The remaining dues as of 31st of July.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [75]

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You want 31st of July, we did not receive anything further. At the end of July, the position remains the same.

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Amit Rustagi, UBS Investment Bank, Research Division - Analyst [76]

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Okay. And sir, second thing, what was our Paradip refining margins for the current quarter? And how do we see panning them out in maybe next 1 year ratio?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [77]

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Paradip margins are also in line with other margins, so is not good because the refinery performance remained suppressed because of the lower cracks. So again, it's probably like any other refinery will depend upon the cracks, which remain in the future period. Also at the price levels. If the price levels are higher, naturally we will be feeling a loss impact, et cetera.

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Amit Rustagi, UBS Investment Bank, Research Division - Analyst [78]

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Understood. Are we like -- are we trying to do something different with respect to Pradip refinery because it's -- given its complexity that we can recoup better than Singapore margins because Singapore margins right now is $7 -- averaging $7 in last 1 month. Can we expect that going forward, the performance of Paradip refinery will be beating Singapore GRMs?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [79]

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As I explained it, the Singapore margins are -- will -- if Singapore margins go up, then our refinery margins will also go up, that has been the trend in the past also, for last several quarters. So all our refinery margins will move accordingly in line with Singapore margins because that -- our margins are impacted by the international cracks. Further the profitability of Pradip refinery will improve now that the polypropylene unit is now commissioned, so that will also give some additional yields based up on polypropylene cracks.

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Operator [80]

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Next question comes from Nitin Tiwari from Antique Stockbroking.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [81]

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So now one is what was the CapEx in this quarter? And if you can give us basically a breakup of where the money was spent and what are those segments? And also a CapEx guidance for the year? And then I'll ask a second question.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [82]

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We have a plan of about INR 25,000 crores for this year. And we spent about INR 4,250 crores in this quarter. And we have a lot of -- whole list of projects where the CapEx is going on, they range from all verticals, refinery pipeline, marketing, pet chem, E&P. So everything is there. Maybe even separately take down the details, but the total CapEx, I told you, INR 25,000 crores is the plan for the year, we did about INR 4,250 crores in this quarter.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [83]

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So you don't have the breakup with you right now?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [84]

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Okay, if you're interested, then refineries, the yearly plan is INR 7,300 crores approximately; pipeline, INR 5,600 crores; marketing, INR 6,400 crores; E&P is opportunity-based, but we have about INR 1,000 crores; pet chem about INR 1,500 crores; gas, et cetera, about INR 230 crores; and others -- balance is other projects.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [85]

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Okay. Right. Sir, what is the refinery CapEx are largely around, you're spending INR 7,300 crores, like so what's the CapEx...

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [86]

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We have -- BS-VI I have mentioned, we have BS-VI projects. So out of INR 7,300 crores, practically INR 4,200 crores is for BS-VI quality upgradation projects itself, plus we have mass project going on at Bongaigaon refinery and some brownfield expansions at Barauni, Gujarat et cetera.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [87]

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Great, Sir. And sir, my second question is around the calculation of inventory gains. So if you can just help us understand the basic like modalities of how we arrive at inventory gain or loss, just to help us understand?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [88]

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Whenever the prices rise, you recover based upon the latest price, while processing the raw material, which was procured at the old price. This way gives you gains.

This is accumulated as margin, and we term this gain as inventory gain.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [89]

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So what is the time frame in which like basically the prices are compared for like calculation?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [90]

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Opening versus closing?

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [91]

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Yes.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [92]

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We compare opening versus closing.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [93]

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So would be end of March quarter and end of June quarter, this would be the closing or like...

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [94]

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Yes. Yes.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [95]

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So that's where my question actually stems from because a broader sense was that given that crude corrected very sharply over June as compared to the March quarter. So most of the correction happened over the month of June. So prices should have been actually been lower in the month of June compared to what they were at March. So shouldn't we looking at -- it's not like that?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [96]

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No, where are we, based upon our crude slate, our closing inventory valuation rate was higher than the opening.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [97]

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Right. Okay. So June, actually, we had basically a higher sort of a pricing compared to March. And that's why like we ended up with the inventory gain, that's what you're saying?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [98]

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Yes.

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Nitin Tiwari, Antique Stockbroking Ltd., Research Division - Research Analyst [99]

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Both on the crude and the marketing -- sorry, on the refining and the marketing side?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [100]

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Yes.

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Operator [101]

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Next, we have a follow-up question from Sujit Lodha from Birla Sun Life Insurance.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [102]

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Sir, so what is the total CapEx spend, and what is the monetization expectation on that?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [103]

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CapEx, as I mentioned earlier, it is INR 25,000 crores for the year. For this quarter, we spent about INR 4,200 crores.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [104]

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No, no, sir, I'm talking about BS-VI CapEx, you must have spent...

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [105]

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BS-VI CapEx totally about INR 17,000 crores we are spending on CapEx, different years put together will be about INR 17,000 crores on quality upgradation.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [106]

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And is there any monetization of this? I mean would you charging extra on the individual monetization there is no sort of clarity on that?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [107]

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As of now, not because let the projects be commissioned, maybe around February or March, we will have more clarity on this.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [108]

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February or March. So we have to start by Jan 20, right?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [109]

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We have to start by 1st April 20, BS-VI.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [110]

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Got it. So will it be available from 1st April '20 or would you be starting it somewhere in the months much earlier than that?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [111]

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We have to because there is some requirements of dilution at marketing terminals, et cetera. So we will be sort of ready, perhaps, a month in advance.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [112]

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A month in advance. Okay. Sir.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [113]

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Though you know that in the NCR region, we are already providing BS-VI fuels in the NCR team and in the extended NCR region some months back.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [114]

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So this will be exactly the same price that what your normal sale will be?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [115]

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Presently same price, yes.

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Operator [116]

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Next question comes from Rohit Ahuja from Bank of Baroda Capital Markets.

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [117]

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Sir, I have a question on refining. So I know this was mentioned earlier, but if you can clarify what are the steps you are taking towards -- to maximize the GRM potential at your refineries and especially at Paradip in run-up to IMO.

And second question, your marketing business performance is good, and we see the granular details of the sales trend. We are seeing -- you're losing market share in petro diesel but you're making up market share in ATF and other industrial products. So that's -- is -- are these products (inaudible) giving away too many (inaudible)?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [118]

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Your voice was too low to be audible, it was very low. But can you just repeat the first question, we'll take it one at time.

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [119]

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Yes. So my first question was on refining. How are we ensuring that we maximize the GRM potential for IOCs, refineries and also Paradip in run-up to the IMO regulations?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [120]

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How do we maximize pending margins run-up to IMO?

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [121]

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The GRM potentials of the refinery.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [122]

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I don't know how to answer this. But then you are aware that we run a healthy model of optimization, taking our refinery configuration and the crude available. And accordingly, source the crude. I don't know beyond that what you are seeking. It's not very clear.

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [123]

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Are we intending to increase the diesel output in our refineries?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [124]

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Any distillate for that matter, whether it is diesel or whether it is MS, definitely, it gives more margin to refiners, and we do intend to increase our distillate yields at all of our refineries.

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [125]

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And part of it -- we've seen that it's not yet running up to the potential in terms of GRM contribution. Could you help us, would it be at its optimal potential by Jan 2020, and when IMO kicks in?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [126]

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Definitely, we expect. So -- but then it a lot depends upon the international prices. If the prices remain depressed, Paradip can only do a physical performance, the financial numbers will depend upon the international prices.

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [127]

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So we were talking about increasing the heavy oil utilization at our refineries. Where are we in that trajectory of using high sulfur?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [128]

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No, actually, as I said earlier o. So the economics of processing heavy sulfur or heavy -- high sulfur or heavy crude should be there, then only that it makes any sense to increase that. So it all depends upon the differentials, which are prevailing. And those all are factored in while sourcing the crude for the refineries.

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [129]

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Secondly, on marketing, I just would like to repeat that you have -- if I look at the trends product-wise, you have lost market share in petrol and diesel while gaining ATF and other industrial products. So is this the reason why our margins have been strong in marketing?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [130]

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No. On one side, you are comparing with industry. I do not know whether you are comparing marketing EBITDA also with the industry. So we do not have industry marketing EBITDA. We have our own. So our own has increased because our market share has our -- basically, the volumes have increased.

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [131]

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So it's basically driven by ATF and industrial products, where -- that's where the products you have gained margin?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [132]

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No, I'm saying, even for MS and ATF, our volumes have increased.

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [133]

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So it's -- the increase in volume EBTIDA lower than the industry?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [134]

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So in that, how does it matter? We are not comparing our EBITDA with other industry EBITDA, no. So we are only comparing our EBITDA with our previous EBITDA. So the market share does not play any role in it. The volumes play a role.

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [135]

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Right. So this EBITDA you're saying is sustainable, what you reported this quarter?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [136]

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We believe so, yes.

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Operator [137]

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Next question comes from Ms. Vishnu Kumar from Spark Capital.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [138]

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If you could just give us the average...

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [139]

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A bit louder, please.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [140]

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Sir, if you could just give me -- give me the average crude inventory days that you carry at -- in terms of number of days?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [141]

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We -- our average inventory holding for crude is about 46 days.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [142]

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46 days. And if you could give a closing dollar carrying rate as of June, if you have the number?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [143]

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Dollar carrying rate means what? Whatever is the...

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [144]

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What is the inventory rate in terms of dollar terms in Brent or how much -- whatever crude we are carrying as on June 30, what is the value in dollar terms?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [145]

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We do not have that at present. We will inform you later.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [146]

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I'll take it off-line, sir. And just one final question on the -- once you move to BS-VI, currently, is there any crack difference in terms of the international pricing between the current diesel petrol between BS-IV to BS-VI and if -- what is the delta that is there?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [147]

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We have not been tracking this because this is too premature, the pricing has to be effective one for 2020. So we are not presently tracking.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [148]

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Okay. Would that be very negligible, or...

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [149]

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I am not sure.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [150]

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Got it. And one final question on -- CPCL, is talking about making a greenfield investment in the Karnur facility. Any thoughts on that...

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [151]

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It's not Karnur, it's Cauvery Basin refinery.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [152]

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Okay. Are we making any investment there and would -- and how much would be the investments in terms of -- from IOCL side there?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [153]

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There are plans to increase the capacity to 9 million tonnes and the project can be perhaps around INR 25,000 crores to INR 27,000 crores. So now since there is investment by IOCL also, so it will have to be seen what will our contribution impact.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [154]

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And are we likely to take an FID on this -- sorry.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [155]

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No, go ahead, please.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [156]

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No, I was asking, when are we likely to take a final decision on -- final investment because I understand it's currently pre-FID stage, when are we likely to finalize on this CapEx plans?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [157]

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I think IOCL would be in a better position to answer this question. Being a listed company, they would be certainly aware of this plan they've got. But from our perspective, it has to go through some stage of clearances and due diligence from our side. And probably, we are working upon it, it's already on our working table.

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Operator [158]

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Last question for the day comes from Mr. Anubhav Aggarwal from Crédit Suisse.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [159]

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Clarity on 2 questions. One is, is it in this quarter, there is a lease change. And because...

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [160]

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A little louder, please

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [161]

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Yes, the other expenses in this quarter are lower by INR 187 crores because of the lease accounting change, just wanted to check in which division, this benefit would have flown in like going to marketing, refining, petrochemicals, where the impact was more predominant?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [162]

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Sorry? Yes, we are looking at Q1 versus Q1 or other expenses?

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [163]

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No, I'm saying effectively other expenses are lower by INR 187 crores just because of lease changes -- lease accounting changes this quarter, right? I'm just thinking...

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [164]

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Lower, compared to what?

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [165]

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Look, what is happening, the depreciation and finance costs have gone up because lease accounting, your other expenses have come down.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [166]

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So as you will be aware that the rent expenses comes down.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [167]

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It's largely marketing. That's how we take it?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [168]

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Yes, yes.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [169]

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And would the reversal that we've done on the provision side, which is INR 626 crores, that would have as also flown completely to the marketing division?

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [170]

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Yes.

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Operator [171]

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That would be the last question for the day.

Now I hand over the floor to Mr. Bhavin Gandhi for closing comments. Please go ahead, sir.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [172]

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Thank you. On behalf of Batlivala & Karani, I would like to thank all the participants for taking time out for the call. Thank you to the management of IOC as well. Thank you, sir.

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Sandeep Kumar Gupta, Indian Oil Corporation Limited - CFO & Director of Finance [173]

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Thank you very much. We thank you all for participating in this conference call. Thank you.

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Operator [174]

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Thank you, sir. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using (inaudible) conference call service. You may disconnect your lines now. Thank you, and have a pleasant day.