Hindustan Petroleum Corp Ltd
NSE:HINDPETRO
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
201.6627
448.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Hindustan Petroleum Corp Ltd
You don't have any saved screeners yet
Ladies and gentlemen, on behalf of Antique Stock Broking, I welcome everyone to HPCL's second quarter earning call. We have the pleasure of having with us today, Mr. Surana, CMD of HPCL; Mr. Kesavan, Director of Finance; and Mr. Narang, ED, Corporate Finance. I shall now hand over the call to management for their opening remarks, which shall be followed by a Q&A session. Over to you, sir.
Yes. Good morning to everybody. Thanks, Nitin, for getting us here. I got with me our Director, Finance; and ED, Corporate Finance also. First of all, thanks to all the people who have taken time off to join us on this second quarter results conference call.To give a little bit of background on what is happening around and the result of HPCL and -- of the second quarter and the half year just concluded, and how the things look. And then it can be followed by the question and answer, and I will -- like to answer as much as I can. And if there are any questions which are unanswered, we'll get you the answers. As you are aware that this quarter started almost within the lockdown. And it was also on the background of a volatile crude oil prices. To start with in April month, the prices were at around $15. It has come down in the last week of March. It went as low as $13 in sometime in April. It went back to somewhere around $46. And again, now it is running at around $40. The first quarter saw a lot more volatility. The second quarter was lesser. And predominantly during the second quarter, the prices ruled at around $40 to $45, that range.During this period, the cracks of major products were also subdued because of the overhang of the inventory as well as the lockdowns still predominant in many parts of the world. But petrol cracks did improve from July onwards. And from $1.52 in July, it did improve to $4.17 in September on an average basis. Diesel cracks remained in the range or rather it came down substantially, FO cracks moved up and down and LPG cracks improved. Foreign exchange rates were more or less stable during the period. And the bond yields rate came down, which actually also led to better interest rates in the market.As of now, the crude prices are more or less hovering in the range of $40 -- $38 to $42. There are 2 issues which are impending. One thing was the release of cuts to the extent of around 2 million barrels from January onwards, which OPEC plus countries are debating. In fact, some of the statements, which were heard also said that if the demand doesn't pick up, whether they will continue or they may consider deeper cuts. But -- and the second is, of course, the U.S. elections fallout, which should be known in another 2, 3 days.But irrespective of the outcome of both the things, my guess is the crude prices may continue for some time in this range because still there is a surplus inventory in the market. And the -- while the world demand has picked up, but not to the extent it should have picked up, with some concerns on the renewed cases of COVID in European countries and U.S. But the story is slightly different as far as India is concerned, where the demand picked up quite sharply. And the demand, which has come down almost to 50% in the month of April had come down to almost 98% in the September compared to September 2019. And in October, actually it improved further when diesel, for the first time, came in the positive territory and we have a robust growth of 9% in October compared to 2019 October.While we should not be accepting or expecting a 9% growth month after month, but suffice to say that the positive growth in diesel is a sign of revival of the industrial and the construction activities apart from transportation activity, which was also backed up by the demand of the industrial products like bitumen, fuel oil, lube oils, which also saw a good demand growth in the second quarter. And HPCL who had a small -- who had a strong lube market, we registered a growth of around 22.5% in our lube sales during the second quarter of July to September 2020 compared to second quarter after last year. Bitumen and fuel oil sales also saw a good improvement. On the back of it, HPCL has announced its second quarter results, wherein we made a profit after tax of INR 2,477 crores, which was 2.34x of the second quarter of the last year. Half year results of this April to September month was INR 5,291 crores, which was 2.85x the last year half year for this same half year in 2019. This is incidentally also the highest ever Q2 profit which HPCL has recorded and this is also the highest ever half yearly profit which HPCL has recorded so far. The strong profitability was fundamentally due to -- and that too in a challenging times, including lockdown due to COVID-19, et cetera, was due to some strategic planning in refinery and marketing operations. Containing the degrowth to less than the industry, in fact, while everybody lost some volume during the lockdown time, HPCL degrowth was almost 2% lesser than the industry. So we could deal with the things slightly better, better inventory management and effective product placement, leveraging on the excellent marketing infrastructure and the cross-country pipeline network, which we have.And so as the market relaxed, we were able to capture the opportunities better. Backed on, we could run our refineries to almost 100% of capacity utilization even during the lockdown. As you are aware that HPCL sells a lot more than what we produce. On our own, we produce around 18 million tons and with our joint venture refinery, another 11 million tons per annum. But we sell almost 40 million tons in a year. And therefore, a conscious call was taken to run our refinery, which also helped to take advantage of lower crude pricing regime. So this profit was also well supported due to market conditions and crude pricing, favorable exchange rate variation and the reduced operating costs. So lot of operating cost reduction measures were taken during this period and which has given a good dividend, and some of this will be a permanent feature in time to come.Our gross refinery margin, which was $5.11 with an inventory gain of $2.33 during this quarter compared to $2.83 with inventory gain of 2 -- $0.28 last year for the same period, our refinery margins improvement was also because of better margin on lubes and the fuel oil product even though there was a market contraction on MS and HSD and the cracks on that was slightly lower.During this period, HPCL has also reached some outside geographies, and we have exported around 9,000 metric ton of lube oils to various countries. And we could capture some of the market outside the country also during this period. HPCL is expanding. During the period April to October, we have commissioned 895 new retail outlets. And during the year, we will be commissioning around 1,800 new outlets in this year 2021. In next 3 years, there will be additional 5,000 outlets. Right now, we have got 17,000 outlets in the country, so it can reach to 22,000 in time to come in the next 3 years. HPCL has also improved its offerings to customers. And additional 103 retail outlets have been added to dispense CNG. And with this, we have got around 574 new outlets, which are selling CNG now. Apart from that, we also commissioned around 42 mobile dispensers, which can deliver diesel on door-to-door basis. So this is a new model of delivering diesel so we can deliver now diesel on door-to-door basis with 60 such mobile dispensing equipment in multiple cities in the country. Electric vehicle charging facilities have been provided at around 36 outlets, and we are adding more. In fact, all our new outlets will have 1 additional alternate way of providing the energy to the customer apart from the traditional MS or HSD.On the natural gas type, HPCL is strongly looking into the natural gas business. That's an important business for us. And we are setting up 5 million metric ton LNG gasification terminal. We are a part of 2 cross country pipelines. We have got CGD authorization for 20 geographical areas around -- in 9 states in the country. And we also parallelly have started compressed biogas manufacturing facilities, and we have issued 26 more alloys. So, so far, 87 letter of intents have been issued with a production capacity of 157,000 metric ton per annum of compressed biogas, which can be utilized for dispensing from our outlets.HPCL has got windmills with a capacity of 101-megawatt in Rajasthan and Maharashtra. We've got around 3,500 retail outlets, which are solarized. We also manufacture ethanol. We've got 2 mills, which produces ethanol at the rate of 60,000 liters per day at each of the mills. And this ethanol is made out of sugarcane and it is blended to petrol as a part of the renewable measures. These ethanol plants also generate power to the extent of 20 megawatts at each of the facilities by using the bagasse, which is created by sugarcane crushing, and it converts into power. We're also blending around 5.76% of ethanol across the country in petrol and also biodiesel as a part of the renewable measures. Our projects on -- all the major projects, which had -- sites were to be required to be closed during lockdown time in April have restarted from April onwards gradually as more and more relaxations were announced by the government. As of date, all our project sites are started. The construction manpower is almost reaching to the pre-COVID level. As of date, on HPCL various sites, around 40,000 construction workers are working, of course, following all the safety precautions which are required and the guidelines which are issued related to COVID-19.Our HPCL Visakh refinery expansion project and Mumbai refinery expansion project are in advanced stages. And we are hopeful of completing both these projects in the calendar year 2021. The residue upgradation facility of Vizag will also be completed in the calendar year 2022, followed by the Rajasthan refinery and petrochemical complex, which we are targeting to complete in 2023. Our major pipeline projects of Vijayawada Dharmapuri pipeline, Hassan Cherlapally LPG pipeline and Barmer Palanpur pipeline are progressing ahead of schedule as of date. I'm also happy to say that HPCL has also taken a digital transformation road map to leverage the new age technologies to provide operational efficiency, cost optimization and customer convenience. And we -- in fact, we had started on this journey before the lockdown time. Lockdown has only brought the importance of that more in focus. To support this, we are also shifting to the latest S/4HANA SAP platform. And in the time to come, we will be leveraging all the new age technologies to the fullest extent possible to provide customer experiences.I also wish to mention that yesterday HPCL has provided or announced a share buyback program. HPCL has always been an investor-friendly company. And we had tried to create value for shareholders in multiple ways. A company can create a shareholder's value either by bonuses or by dividends or by share buyback. In the past, HPCL has given liberal bonuses and dividends. And this time, we thought that it is an opportunate time to consider a share buyback to the extent of maximum value of INR 2,500 crores at a maximum value of INR 250 per share through market transaction. I wish to state upfront that there is no instructions to us from government or ONGC to carry out this. In fact, through a market transaction, the promoters group does not participate in the buyback program. So this buyback program is purely to create value for the shareholders whether major or minus because we strongly believe that this will create value. We also believe that, with the fundamentals, with the physical and financial performance and the growth plan and the value which it will unlock for the company, the share value -- the intrinsic share value of HPCL share is lot more than what is reflected in the market as of today. And therefore, even the book value of HPCL share is more than the market value right now. And therefore, we believe that the intrinsic value of HPCL share is far beyond even the buyback price of INR 250. Buyback at this time is also the most apt because the share price is low and the cost of borrowing is also low. So at 1 end where it will create value for the shareholders who have been invested in us for a long time and continue to remain invested with us as well as our majority shareholders, ONGC, as well as all the minority shareholders whether bigger or small. On the other end, for company also, it makes economic sense where the cost of borrowing is far lesser than the cost of equity. So for the company, it makes a good financial management. For the shareholders, it creates the value. And it also unlocks a part of the intrinsic value of the share, which the company has got. And that was the reason for announcing this buyback. And I'm sure that it will be the benefit of all the stakeholders of the company. So these are my opening remarks. And I open to questions. Thank you.
[Operator Instructions] We'll take our first question from the line of Aditya Suresh from Macquarie.
Thank you for finishing the buyback and following through. I have 2 questions on the buyback. First is, any guidance on how this would be funded, one? And two is, does this mean anything for your dividend, which you normally pay for us towards year-end. That's the first question on the buyback. And the second question was on these...
Just a minute. What was the second part of the question? How it will be funded was the first. What was the second one?
Is there any impact on the dividend? Is there any changes...
Impact on the dividend, okay.
Yes. And then the -- that's on the buyback. And the second question is related to, you mentioned ethanol, gas, et cetera. Does the company have any, say, FY '23 or FY '25 medium-term targets on what you want your non-oil businesses to be in terms of earnings contribution?
Okay. The first question, the buybacks are always funded from the internal resources. So you don't borrow the funds for funding the buyback, that's one. But at the same time, the money is fungible. So HPCL enjoys quite a good credibility and creditworthiness. And our debt-to-equity ratios are very, very comfortable to fund our CapEx. So -- and in the total amount of CapEx and other businesses, which we carry out, this amount is not a very big amount. That's the first part of the question. As far as dividend is concerned. As I mentioned, the company can reward its shareholders by dividend, by bonuses, by buybacks, and we will consider all the 3 to ensure that we continue to make value for our shareholders. And just because we are buyback, during this year, there will be no dividend. That's not the conversion at all. But we will consider a combination to ensure that we adequately reward our shareholders. But it will be incorrect for me to give a figure to this because it has to be considered by the boards at the appropriate times and then decided. But I can say that it will not be 0 dividend. Yes, that much I can mention. Okay? As far as the -- so there will be dividends, and the quantum we will decide at the appropriate time in the appropriate board meetings. The second part, as I mentioned to you, that HPCL does -- ethanol, we are not started today only. This mill, it is the ninth crushing season, which we are operating. And as you know, that sugarcane business runs in a sugar year, which is starts somewhere in December and continues till May or so. And during that period, the -- that raw material is prepared out of that. And from that, ethanol is prepared. So we have been doing this for some time. And as I mentioned to you, it produces 60,000 liters per day of ethanol in each of the 2 mills. As far as windmill is concerned, that is also not new. That wind mills, we are owning almost now -- the earlier one, we had more than 5 years. The second part of the mills, 50 megawatts, we had almost more than 5 years. 50 megawatt, we have started around 2 years back. So even that has been there with us for some time. Solarization is a continuous process, and we are doing, and in the future, we will be adding more and more things to do the solarization. Now as far as the revenue is concerned, because we are not -- ethanol, we are selling just as ethanol, though it is done through a subsidiary company. But it is blended through petrol. So we are not putting it as a separate revenue target only on the renewables. But yes, it is an important component of our total business portfolio. And we will be investing in it, and we'll be trying to create a portfolio out of that. As far as biofuels and biogas is concerned, CBG is becoming a part because it will ultimately get in the same trunk line as natural gas. So there, we are operating through a model of where the CBG plant is put by somebody else, and we have got a model to take that compressed gas and a captive consumer of that compassed to be utilized and sold through our thing. In addition, we ourselves are also setting up a CBG plant in UP. We are also setting up a 2G ethanol refinery at Bathinda where you can convert the agri waste into ethanol -- liquid ethanol. So that part we are already doing. So we have got -- we have not made publish those targets for the bio or renewable part as a part of the revenue because we have not yet put a separate SBU, but it has already been carved out as a separate business function right now. And we will see some more tractions on this in time to come.
Our next question is from the line of Pinakin Parekh from JPMorgan.
Sir, my question is, after the buyback ONGC's holding will go up to near 55%. Now when the initial government of India's stake sale had taken place, there was a lot of talk about a broader restructuring within the ONGC Group, which would include HPCL and MRPL and the other assets. At this point of time, sir, has the company heard any updates on what are -- how should we look at this going forward? Or is HPCL going to remain a single refining asset and there would be no further transactions related to MRPL?
No. Rather, there are positive movement on that front in the sense that there is an alignment between ONGC, HPCL, MRPL, government and the direction to follow. And that directions leads to integration of MRPL with HPCL. Now this is being considered to be done in 2 phases. In first phase, MRPL and ONGC also has got 1 subsidiary company by the name OMPL, which is in Bangalore only, which takes the stream from MRPL and produces PX et cetera. So in the first phase, MRPL and OMPL integration is likely to be happening. And in the second phase, then, MRPL and HPCL integration is supposed to happen. So this is work in progress, but it is moving in the right direction.
Understood. And sir, second question, can you give us, I guess, you have spoken about it in the past, but slightly medium-term picture of how you see HPCL's CNG footprint moving, CNG-CGD footprint, given that it has GS and there is possibly a change in regulations. So how would that business move? Will HPCL remain committed to the strategy it has now or try to have a more independent approach to this business?
So as far as CNG business is concerned, we are trying to create a value chain from end-to-end, right from LNG buying to LNG conversion to gas as well as LNG transportation itself, means making the vehicles use LNG itself as a fuel. In fact, just to tell you, we are trying to set up 11 stations where -- which can dispense LNG itself. And with some of the auto manufacturers that we are working on to have LNG-run trucks. So we have recently an approved to project of around INR 100 crores to have a corridor which can use, along with other OMCs, to use LNG as a fuel in addition to CNG. So as far as I mentioned to you, right now, we have got around 575 stations, which are dispensing CNG. We've got 20 geographical areas. And this is being operated by us and through our some of the JVS, which are already operating. So we will be attempting to provide CNG facilities as most of our retail outlets as an alternate fuel. We will be working on parallel mode of LNG, HCNG. And we will also have a stake in the infrastructure for LNG gasification terminal for cross country pipelines for transportation of LNG. In next 5 years, we have got a plan of around INR 10,000 crores of investment to -- in various LNG-related facilities, which include CGD, et cetera, through a combination of us, through joint ventures or through private participation. And we are also looking the opportunities where the network exclusivity is getting over in some of the areas. We're also -- we'll also be looking at that actually.
[Operator Instructions] Our next question is from the line of Amit Rustagi from UBS Securities.
Tanks for considering a buyback for the shareholders and rewarding them appropriately at various times. Sir, my first question relates to our petrochemical ambition...
Mr. Rastugi, I'm sorry. We cannot hear you that clearly, sir. Are you on a hands-free mode by any chance?
Okay. Just give me a minute here. Hello?
I Yes, Amit, I can hear you, but.
Yes. Can you hear me?
Yes. Yes. Now it is better. Yes.
Okay. Sir, my question relates to what are our petrochemical ambitions because now we are seeing a global trend where the refineries and marketing companies are having significant output towards the petrochemicals. So maybe in 4 to 5 years from here, how much petrochemicals you think will be a part of our production and marketing? If you can give us an estimate on that.
Yes. So we have got 2 main production facilities, which are coming up shortly. We manufacture petrochemical at HMEL, but there is an additional cracker, which is being under construction at HMEL and which is likely to be completed next year. With this, HMEL will have a capacity of around 2.7 million metric ton of petrochemicals. Our Rajasthan refinery, which is a 9 million ton refinery, will have around 2.2 million ton of petrochemicals. So put together, we will have around 4.9 million to 5 million metric ton of petrochemical capacity. We already have got a facility at Visakh refinery for generation -- for production of propylene, which goes to captive manufacturing companies who use it for downstream. We have got a plan to put a propylene generation capacity at Mumbai and expand it to Vizag. So we -- and in future, with OMPL, MRPL integration we may have another 1.4 million tons of addition of petrochemical facilities. So with that all, we should around 6 million tons -- 6, 6.4 million tons of petrochemical capacity with us. And we should be around 15% of our total petrochemical intensity in our refinery and refinery business. So we are aggressively pursuing this, and we have recently have also approved to start marketing and trading in petrochemical so that apart from the marketing sector, which we already have, we also got the additional capabilities to ensure that when these 2 additional facilities are -- start producing, we are market-ready for that.
Okay. Great, sir. This is very nice to hear, your petrochemical ambitions. Sir, you laid down a plan for the alternative fuels through various retail outlets, like you mentioned, 575 CNG outlets. So can we say that whatever way the energy transition happens, HPCL would be ready to take this challenge of energy transition in the years to come? Because whichever direction it go, we will be capable enough to handle this?
Yes. Because see, we are setting up a 5 million metric ton of LNG gasification terminal. So it means that at the bare minimum, we think that 5 million tons of gas business will be there in the portfolio. That itself is around 10%, 12% of the 40 million ton suppose I'm selling right now. And this 5 million ton we inject into, so around 12%, it will come. Addition to that, the GIGL-GITL, I don't know whether you heard the name.
No sir. Mehsana Bhatinda pipeline asset, yes.
Correct. So these two -- these companies, we have got a stake in both of these companies. And we are a part of it to have the gas transportation stake in that, which cover almost throughout the length and breadth of the country, catered with -- we have got our own captive consumption in the refineries as well as we have got this CGD network in almost 20 geographical areas, along with -- in 9 states which includes populated states like Bengal, UP. It includes the advanced states like Hyderabad, Secunderabad. It includes the cities like Indore, Ujjain, Gwalior. So we are already putting our footprint. In addition to that, we already had the gas business in Ahmadabad. So we -- there are 2 parts to it. One thing is that because we own the retail outlets, irrespective of whether -- has the CGD authorization or not, I can -- whoever maybe the CGD authorizer -- authorized agency, but ultimately it comes down to my shop for selling CNG. That is 1 part of it. And the second part is in the CGDs which are authorized to me, even provision providing the gas is also my business only. We are leveraging it end-to-end. In addition to we also looking up the -- and we are in the discussion for tying up LNGs. Of course, that is a different market right now. But we are -- we don't have a baggage of high-priced tie-ups in the past like many of our counterparts. So that comes handy to us to get more efficient way of doing this business. Now whether it's biofuel, whether it's renewable, whether it's gas or whether it's electric, we are working on all the fold because ultimately, our business is to provide a mobility and the -- to cater to the energy needs of the customers and the means are we will adopt as it develops.
Okay. Great, sir. Sir, just a follow-up on this. If you see, you mentioned about wherever network exclusivity is ending. So for example, are we -- have we done any business model planning where we see that the margins are much higher in directly selling rather being a franchise of these CB gas distributors?
See, these are different parts of the business. So you get some money in every segment of the business. So more segment you have, more money you make. So while at the end shop you make some money, in bringing it up to the end shop you make some money, in converting into gas you make some money, in transporting you make some money. So more and more chunks of the pieces you have, the better for you. So we will be working on that. We have got certain understanding of the business, the understanding of the market, the penetration in the market. And we have got some strategies to work on it.
Our next question is from the line of Amit Shah from BNP Paribas.
Actually, I just have 1 question. I don't know if you've already mentioned this already, but over what period of time will the buyback be concluded?
So as per the guidelines, we are supposed to come out with a public announcement within 2 days. So hopefully, today or tomorrow, you should have a public announcement. Then within the next 7 days, we can start the process of buying back, and it will continue for 6 months after that. That's the SEBI guidelines. So it can continue till either we are completed, exhausted the money which we allocated or the share price goes above the buyback price. Compulsion is to do up to 50% but it is to be done within over a period of 6 months. That's the guidelines, and we will follow those guidelines.
So basically, you have to do a minimum of 50%, but if it's below 250, then you have to do the entire 100%, if there is demand?
No. Irrespective of your price, the compulsoriness is only up to 50%. Okay? Snd you can do up to 100%, if the price is below 50% -- below the buyback price. But if the market price goes above the buyback price, then even that 50% compassion is not correct.
No, correct. But -- so basically, the minimum that you have to do is 50, but anything above that is your prerogative, if you decide to do it or not as long as the price is below 250.
.That is correct. That is correct.
Okay. And also, one more thing on the -- just any delays in CapEx for this year? And has the CapEx outflow changed for FY '21? And what would the number be?
No, no. We had INR 11,500 crore as allocation for CapEx in this year. We have already done around INR 5,000 crores, INR 4,900 crore approximately by now. And we will be doing this INR 11,500 crore in this year.
Our next question is from the line of Mayank Maheshwari from Morgan Stanley.
2 questions from my end. First, sir, you were talking about all the alternative energy sources, et cetera. So in terms of your CapEx planning when you kind of do, how much are you kind of allocating now going forward in terms of hard CapEx for alternative fuels going ahead?
So we do the planning project to project rather than allocation. Because we go by the methodology of clarity of -- so we've got, let's say, let me put it just conceptually. We've got certain essential CapEx which leads to safety environment or replacement operationally. Then we have got the strategic CapEx, which may get into renewables or those type of things. And we have got -- are the -- which we think that the business which we should be. And then we have got a pure financial based, IRR-based CapEx. That's the way we do it. So our allocations are more item-to-item based rather than an apportionment like thing. So if there is a project, which is worthwhile on any of the 3 criterias, we do take it. As of now, as I mentioned to you, in the alternate energy forms, in next 5 years, around INR 10,000 crores allocation we have got for gas business. And around 2,000 -- INR 3,000 crores on the renewables part out.
Got it. Okay. That's clear. And sir, the second thing was on the Vizag and the Mumbai refinery upgrades. How much has it been completed? And you talked about 2021 calendar. Can you be a bit more specific on when you think it can really get into completions?
We are targeting, as far as Mumbai refinery expansion is concerned, to be completed by the second quarter. And Vizag refinery expansion by the September, December quarter.
Okay. And for 2022, sir, the further Vizag one?
The bottom upgradation, that will be the last quarter, almost September to December. We have got some targets to do it before, but that is what I will be willing to commit right now. Internally, we are working on slightly more aggressively than that.
Our next question is from the line of Vikash Jain from CLSA.
First, congratulations, I think the buyback is the right way to reward shareholders. That's what my personal opinion is. I just want to understand if this is going to be an ongoing policy as in, of course, there has to be a 9-month period before you get to the next buyback. But given that if conditions were to remain the same, say, 20 months from now, would this be something which could be considered, on an ongoing basis, if the share price is reasonably attractive and the cost of debt is also pretty much under control?
So as I mentioned to you, we've got 3 ways to reward the shareholders and our intentions are to ensure that we continue to reward our shareholders. So far, we had not tried this third tools and which we have tried. So once we try something, it is with the intention that in future, it -- also it will be -- it can be used if it is beneficial to the shareholders as well as to the company. I don't think that in Indian setup, many PSUs have done the buyback, which was for other than any compulsion. So we are the 1 rare commodity in that, which we are doing. I do not think that in the PSU setup, anybody has done the market based buyback so far. And so we are also probably the first, I'm not very sure. But I think this is the first time a PSU company has thought of doing a market-based transaction. Because we believe that, that is more transparent, it is more efficient, it is more simpler and it's more quicker. And it creates the value for everybody. So the question is if a company can decide to do a buyback through a market transaction where actually the promoters are not participating, it means that company believes in creating the value for every shareholder of it and even the minority shareholders of it. And in future also, we will always consider the opportunities whenever we think it is right.
Sir just 1 thing -- one more thing on that, your discussions with your promoter ONGC. I mean -- so they are pretty supportive of the idea. Given the fact that, of course, this is going to be good for the stock price, but immediate tangible benefit for them in terms of many flowing through will be better in this year. So we are okay with that sacrifice for the larger goal. So...
Of course, they are in -- we had a discussion with them also. So they are definitely in complete agreement with that. And because it is -- in fact, the -- when the shareholders' worth goes, the 51% of that beneficiary is ONGC because their shareholder -- share value also goes up. So anything which HPCL does, ONGC -- and which is good for the shareholder, it is -- ONGC is a direct beneficiary of it, and they are in complete alignment with us on this issue. In fact, it is to be seen straight that you can always earn the dividend or you can create a value. And I think that when a company like ONGC invests in a company like HPCL, it is not just to earn the dividend, but to create a larger value for themselves. And I think all of you who are much more knowledgeable than me on this issue would probably agree that buyback is a way of creating the shareholders' worth rather than just day-to-day getting some money like we get in a deposit interest. So I've got no doubt in my mind that it does create a value for the shareholders. And definitely, it does create a value for the largest shareholder like ONGC. And they are in sync with it.
I just one more, if you could. It got touched upon in the earlier discussion on MRPL and the likes. As the future is trying and whenever the MRPL, HPCL combined comes together, is it likely to be much more of a share swap kind of a merger or there could be element of you paying some money to ONGC as well?
You'll see at the right time when we come to that level. So I think it will be premature on that issue. As I mentioned to you, the ultimate objective is to create that synergy, and we'll work on that. Now the modalities will work and when it is worked out, we will announce also.
And in your estimate, this is likely in the next 9, 12 months? Or it's going to take more time than that?
I don't think this is going to happen in this financial year, definitely, because the OMPL, MRPL will take place first. So it may be -- it is something in the next year only, not this year.
Our next question is from the line of Varatharajan from Systematix Shares.
You had mentioned about some cost improvement. Are you currently working on that?
Can you slightly hold the mic properly, I'm not able to get it?
Is it better now?
Yes. Yes, yes.
So you were talking about some cost management. On the refining side, would you be able to give some numbers for last quarter and how it compares to the previous 2, 3 quarters on the absolute value basis?
Yes. So, the GRM of the last quarter was $5.11 compared to $2.83 in Q2 of 2019 and $0.75 -- sorry, $0.04 in the Q1 quarter of 2021.
Sorry, sir. I was referring to the cost number.
In what way?
Dollars per barrel, cost per barrel.
We don't share that actually, because the normal connotation which we share is the gross refining margin. I can only say that refineries are not loss-making entities as of today. They are profit making entities. That much I can tell. And $5.11 does have an element of inventory gains of $2.33, that much also I can say. The GRMs are subdued right now because of the lower crack, but we expect it to improve in the time to come as the inventory gets soaked up. And some of the refineries in the European countries and all they are shutting down because stand-alone, they are not able to survive. But actually, for the company like us, who have the integrated business, we've got a much better way to handle this. And when some of the refinery goes out, the GRM improves for the remaining people.
Our next question is from the line of Sabri Hazarika from Emkay Global.
I have 2 questions. The first one is relating to the Mumbai and Vizag expansion. So you had a INR 21,000 crore CapEx for Mumbai -- for Vizag and around INR 5,000 crores for Mumbai. So has there been any revision in the CapEx? And how much of it has been spent so far in the financial progress of these projects?
I can get you the numbers. I don't have ready made. But before the end of the call, I will tell you, if you continue to be in the call.
And how long do you think the stabilization will take place post completion of these projects?
So because both these projects have got certain units which are new and certain units, which are the revamps. And part of these facilities have already been taken online. So for example, in Vizag, the BS VI facilities have been commissioned. The revamped portion has already been commissioned because where we take the shutdown, we complete and then we can restart the unit along with a revamped portion only. So to that extent has already been done. So this will be more towards the newer units, which will be required to be commissioned. But because we had -- we had been operating the running refineries. And this is not a greenfield project. These are the brownfield projects, where the utilities, et cetera, are already available. And the staff and the paraphernalia and all the other facilities are already available compared to a greenfield refinery, where you have to start from 0. In commissioning also, you have to commission utilities, boilers, power, steam and then only you can get to the main unit commissioning. So to that extent, we will have some advantage in commissioning and stabilization on that and including the availability of the [indiscernible] power. And the paraphernalia facilities, maintenance, et cetera, are all available. So we hope to stabilize that within -- see some units will get stabilized fast, some units may take slightly more time like roughly the new -- this recent upgradation of the new units, it may take some time. But otherwise, the CDU, VDU, and this takes shorter time.
So something like a 6 months or...
Lesser than that.
Lesser than 6 months for the main unit.
Less than, less than. We are trying to do it in 3 months max.
Okay. And just last thing, what is the subsidy outstanding for the quarter, Q2 -- Q2 end?
Subsidy is 0 in this quarter.
No. I mean, the outstanding.
Total government outstanding is around INR 4,500 crores.
INR 4,500 crores.
INR 4,000 crores. It is INR 4,000 crores.
Our next question is from the line of Manikantha Garre from Axis Capital.
Congratulations on the buyback move. I wanted to understand here, what is our cost of incremental debt in FX and in INR? That's my first question, sir.
So actually, you would have seen the recent announcement where we did recently and a borrowing at around 4.79%.
And FX, sir?
What is that?
FX. For the foreign based, at what cost are we raising the incremental cost?
Recently, we did not do the foreign borrowing, but it is far lesser than that. But what happens is today because the INR borrowing is also very, very, very good. In fact, HPCL has been enjoying some good credit rating on that. And that's why we had been able to do it a lot cheaper than even our counterparts, even the bigger counterparts. So there is no motivation to do the foreign borrowing because the cost of rupee borrowing is almost coming much cheaper than the cost of foreign borrowing if I have to hedge the currency variations.
Understood. Sir, second question would be, to announce this buyback, did you -- did they require to take approvals from the creditors? I mean, to ask if these buybacks are part of any of the covenants?
No. In fact, up to 10% of the results plus equity, board can decide. Above 10%, we need the shareholders of course. So it is less than the 10%.
No. I mean to ask, if we have to take any approach from the creditors, sir.
No, no, no. In fact, we don't have any such covenants in our borrowing. Our borrowings are quite clean. And we have never defaulted also on any of our commitments on that, neither we nor our -- any of the associates.
Understood. Sir, second question is more of a theoretical question. What next after the expansions and Barmer refinery in terms of our refining capacity additions, your thought process there? I'm asking this in the context of biodiesel that many of the U.S. and Europe refineries are converting their existing refineries to. Do we have any such plans of converting our production or shifting our -- part of your question towards this bio -- so called biofuels?
No, we are setting up a new biofuel refinery that I mentioned in Bhatinda, which is actually we'll be converting the agri waste to ethanol that we are setting up. And now we are setting up a compressed biogas plant. We also got a thinking to set another 3 biorefineries at various parts of the country, depending on the success of the first one in future. So these biorefineries cost around INR 1,000 crores to INR 1,100 crores to INR 1,200 crores each. We don't have a plan to convert our existing refineries to biorefineries currently because we believe strongly that at least next 15 years, oil is going to be the main stay of energy, at least in India, minimum 15 years, if not more. Because the total demand of energy in the country, all the alternate mediums which we have can cater to a part of the incremental requirement, but it can still not substitute the current demand of oil. In fact, as per PPAC estimates, country needs a lot more refining capacity in the country if we have to sustain the demand of energy in the country. So right now, our focus is to complete the 3 main refining projects, which we have that is Vizag, Mumbai expansions and Barmer Refinery. We may look into the petrochemical further integration in Barmer or these refineries, subsequent part of it. But we don't have plan to convert these refineries to biorefineries because we think that these refineries will be required by us at least till next 10, 15 years. And that is so far most of the Indian refineries. We may have some facility to blend the biofuels in these fuels in the refinery. That is possible. So we may have some integration facilities created, but not to produce the bioethanol in the normal fossil fuel refineries because one more thing is that technically, also, it will not be correct because in biofuels you store the biowaste, et cetera, which will occupy the space. And in the fossil fuel has got inflammable raw material. So you don't combine the 2 in the same premises actually.
Understood, sir. If I can squeeze in just one question here. On the lube oil side, you mentioned that your trailing value in terms of the volumes in lube oil and you are able to export to multiple markets also. Can you please give us any volumes number for Q2 or H1? And out of which, how much is synthetic lubes? That's my last question, sir.
So the lube volumes, I can definitely give. So April to September month figure I have got readymade. That is around 303 TMT of lubes [indiscernible]
Mr. Garre. May we request you to please return to the queue as there are several participants waiting for their turn.
Yes, sure.
[Operator Instructions] We'll take our next question from the line of Nafeesa Gupta from Bank of America.
I have kind of a broad question. So my question is that you mentioned that many PSUs haven't done buybacks in the past. We've relied more on the dividend route to pay back shareholders. Sir, any particular reason why this is the first time that we are doing it and why PSUs don't do it in general?
Traditionally, PSUs had not been considering the share value as the 1 of the important metric of the performance. So what happened was that traditionally, PSUs were created with certain objectives. Over a period of time, PSUs' objectives also became more or less like any commercial enterprises as the more and more PSUs started getting listed and more and more shareholders started joining them. So in fact, the PSUs' management has been now, to that extent, while a private company will be required to ensure that they create the profitability and the stakeholders' value, but as far as PSU is concerned, we have to meet twin objectives that at one end, we have to operate like any other commercial enterprise where our shares are quoted, the shareholders expect the returns. And on the other end, because of the government holding, we also need to ensure part of the social objectives with the country and the society needs. So to that extent, and PSUs were required to meet multiple objectives. But over a period, there is a realization that the -- ultimately, a commercial enterprise need to meet the primary objectives of being its existence. And that is where the shareholders value also started factoring in as a metric, which wasn't there earlier. Now as far as a company like HPCL is concerned, we are not a born public sector actually. We were a multinational who got converted to public sector. Many of the operational and performance metrics, which we follow are like multinationals. And we did have a thinking that -- and it may look slightly biased being a public sector person, but I have got a very strong opinion that, as far as the skill set is concerned, as far as the capabilities are concerned, as far as the performance are concerned, the PSUs are no less than any private sector. Somehow, the market did not recognize that value. And I would like to mention that the market needs to realize the worth of the PSUs. They've got lot more intrinsic value than what is apparent. oAnd that realization is coming within the government, within the management. And therefore, these methodologies of rewarding the shareholders are also coming into picture. But because the major beneficiaries continue to be the government in these processes, that's why the minority shareholders did not recognize the value of that. Now for a company like HPCL, which is a substantially bigger PSU and a profit-making company and Maharatna company. We are among the few PSUs, where being government company also, we don't have a direct government shareholding. So we can take our decision more appropriately considering pure shareholders' thinking, even though keeping ourselves aligned to the broad objective. And therefore, I think 1 of the reason to best explain can be is that slowly, gradually, that realization is coming and the PSUs also. And more and more PSUs will realize that. And I think the market should also start realizing the worth of the PSUs and the intrinsic value of those PSUs.And all the PSUs should not be considered -- are painted with the same brush. There are PSUs who are exceedingly doing well. And they are as efficient, if not more, than any of their private counterparts, and they have got lot more skill set as compared to anybody else.
Sure, sir. And sir, any particular reason why you went for open market versus a tender offer and excluded ONGC? I mean I understand that this does create more value for public shareholders, but any other particular reason like...
No, it is very simple that we think that it is more transparent, more quicker, more simpler, more efficient. And even for the company also, it is more cost-efficient because in a tender route, there is a fixed price while here, it can be -- average price maybe lesser than the end price also for the company. As far as ONGC is concerned, they own only 51.11% of our shares. So they won't have shares to tender also even if they want to. Because otherwise, they will go below the 51%. So that's the second thing. Third thing is in -- even otherwise, ONGC do consider that they are -- they would like to be a part of the value creation of the company rather than just tender the share and get some money. Because ONGC is a big organization. This won't mean anything for them, few hundred crores is nothing as far as they are also concerned. So I think that the reason to go for a market route is because it is efficient, transparent, quicker, simpler and more cost-effective for the company. Exclusion, that is not by design, it is not by default, but actually, by design also they are aligned that, no, they would not like to participate. The second thing is there's no bandwidth to participate also because they own only 51.11% shares. And they would like to -- because when the value gets created, they are the major beneficiary of that process.
Our next question is from the line of Vidyadhar Ginde from ICICI Securities.
So my first question was on, if you could share with us what was your petrol and diesel sales volumes of HPCL in September and October?
So in September, we had a sales volume in retail itself. I'll tell you retail I think that's...
I want Y-o-Y change, sir. I wanted Y-o-Y change, not the actual volume? Just the growth rise or the fall.
Okay. Only September month you are looking at?
Both, both, both. September and October for both petrol and diesel.
So in September month, we had a growth of 2.6% Y-o-Y.
How much, sir?
2.6%.
Yes. And what about...
Positive growth of 2.6%.
Correct. Correct. And what about October?
In HSD, we had a negative growth of 4%.
And in October, what is the scene for both?
In October month, we've got a growth of 4% in petrol and 9% in -- and 9-point -- sorry, 4.7% in petrol and 11.5% in diesel.
11.5%?
Yes.
Sir, it's way ahead of the industry as well as I think even your peers...
As I mentioned to you, even if you see the average industry, even during the whole of the lockdown, April to September, we had 2% lesser degrowth compared to the industry.
Yes, but sir, this you thinking is 11.5%. Is it, sir?
And in October month, we have got a growth as compared to -- I've got the PSU and industry figures. Private companies I don't have, but among the industries, we had more than the industry growth.
Okay. The other question was on what is the cost of your crude inventory in September? And what is the volume of your crude end product inventory in September?
So as far as inventory is concerned, we normally have around 20 days inventory on products. And this keeps on varying actually, depending on the -- because we've got a West Coast and we've got East coast, and we also got a part of the crude cavern and the refinery, we have got lesser tankers than what we normally do. But normally, we'll have around 1,500 TMT of -- this is which period? As of 30th of September? Okay. I think I've got a figure I can give you. So as of 30th September, we've got around 1,100 TMT of crude in hand.
And product is 1.5. Is it sir?
Around 3,000.
Okay. 3 million ton. One other thing, just wanted to ask you is that in case of MRPL, so their performance has not been that great. And right now, you just take 17% of -- is what gets into the HPCL results. So as and when MRPL becomes a part of HPCL, what are the synergies? And are there any immediate tax benefits, in the sense being part of the one entity? Will it bring in any tax benefits, direct or indirect?
Yes.
Could you give some highlight what could -- what are the gains which may happen?
No, no. There are multiple gains, which can come in the sense that right now, if I were to transfer an intermediate stream from 1 refinery to another refinery, there is a GST on that. Now that is not recoverable because the end product is not under GST. So we cannot transfer the intermediate stream. Suppose one refinery has got a better downstream facility on 1 product and other refinery has got the better downstream facility in another progress, the overall optimization cannot be done. It is to be done refinery by refinery. Now when you are within the same company, then that doesn't become payable. That's one part of it. The second part of it is the product transfer itself. If I take from MRPL and then sell, then we have the CST, GST or something like that. So -- but when it is the same company, then the CST is not required. That's the second part. Third part of it, when you procure the crude, the crude -- both refineries are on the West Coast. Mumbai doesn't have a facility to unload a very large crude carrier. You can always bring to Mangalore port, unload a part of it and then bring to Bombay to onload the balance part of it. Apart from that, in the product logistic itself, you can do a lot more things in where all it can be put. So there are multiple advantages [indiscernible] in the segment.
On HMEL, sir?
I'm sorry, Mr. Ginde. In the interest of time, we'll have to close the session now. Maybe you can take this question offline. Ladies and gentlemen, this was the last question. I would now like to hand over the floor back to the management for closing comments.
So thank you very much for all the questions, which you have put in and all your positive disposition towards HPCL over a period of time. And I'm also grateful to all of you on behalf of HPCL management that you had been keeping such keen interest in the affairs of the company, had been analyzing the data, keeping us on tolls to ensure that we e look at the things which are possible and the opportunities which can be ceased. And I can promise on behalf of HPCL, that we'll continue to look into the possibilities of creating value for our stakeholders. A buyback announcement of a reasonable size at a reasonable price is just a demonstration and manifestation of that intent of the management. And I hope that we have answered all the questions. There was 1 question I can -- just before closing, I can say that somebody asked that how much part of the CapEx has been done in MREP and VRMP. So I just wanted to say Mumbai refinery, we have already done 80% of the financial part of the spend, and 92% of the physical progress is already over. And Vizag refinery, 70% of the physical progress is already over and 50 -- more than 50% of the financial progress is also over. So we will continue to keep engaged with you people. If you've got any further queries, you can always revert back to me or my team here. And we will be very happy to provide you the answers, which we can. There are possibilities, sometimes you would like to know the details which we may not be able to share with you in the -- in line with our governance system, which we follow. But I can assure that we'll be transparent to the extent we can be, and we'll be able to share the inputs as much as we can to help you see the company in the proper light. I again wish to -- wish all of you a very happy Diwali and the festive season as it is coming. And I hope that the shareholders will appreciate the efforts of the company to create value for them, which is backed by strong fundamentals, which is -- a part of which is reflective in the result this time. The growth plan, which is there with a very, very clear visibility now for the completions should create tremendous value for the people in the future. That's what my personal view is. With this, I wish to thank you once again, and we close this call. Thank you very much.
Thank you very much.