Indian Oil Corporation Ltd
NSE:IOC
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Indian Oil Corporation Ltd
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Good afternoon, ladies and gentlemen. I am Pavitra, moderator for the conference call. Welcome to Indian Oil Corporation Limited Q2 FY '21 Post Results Conference Call hosted by Batlivala & Karani Securities 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.
Thanks, Pavitra. Good afternoon, ladies and gentlemen. On behalf of Batlivala & Karani Securities, I welcome you to the post result conference call with the management of Indian Oil Corporation. It gives us great pleasure to once again host the management of Indian Oil Corporation for this [Audio Gap].Without much ado, I would like to hand over the proceedings to the management [Audio Gap] remarks, post which we'll open the floor for a Q&A session. Over to you, sir.
Thank you, Mr. Bhavin. We welcome you to quarterly earnings call. From management side, we have Mr. Sandeep Kumar Gupta, Director of Finance, Indian Oil; Mr. Matthew Thomas, Executive Director, Corporate Finance and Treasury. Along with them, we have Mr. Rohit Kumar Agrawala, General Manager, Corporate Finance; Mr. Prabhat Himatsingka, DGM, Treasury; and myself, Avinash, Chief Manager, Treasury.To begin with, Director of Finance will briefly touch upon the quarterly performance highlights. Thereafter, we will take the questions. Now I will request Director of Finance to address the meeting. Over to you, sir.
Dear investors and analysts, a very good afternoon to all of you. At the outset, I pray that all of you are safe and remain same, and I take this opportunity to welcome all of you to this conference call post announcement of the second quarterly results of 2020-21. I believe you would have gone through the accounts posted on the website and through the updates received by most of you. I would like to briefly dwell on the results to provide additional clarity and insights.Highlights first. First, on COVID-19 and its impact on the business operations of the company during second quarter of this fiscal. Capacity utilization of refineries was at about 90% in July. It fell to about 67% in August due to planned shutdown of Paradip Refinery and in view of modernization of petroleum product demand in August because of rainy season as well as intermittent lockdown by certain states. However, the utilization improved to 81% in the month of September. In October, on the back of a strong bounce back in demand, the refinery utilization has been ramped up to 95%.Gasoline demand has consistently grown over the months post relaxation in lockdowns. As far as year-on-year demand is concerned, gasoline demand in July was at about 89% of last year's demand. It improved to about 91% in August and registered a positive year-on-year growth for the first time in September at about 102%. It has further improved to about 104% in first 4 weeks of October. The preference for personal mobility has helped in a strong rebound in demand for gasoline.Gas oil demand has witnessed much more volatility in comparison to gasoline. After seeing a strong rebound in demand in the month of June, the demand slightly tapered off in the month of July and August.In July, the sales volume for IOC was at about 72 -- 78% of last year's sales. This further moderated to about 75% in August before bouncing back to 91% in the month of September. The demand in October has registered a positive year-on-year growth and was at about 102% of last year's sales. ATF continues to take the hardest hit with sales of only 50% in September, and then it continues on -- at similar level in October also.Indian Oil's Naphtha Cracker at Panipat and LAB plant in Gujarat continued to operate at full capacity during the second quarter. However, the PX/PTA unit at Panipat and polypropylene unit at Paradip operated at below 50% capacity in the second quarter, mainly due to lower product upliftments. However, capacity utilization of PX/PTA has been closer to 85% in October, and the capacity utilization of Paradip polypropylene unit has also been at about 65% in October.I would also like to touch upon a couple of other new products launched by Indian Oil in recent months. On 20th of October, Indian Oil launched India's first HCNG, that is hydrogen CNG plant at Delhi Transport Corporation's Rajghat depot in New Delhi. It is a pilot project and 50 DTC buses are part of 6-months trial. Once the pilot is successfully completed, HCNG is all set to be scaled up to more buses and private vehicles. HCNG is produced by blending hydrogen with CNG resulting in cleaner fuel and this process is carried out on in-situ basis. One of the main advantages of the fuel is that it can be dispensed using existing CNG dispensing setup with minimal upgrades to infrastructure. It is thus an ideal interim fuel to achieve emission reduction as part of a larger quest towards ushering in hydrogen fuel economy in the country.Indian Oil has recently introduced differentiated LPG with the brand name Xtra Tej for industrial users that gives flame temperature, which is 8% higher than conventional cooking gas, thereby cutting down cooking time and reduction in LPG consumption, thus increasing the efficiency.Now I would like to briefly touch upon the financial performance during this quarter. During the second quarter, the average price of crude, the Indian basket, was at $42.9 per barrel, an increase of 41% from the average price of the immediate preceding quarter, that is Q1 fiscal year '21. With respect to the crack spreads, gasoline cracks continue to languish at about $2.87 per barrel during this quarter. The cracks are significantly lower than the corresponding quarter of the previous year. Similarly, the HSD cracks during this quarter was at $3.17 per barrel vis-a-vis crack spread of $13.69 per barrel in the corresponding quarter of financial year '19/'20. FO continues to register negative crack spreads of $4.2 per barrel during this quarter as compared to a negative crack of $4.4 per barrel in the preceding quarter and negative crack of $1.7 per barrel in the corresponding quarter of FY '20.In the petrochemical space, spreads for polymer in this quarter was 7% less than the previous quarter and about 3% higher than the corresponding quarter of FY '20. In case of PTA, the spread during this quarter at $75 per tonne was substantially lower than the previous quarter spread of $248 per metric tonne. The spread for corresponding quarter of FY '20 was at $227 per tonne.With respect to MEG, the spread in the current quarter was about 41% less than the previous quarter. However, when comparing to the corresponding quarter of FY '20, the spread has been higher by 41%. This quarter, Indian Oil has registered a profit after tax of INR 6,227 crore. Although the refining profit continued to remain very weak during this quarter, the impact of the same has been mitigated by inventory gains to a large extent. In the current quarter, Indian Oil registered an inventory gain of INR 7,400 crore as compared to an inventory loss of INR 3,196 crore during the preceding quarter.For the half year, the profit after tax is INR 8,138 crore as against INR 4,160 crore in the first 6 months of FY '20. Revenue from operations during this quarter is INR 1,15,749 crore as against INR 88,937 crore in the preceding quarter of this year.Now let me briefly touch upon performance of major verticals during quarter 2. First, refineries. The throughput during the quarter was at 13.97 million metric tonne with a capacity utilization of 79.5%. As mentioned earlier, with strong rebound in petroleum product demand, the refineries have operated at about 95% in the month of October.During Q2, distillate yield was at 79.6% and fuel and loss was at 10.2%. Lower throughput has resulted in higher fuel and loss during this quarter.IOCL refineries have registered a GRM of $8.62 per barrel during this quarter. The normalized GRMs after stripping off inventory impacts and factoring in price lag for the quarter though is negative at $0.97 per barrel. The benchmark Singapore GRMs during Q2 remained weak and was at about $0.05 per barrel only. Lower throughput and consequently higher fuel and loss contributed to underperformance of refining margins during this quarter.On the pipeline, the capacity utilization of our pipelines was about 73.38% during this quarter as compared to 63.53% in Q1 of FY 2021. With the increase in refining throughput and bounce back in petroleum product demand, the capacity utilization of pipelines is expected to improve in the coming quarters. Pipelines continued to generate stable returns, giving an EBITDA of about INR 1,292 crore during this quarter. The petroleum product sales during this quarter was 17.22 million metric tonnes as compared to 15.48 million metric tonnes in the preceding quarter. Resumption of economic activities post uplifting of lockdowns has resulted in growth of major products like MS, HSD. Demand for ATF, however, continues to remain low.Marketing EBITDA for this quarter stood at about INR 3,606 crore as against INR 7,701 crore of the previous quarter. EBITDA for 6 months of financial year '21 is INR 11,306 crore as against the EBITDA of INR 8,378 crore in 6 months of FY '20.In petrochemicals, during the quarter, the petrochemical business reported an EBITDA of INR 1,211 crore as against INR 728 crore in the preceding quarter. While comparing with the current 6 months performance with that of corresponding period of last year, there has been an increase of about 33% in petrochemical EBITDA.On the borrowings, the borrowing as on 30th of September '20 was at INR 91,505 crore as against INR 98,605 crore as on 30th of June '20 and INR 1,16,545 crore as on 31st March '20. The borrowing includes lease obligation of INR 7,868 crore as on 30th of September '20.I will end my briefing here, and we'll now take your questions. Thank you very much.
[Operator Instructions] We have first question from Vivekanand from AMBIT Capital.
I have 2 questions. One is the CapEx guidance of INR 26,000 crores that we had for FY '21, where are we on this? And is there any change in guidance or progress that you would like to highlight? Second question is on the major investments over the next year or so that we are making in gas product and LPG pipeline. Given the major investments made in this -- these segments, how should analysts and investors appraise you on these projects? Should we look at any specific cost metrics or any project IRR? Any thoughts there?
Yes. The current year CapEx for IOC stand-alone was about INR 21,000 crore plus for the current year with another about INR 4,800-odd crores for JV and subsidiaries. making it a total of INR 26,000 plus crores. And we are poised to achieve this target definitely. In fact, there is a pressure from Government of India to increase the CapEx for obvious reasons to support the country's economic growth.And in that process, while we are making all attempts, and if that support comes from Government of India to expedite some of these statutory clearances or maybe to avoid some of the clearances, that will only help us to complete our projects faster than that was envisaged and will result in basically better economic returns on our projects. So we are not at all concerned with doing more CapEx or maybe expediting our CapEx plans.As far as the future CapEx is considered, as I have mentioned in our previous discussions also, the -- we have got a system of a hurdle rate based on weighted average cost of capital, which currently is 11%, and no project is approved unless we meet this hurdle rate from that investment. So whatever projects we are approving are definitely giving us -- are projected to give this kind of return. And hence, all are fairly appraised.
Right. And just a follow-up. The government pushing for more CapEx, does this mean that you take on new projects or advance the projects that you have already indicated, advance the time lines?
Their call is for increasing the CapEx. Now how we do it is upon us. So while some -- on some of the projects, we are advancing our time lines. As I mentioned, if there are certain relaxations in the statutory clearances, that definitely helps us. Further, we have also expedited -- whatever was on the drawing board, we are expediting those plans also. And as I mentioned, we are not approving any project unless there are viable returns from that project and that returns cross the hurdle rate, which is mandated by the company.So this entire process has only perhaps hastened putting up the project proposals in addition to expediting the current proposals which are going on. So we are not at all apprehensive about it because the faster we conceive a project, the better it is for the company.
We have next question from Vidyadhar Ginde from ICICI Securities.
My questions, one is relating to the -- if you can give us the cost and the volume of crude inventory in September and some guidance on likely utilization of refineries in the rest of the year and on petchem units?
Yes. The crude was valued at $43.76 per barrel at the end of 30th of September 2020. And your second question was regarding the refining capacity. So as I mentioned in my opening remarks also, October, we have touched 95% already and we are trying to ramp up the capacity slowly. And we hope that with the festive season of Diwali coming forward and the holiday season also coming forward, there will be robust demand of gasoline definitely and also of other products. And we are sure to shortly touch the 100% level for refinery capacity.
So your experience on ramping up, in a sense, the ramp-up in throughput was quite absorbed by the market is what you are suggesting, I guess, in October? And the volume numbers...
Definitely. It was on the strength of the demand in the market that we could ramp up the refinery production. Otherwise, we do not have a place to store the product. So it was only on the basis of the robust demand in the petroleum products that we could ramp up the refinery production.
If you could also give the -- I had also asked for the volume of crude and product inventory. If you could give that number for September?
We generally maintain about, say, 15 million to 17 million metric tonnes of crude and product inventory put together at any given point in time.
And you've said in the past, crude is 8 million tonnes, is that fine?
Yes, crude is about 9 million tonne, and the product is about 8 million tonne now, okay?
Okay. And lastly, on utilization in petchem guidance?
Petchem utilization also I mentioned in my opening remarks. Yes, in October, PX/PTA is now closer to 85% level. And on the polypropylene of Paradip is also at about 65% level. And Naphtha Cracker at Panipat and LAB at Gujarat, in any case, were operating at the capacity earlier also.
PTA, is it likely to ramp up further or stay where it is?
Definitely, because our Panipat Naphtha Cracker can -- has done in the past capacity utilization of -- in excess of 120% also. So in line with the demand, we will definitely ramp up the capacity utilization.
We have next question from Pinakin Parekh from JPMorgan.
Sir, 2 questions. My first is, you made some interesting comments on [Audio Gap] on CNG and how it is being used in various -- on a trial basis. But can you give us some color on, A, are this -- at this point of time, is it being dispensed off in -- on your own retail outlets, which also have CGD outlet or is it separate? And second, going forward, if this were to scale up, would this be entirely kept within IOCL's own retail outlets or will be shared with the CGD companies?
On HCNG, I had mentioned that we have put up a demo plant, which is operated -- which has started operated, and this demo plant is only at Rajghat depot in Delhi as of now. And 50 buses have been given by DTC who will be fueled by this HCNG and will be on trial for 6 months period. And based on the experience, this particular activity will be ramped up on a pan-India basis subsequently.Now this technology of -- in situ, that is at the same place, putting up a reforming unit for spiking hydrogen in CNG is a proprietary technology of Indian Oil R&D Centre and then based on perhaps any commercial arrangement only, it can be given to other companies.
Understood. Understood. And sir, in terms of scalability, it's right now a 6-month period and then we'll see how it scales up. But from your initial understanding, sir, where do you think this can go over the next 2 to 3 years?
I think we will wait for 1 or 2 quarters. Maybe in the subsequent con call for Q3, I will be in a position to give you a better picture.
We have next question from Amit Rustagi from UBS.
Sir, now we have seen that a lot of PSUs are rewarding their shareholders in the form of buyback. So if there is a way of thinking at our level also to change the way we were rewarding shareholders in the past and try to help boost the market capitalization?
No, while we expected in the last buyback also that it will improve our share price and will result in rewarding to the shareholders, however, it did not happen so. So we do not think anymore that this is an effective way of, say, rewarding shareholders, more so at the current price. So as such, the company does not have any plan.Moreover, the Government of India also has holding left only at 51.5% level now. And I do not know whether they have any plans for, say, asking us to do any buyback at this point in time and whether that will be of any use or not. So as of now, no plans of any buyback.
Okay. And sir, we have around INR 91,000 crore of debt at our company on -- as on 30th September. So could you explain that what are the components of this debt long-term, short-term lease liability? And till what extent we can go in raising the debt given we are already now stretching on the net debt-to-equity ratios given -- versus the past ratios?
In fact, you should appreciate that there has been a lot of easing on in this front, actually. We touched a peak of INR 1,26,000 crore in April, higher from INR 1,16,545 crore on 31st of March '20. And now we are at INR 91,500 crore debt level. So there is a lot of ease on that front. And now with increase in sales and expected improvement in the crack spreads of the product with the rising demand, the situation of generation of internal resources should get strengthened actually. And that will put -- that will ease therefore, our borrowing position further.So we are not at all apprehensive about it. Yes, our CapEx plan may have some impact on our borrowing. But down from 1.24:1 debt equity as on 31st of March '20, we are at 0.89:1. So definitely, we do not feel any pressure on the borrowing side as of now. Plus, you must also appreciate that this amount of INR 91,505 crore also includes about INR 8,700 crore worth of lease obligations, which is not borrowing per se. So -- which is included in this 0.89:1 debt equity ratio. So we are not uncomfortable about this borrowing position.
Okay. And sir, how much -- what is our CapEx plan for this year and next year, remaining year and the next year?
As I mentioned earlier, the current year plan was INR 21,000 crore stand-alone, about INR 5,000 crore group companies, total INR 26,000 crore. We intend to better this figure. In fact, we'll spend more. And again, for next year, also, our CapEx plan will be in this range only, but not less than that, definitely.And that is very important for our growth of top line also. So -- and as I mentioned earlier, we are approving projects only based on strong viability. And so we are not wary of doing any CapEx approvals.
[Operator Instructions] We have next question from Probal Sen from Centrum Broking.
You mentioned that the core margin actually going to negative territory and inventory gains, of course, being more than almost $9. Now obviously, there is an element of inventory plus a price lag. Is it possible to separate the 2, sir, for this quarter? How much has been due to the typical 15-day lag in marketing pricing? And how much is just a crude inventory movement?
No, I don't have those figures right now with me. But on a cumulative basis, you should also see if we had inventory gains this quarter, we had inventory losses in the previous quarter also. So on a 6-monthly basis, if you see, the inventory gain or loss on a net basis inventory gain constitutes about 38% of my PBT only. The rest all is coming from the business.
38% of PBT is broadly from inventory, right?
For 6-months period, yes.
For 6 months, yes. And -- okay. And sir, the second question was, you mentioned, I think, I'm sorry if I missed it, but you mentioned about the volume that you're holding in terms of inventory. Can you just repeat that number and tell us how many days of product and crude we are holding right now in the system?
I gave you a number of 9 million tonne for crude and 8.4 million for products. And I'm not converting to number of days because it doesn't lead to sales at all.
Yes, yes. That's fine, sir. And obviously, in terms of marketing EBITDA, there has actually been a -- if I look at just a gross margin or an EBITDA also, there has been a little bit of a decline. Can you just throw some color in terms of what has actually driven that dip on a Q-o-Q basis?
While marketing -- how much margin we keep in marketing is something which is privy to us, and I will not like to divulge further details, what I can say is that we treat marketing margin as complementary to our refining margins. And in the periods when the refining margins, core refining margins are low, we can definitely make up through marketing margins.
This quarter, because with inventory gain, we have made better refining, we have actually given -- passed on that or have sort of moderated our pricing for marketing. Is that a fair way to look at it?
I'm sorry, I will not be able to tell more on marketing margin side. Yes.
We have next question from Sabri Hazarika from Emkay Global.
I have -- the first question I wanted to know is what are the refinery expansion plans -- expansions currently going on and which are like finalized as of now?
Yes. The first is our Bongaigaon Refinery, where we are putting up an INDMAX unit and with commissioning of that very shortly, the capacity of Bongaigaon Refinery will go up from 2.35 million metric tonnes to 2.7 million metric tonnes. That is happening perhaps within a month's time itself. The second is the Barauni Refinery expansion from 6 million tonne to 9 million tonne, which we approved some time back and the work on that is progressing, but that may take about 3 to 4 years time to mature. It is also coming up with some chemical projects along with.Then recently, the Board approved the Gujarat Refinery expansion along with the lube and petrochemical integration. This will increase the capacity of Gujarat Refinery from 13.7 million metric tonnes to 18 million metric tonnes. These are broadly the refinery expansion projects which are going on currently.
Nothing on Panipat Refinery 10 million tonne expansion, that has not been finalized, right?
Not at this state. The preliminary work, Stage 1 approval was granted some time back. The work on the detailed feasibility report is going on, but yet to come to Board.
Okay. And second, I have a few bookkeeping questions. So what was the H1 CapEx for the company?
It was INR 7,500 crores.
Okay. And subsidy outstanding from government?
In respect of claims launched up to 30th of September, the subsidiary as on date is are at -- is at -- I think you are talking about subsidy? Okay. Are you talking about GoI outstanding?
Yes, GoI outstanding.
So in respect of claims launched up to 30th of September, the outstanding amount is INR 7,285 crores as on now. As on 30th of September, it was INR 9,163 crore, but further claims have been realized, and it is now INR 7,285 crores.
Okay. And that free cylinder subsidy has been totally reimbursed? And currently, it is not going on? Or is it going on right now, this free cylinder?
No, it was not a subsidy actually. The free cylinder advance was given, and the amount was to be claimed back from Government of India based on the refills taken by the consumers. That period has now been extended up to 31st of December. And as and when the referrals are taken, we will be lodging the balance claims also with Government of India.
Okay. And there is no delay in that recovery. Okay. And lastly...
Sorry to interrupt, sir. Could you please join back the queue for further questions?Thank you, sir. We have next question from Sumeet Rohra from Smartsun Capital.
Sir, just 1 question. I mean, I have 2 questions, sir. One is basically on your fuel retailing outlets. So how many do we have in total? How many have we added in the first half of this financial year? And how many do you plan to add in the residual part of this financial year? Sir, secondly, my question is, sir, now the question is more to you as an investor rather than an analyst. Sir, today, it's actually a joke. Market cap of Indian Oil is at $10 billion, okay? I mean, it's absolutely unbelievable on what is going on.So on your point, which you made about buyback proposals, sir, my only point is that -- it's a very humble request that if you want to increase valuation, then obviously, the promoter of the company should never participate in a buyback. I mean, the matter of fact is that we have 51.5% government, government does not buy back our shares. I mean, they don't tender when you buy back, your stake goes up to 60%, the share price can go by 3x, and ultimately, this is India's wealth. So my only point is that why is thing -- it's not being focused on value creation because ultimately, we are the largest refining company in the country.And how can the largest refining company in the country have a valuation of only $10 billion. It's actually not possible, sir. So I really feel that you should set up a committee and this should be looked into. It's my very humble request because ultimately, it's going to benefit all stakeholders, whether it is majority, minority or whoever it is, right, and Government of India should never participate in any buyback. Why should they participate in a buyback? So my only request is please have a look into this, sir?
Yes, okay. So first on the RO question, we have a target of about 2,400 ROs setting up in this year and till September, we have commissioned 994 ROs, and we are sure to achieve the targeted number of 2,400 ROs in this year. Second on buyback...
And sir, totally, how many do we have, totally? How many do we have today?
We have now about 30,000 ROs.
We have about -- and sir, how many do you plan to add in the next couple of years?
This is generally the plan. We will be adding about 2,000 to 2,500 ROs every year.
We have next question from Aditya Suresh from Macquarie Securities.
First is, to the previous question Sumeet asked, if we can get a response. And sir -- because I think that's a very pertinent question. Just on the buyback, again, just from a mathematical standpoint, if your stock is at 5x fee, that's almost like a 20% earnings yield, right? And this return is likely to be far greater than any other CapEx that you're planning to do on refining or gas or any of that? And the backdrop is 1 of exceptionally cheap cost of funds. So it seems mathematically compelling to do the buyback. So if we can give your thoughts on that in terms of what would it take for you to do the buyback? And I guess I have a follow-up to that. But if you can first answer that question, sir.
Okay. We will look into this issue of doing a buyback also. Though you are aware that we being a government company with more than 50% holding by Government of India, any such decision will be based on government's mandate also. So -- but we will look into this.
And I guess, as a secondary question, this is, if we were to be -- if I was a minority shareholder over the past, say, couple of years, your share price has fallen by about 60% to 70%, right? So to the point about generating returns for minority shareholders, what are the steps which IOCL management is taking to sort of help minority shareholders?
Look, as far as physicals are concerned, physicals only are in our hand. And as far as physicals are concerned, you can see the performance of company has been extremely good and continues to be good. Now the prices -- the international prices are not in our hands, and so is the case with the perception, which you create, you investors create, you analysts create, that is also not in our hand. So we are trying to do whatever is in our hands to the best of our capability.
We have next question from Nafeesa Gupta from Bank of America.
Sir, firstly, on CapEx, could you provide a breakdown of the petchem CapEx for this year and maybe the next 3, 4 years? And also in the new technologies like hydrogen fuel cell and the battery swapping, how much are we looking at in terms of CapEx?
Yes, just a minute.
Hi, Nafeesa, this is Avinash. So basically, in the current year, as Director of Finance earlier said, on a stand-alone, we are looking to spend something like INR 21,000 crore. So in that, a little more than INR 4,000 crore will go into refineries, which will consist of some balance payment of BS-VI and the 2G ethanol plant and some of the brownfield expansions, which have been approved.Then in pipeline vertical, we will be spending more than INR 4,500 crores. So it will be going on -- we are laying a natural gas pipeline in Southern part of India and also Paradip-Hyderabad product pipeline and also LPG pipeline on the Eastern part of India.On the marketing side, we would be spending a little more than INR 5,500 crore. About INR 1,500 crore will be going into cylinders and regulators. Then about INR 1,500 crore to INR 2,000 crore will be going into retail outlets and the other amount will be going into revamp of storage points and LPG bottling facilities.Then another major vertical is petchem where we will be spending more than INR 2,000 crore. So currently, the MEG plant is being set up at Paradip Refinery and revamp of PX/PTA and small time expansion of petchem capacity at Panipat is going on in full swing. And like we would be spending about close to INR 5,000 crore to -- in our joint venture and other projects. So this would be the broadly breakup for the current year.
Right. And for the newer technologies, like the renewables and the hydrogen cell and EVs?
So like on gas, we would be spending like more than INR 1,000 crore and in other like it would be a little less than INR 500 crore.
Those are smaller activities, they do not entail so much of CapEx. And the hydrogen things, et cetera, are in the nascent stage only. They are at R&D level only. So they will not call for immediate any sizable CapEx as of now.
Right. Sir, my second question is that...
Please go ahead, ma'am.
Yes. Sir, the second question is that in the times of such fluctuations in crude prices, are we still -- do we kind of change our inventory holding period, which is about 40 days, do we reduce it in terms of such -- when there is such volatility?
No, in our case, in the case of Indian Oil Corporation Limited, this level of inventory is based on the refinery locations. And because certain quantity is already locked up in the cross-country pipelines for crude, which transport the crude from the port locations to the refinery locations. So we do not keep any swing inventory to take the benefit of the price levels. So this is sort of -- about 8 million to 9 million tonnes is sort of the optimum inventory for us.
Okay, sir. And sir, if I may, the ethanol prices were increased by the government some time ago. What kind of impact does that have on your marketing margins, if it does?
No, nothing, because it does have any impact. This is a neutral for us. If the cost of ethanol is more, we claim from government. If it is less, we surrender in the pricing.
We have next question from Harshad Borawake from Mirae Asset.
Two questions from my side. So first is on the CGD business. So once, let's say, open access comes in, so as a company, are we open to do CGD business on our own or continue to do in a JV format? I'll have the second question after this.
Yes. We have both the models operating for us. While for certain geographical areas, we have won on our own, for others, we have done it through our JVs, 2 JVs, where we are JV partners. And going forward, also, we may operate both the models depending upon the situation.
So theoretically, in case if Delhi and Mumbai opens up for third party, you would be open to dispense CNG on your own through your own stations. Is that correct understanding?
So let's -- first of all, let it be opened up.
Okay. Sure. And secondly, on this discussion on buyback. So I was just wondering in terms of our CapEx, I think this year, we are planning some INR 25,000 crores, INR 26,000 crores CapEx. So in terms of capital allocation, so what's the hurdle rate on the CapEx side? And how does it compare with, let's say, the returns if we buy our own share? So are we planning to do or already have we done this kind of study?
We -- as I mentioned initially, also, we do not have any immediate plans of buyback and hence, any such kind of studies, we do not have -- this. But then, as I mentioned, since there are a lot of proposals for buyback, we will definitely look into it.
We have next question from S. Ramesh from Nirmal Bang Securities.
In your [Technical Difficulty] you explained how you increased your petchem EBITDA [Technical Difficulty] driven by improvement in pricing?
Mr. Ramesh, sorry to interrupt. Your voice is not clear. If you can just repeat the question.
Yes. I just wanted to understand the key drivers for the increase in the petrochemicals EBITDA from INR 720 crores to INR 1,211 crores on a Y-o-Y basis. Any particular product? Was it driven by volume or pricing?
It was mainly driven by volumes because in the previous year, our PX/PTA did not operate for a considerable period during the first half.
Okay. And the second part is in terms of the trend in the current half year, do you have a sense that your petrochemical business will do better than the refining business given that there is some traction in terms of demand growth in petrochemicals and [Technical Difficulty]?
Your voice is not very clear, a lot of disturbances from your end.
Sorry. I was just asking, based on the performance of the petrochemical segment so far, is there a sense that your petrochemical segment perhaps may do better than your refining and marketing segment in, let's say, second half? And how do you see the outlook going forward?
Petrochemical sector doing better than refining?
'Yes.
Now, I do not know whether you are on absolute or you are on percentage terms, I'm not very sure.
I'm just trying to get a sense in terms of your reading of the market because there's a significant improvement in petrochemical business and your...
My expectation is that it has been very long that the refinery crack spreads are languishing and it is not sustainable for any refinery world over. So with some ease in the COVID situation as and when that happens, after the second wave, which has gripped Europe and U.S., I think the refinery crack margin should improve quickly. And I believe, definitely, the returns from refining and marketing would also be robust.
Our next question is from Manikantha Garre from Axis Capital.
Just wanted to check with you on this HCNG technology, I wanted to understand what kind of efficiencies that it can bring versus CNG? That's the first one. And are we also, say, going towards or thinking towards producing hydrogen end of the day from this technology? Is that possible? Or that is completely unrelated? That's my first question.
Pardon. The last part, I could not get. Which technology?
With this HCNG technology that you have brought out...
No, HCNG I got. What was your second part?
Are we moving towards the H2 production directly, hydrogen production directly? Are we also working on this part?
Yes, yes. So this HCNG, as I mentioned, as compared to CNG, this is expected to achieve over 8%, about 8% economy. But then as I said that we are on a trial basis, 50 DTC buses will be running on 6 -- for 6 months. And then based on the results, this will be -- further course of action will be decided.On hydrogen production level, yes, our refined -- the R&D Centre at Faridabad is working on lot of technologies through which hydrogen can be produced. There are at least 3, 4 technologies, which I am aware of, which -- on which they are working. So we have definitely good plans for hydrogen production also.
So any commercial time lines we're walking with here for the hydrogen production?
No, they are at presently research stage.
Okay. And just 1 question with respect to the RO addition, sir. So as of now, we have 30,000 retail outlets, and you said that you'll be adding 2,000 to 2,500 ROs every year. That's like 6% to 7% addition every year. I see that our peers are adding at much faster rate. And in the context of continuous reduction in market share in MS and HSD, just wanted to understand, is that enough, that RO addition is enough with the scale that we currently have?
Yes, we are aware that we were left out actually in this race of setting up RO for some time now. And now we have ramped up our RO setting up and a lot of LOIs, new LOIs are now available with us on the strength of which I'm saying that we will be able to complete this RO setting up target of about 2,400 for this year. And going forward also, we will be setting up more and more ROs, and we will ensure that we are not left behind.
I can squeeze in 1 question, sir. Where are these being targeted, which parts of India predominantly?
No, no specific. This is a commodity which is consumed everywhere, on a pan-India basis. So these ROs will come in every nook and corner of the country. And definitely, we are looking for good sites to have these ROs.
We have next question from Rohit Ahuja from BOB Capital Markets.
Sir, I just wanted a view on the petroleum product consumption growth. Now that we've seen a decline in the first half of the year, do you see a need to expand your refining capacity over the next 3 to 5 years, considering that we are unlikely to grow our consumption beyond 3% to 5% at the industry level?
Yes. We have with us a lot of estimates from the consultants who project the demand for petroleum products by, say, '24-'25 or '29-'30. On the top of it, we have a full fledged corporate economic -- Corporate Planning & Economic Studies cell within IOCL who also does an independent study and forecast the petroleum product consumption in the country.And in fact, our independent study has also corroborated the views of the consultants for consumption of petroleum products in the short term and the long term, which support setting up of new refining capacity in the country. And we are proceeding accordingly for creation of new capacity. So whatever projects we have approved till date definitely find support by the demand numbers. And going forward also, whatever projects are on the drawing board, we will be very cautious that if there is a demand, then only those projects are set up.There is a lot of negativity around fossil fuels, and it is said that the consumption of fossil fuel is going to be stunted or maybe it has peaked, which is not. The recent BP report also says that for India, India is different than the other parts of the world. In India, the petroleum product consumption will peak around 2050 only. So we do not have any apprehension that the petroleum product consumption in the country is growing -- is going to grow very handsomely. And our refinery plans are in line with that assumption only.
Do you see a risk there because we are net exporters of refining products. We have excess refining capacity than what we consume. And if the export markets shrink, which is expected over the next 5 years or after 2025, do you still see a reason for domestic capacity to expand?
I am saying that we are not putting up refineries for exports. We are putting up refinery for domestic consumption. And as of now, the estimates, whether they are external estimates or our internal estimates, all of those estimates support setting up of newer capacities.
And do you see still a reason for the JV refinery that was planned, the mega refinery along Saudi Aramco being an investor in that in Maharashtra. Do you still see the case for that to come up?
No, the case or not will be seen later on. First of all, the land issue is required to be resolved, which is still hanging on. So let that problem be first overcome. And then we will see the interest of the Saudi Aramco and ADNOC. And we will also have to see the scenario with BPCL privatization and then only any call can be taken on this west coast refinery.
So lastly, we had seen a lot of queries on the buyback and concerns on the share price underperformance. Also 1 reasons being quoted is how -- what is probably your cash utilization? Are you looking at any inorganic move towards any other PSUs within this sector or in ancillary sectors that -- or you'll be asked to acquire any of them? Can you give any light on that?
No mandate. So no plans as of now. However, we'll be very happy if any such leads can come to us and if it makes business sense.
Last question for the day comes from Sumeet Arora (sic) [ Rohra ] from Smartsun Capital, which is a follow-up question.
Sir, just, I mean, on my reason for buyback, I just would like to highlight this to you. This transaction has happened in Asia as we speak today, okay, wherein Royal Shell, okay, has bought 51% of its local partner out for a valuation of $1 billion, okay, for gas station, which is basically [ 13, 14p ]. So sir, my only humble request is because I clearly see value creation in a huge way for Indian Oil Corporation, and I really believe in this company and its institution. Hence, sir, I would tell you that if Royal Shell is buying its joint venture partner [ 14p ], we surely, sir, at [ 4, 5p ] and a 21% earnings yield, sir, we should definitely consider buyback because I clearly believe in you all, and I clearly believe this company is not worth under $40 billion, sir.So it's my humble request to you, as an investor, please consider this option, sir, because this company is a true jewel of India. It is not worth $10 billion. Please look into this, sir. You can see the deal today which has happened in Asia, and that's all I would say that, sir. It's all over to you, sir. Thank you very much, and all the best for our glorious future, sir.
Thank you, Mr. Sumeet. Thank you for having confidence in Indian Oil and its worth. We also have the same belief. I do not know how the markets are perceiving differently towards IOCL. We also believe that perhaps this share price is not a true reflection of IOCL's potential and its performance. I believe that as -- your role, you will definitely provide a better perception for Indian Oil Corporation.
No, no, sir, because the only reason is because I clearly see it. I clearly see -- global valuations I clearly see. And why should only Indian companies not get valued. I mean, we have the best of funds in India today, but they don't invest in public sector because of the reasons of minority shareholders are right. So please look into this because there is huge value, there's huge opportunity and there's huge worth for this company, sir. A very small measure on your end will rerate the entire public sector in India today, sir. That is my only opinion, and my humble request to you, sir. That's all.
Thank you very much.
That will be the last question for the day. Now I hand over the floor to Mr. Bhavin Gandhi for closing comments. Over to you, sir.
Thanks, Pavitra. I would like to take this opportunity to thank the management for giving opportunity to host them for the post result call. And thank you to all the investors for their [Audio Gap]. Thank you so much.
Thank you for joining.
Thank you, sir. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha's conference call service. You may disconnect your lines now. Thank you, and have a pleasant evening.