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HPCL net drops 53% on inventory loss

New Delhi: Hindustan Petroleum Corp Ltd (HPCL) on Wednesday reported a 53% drop in June quarter net profit mainly due to inventory losses caused by fall in oil prices and lower refinery margins.

Net profit slipped to Rs 811 crore in April-June as compared to Rs 1,719 crore a year back, the company's Chairman and Managing Director Mukesh K Surana told reporters here.

"The decrease in profit is due to sharp decline in crude prices in the month of May and June 2019 leading to inventory loses both at refinery and marketing, and also lower average cracks for all products except for LPG and fuel oil," he said.

The company recorded an inventory loss of Rs 535 crore in Q1 as compared to an inventory gain of Rs 2,332 crore a year back.

An inventory loss occurs when a company buys raw material, crude oil in case of HPCL, at a particular rate but by the time it is able to process it and turn into finished products, the prices have fallen. Since the final product prices are market linked, the company records an inventory loss.

An inventory gain happens if the reverse occurs.

Surana said there was reduced throughput at refineries due to planned shutdown, which also impacted profits.

HPCL earned USD 0.75 on turning every barrel of crude oil into fuel in Q1 of the current fiscal as compared to USD 7.15 per barrel gross refining margin (GRM) earlier, he said.

Sales increased marginally to Rs 74,530 crore in April-June as against Rs 72,923 crore turnover a year back.

During April-June, HPCL fuel sales grew 1.7% to 9.82 million tonnes. Petrol sales increased 8.4% while diesel sales rose 1.7%. "The GRM were lower because of shutdown taken at our refineries," he said. Total borrowings of HPCL reduced to Rs 20,427 crore as at June-end, from Rs 27,240 crore as of March 31.

HPCL enhanced its infrastructure capabilities during the quarter by commissioning of the capacity expansion of Ramanmandi Bahadurgarh Pipeline (RBPL) from 4.71 to 7.11 million tonnes and commencement of LPG bottling operations at the newly-built LPG plant at Karimnagar (Telangana). During April-June, a total of 31 new retail outlets were commissioned, taking the total retail outlet network to 15,471 as of June 2019. "HPCL is currently exporting lubes to 11 countries," he said. "In order to enhance the overseas footprint further, HPCL has signed a definitive agreement with the State Trade Corporation of Bhutan Ltd (STCBL) for supply of petrol and diesel in Bhutan and also for providing expertise of HPCL in the design, construction, commissioning and operation of retail outlets."During the quarter, a total of 27 new LPG distributorships were commissioned, taking the total LPG distributorships to 5,893 as of June 2019.