HPCL Q2 profit slumps 98% on fall in refining margin, inventory loss

New Delhi: State-owned Hindustan Petroleum Corporation Ltd (HPCL) on Friday reported a massive 97.8 per cent plunge in its September quarter net profit as refinery margins fell and decline in international rates led to inventory losses.

Consolidated net profit of Rs 142.67 crore in July-September -- the second quarter of the current 2024-25 fiscal year -- compared to a profit of Rs 5,826.96 crore a year ago, according to a stock exchange filing and company statement.

Net profit also declined when compared to an earning of Rs 633.94 crore in the April-June period.

"The primary reasons for lower net profit are suppressed marketing margins on select petroleum products, reduced refining margins due to lower cracks and falling International crude & Product prices," said Rajneesh Narang, Director (Finance) and Acting Chairman and Managing Director, HPCL, on an investor call.

HPCL, which control roughly a quarter of Indian fuel market, earned USD 3.12 on turning every barrel of crude oil into fuel in the second quarter as compared to a gross refining margin of USD 13.33 a barrel a year back.

Besides lower refining margin, the firm recorded Rs 2,057 crore of under-recovery on selling domestic cooking gas LPG at government controlled rates that were lower than cost.

Also, the firm booked an inventory loss of Rs 1,400 crore as international oil prices fell by about USD 5 per barrel during the quarter, he said.

This compared to an inventory gain of Rs 900 crore on refining business in July-September 2023.

Fuel that companies like HPCL sell are benchmarked to prevailing international oil prices. They import raw material (crude oil) from overseas but by the time it is processed into fuels like petrol and diesel, international oil prices had fallen, leading to inventory losses. Inventory gains are recorded if the reverse happens.

"The reduction in GRMs is in line with the trend of international benchmark product cracks," he said.

Pre-tax earnings from downstream fuel retailing businesses slumped to Rs 1,285.96 crore from Rs 6,984.60 crore in July-September 2023.

The company and other state-owned fuel retailers -- Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Ltd (BPCL) -- had last year made extraordinary gains from holding petrol and diesel prices despite a drop in cost.

The price freeze was justified in the name of recovering losses HPCL and the other two retailers had suffered in the previous year when they did not raise retail prices despite a surge in cost.

The gains arising from the price freeze were eroded with petrol and diesel prices being cut by Rs 2 per litre each just before general elections were announced. This together with a drop in product cracks or margins on relatively stable crude oil prices led to a fall in profits.

Cracks -- the difference between raw material crude oil and final product price -- have shrunk from highs of 2022-23.

HPCL refineries turned 8.2 per cent more crude oil at 12.06 million tonnes into fuel in the quarter.

"Widening the company's crude basket, HPCL procured two new grades of crude (Jubilee and Pazflor) for the first time," he said.

HPCL recorded quarterly sales volume of 11.62 million tonne (including exports) during the September quarter, registering a growth of 8.2 per cent, as against 10.74 million tonne during 2QFY24.

The company also achieved market share gain of 0.78 per cent amongst PSU oil marketing companies during the period, the statement said.

During 2QFY25, sales of motor fuels grew 4.5 per cent at 6.8 million tonnes and in the case of LPG, the company achieved a sales volume growth of 5.9 per cent at 2.25 million tonnes.

The aviation business of the company recorded a robust growth of 19.6 per cent, over 2QFY24, with sales volume of 250,000 tonnes during 2QFY25.