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State-owned Bharat Petroleum Corporation (BPCL) has said that the robust gross refining margin of $8 a barrel reported in the fourth quarter of 2014-15 is not sustainable. At $8 a barrel, BPCL's margin was comparable to that of its private sector peers, but the company expects it to decline to $4-6 per barrel in the current fiscal.
Gross refining margin or GRM is the difference between total value of petroleum products and price of crude oil, and is the key profit indicator for crude oil refiners. While private refiners such as Reliance Industries and Essar Oil have upgraded their refineries and enjoy high GRMs, the public sector refiners continue to report modest GRMs.
"The fourth quarter GRM had been exceptionally good due to several reasons and these levels are not sustainable. Our GRM will be in the range of $4-6 a barrel going ahead," P Balasubramanian, director-finance, told ET.
Balasubramanian said that the company's margin in the quarter ended March was supported by higher volumes and better product spreads.
Brokerage Nomura said in a report on BPCL last week, "While refining margins were strong (reported GRM of $7.9/barrel vs our estimate of $6.4/barrel), the bigger gains were likely made on the marketing side of business. Excluding inventory loss, we estimate that BPCL's gross marketing margins moved up from $13/barrel in 3Q to nearly $18/barrel in 4Q."
Balasubramanian said: "Experts are predicting that crude will trade between $60-80 a barrel, we feel it would be range bound in FY16 at $60-64. At these levels, the margins look good."
BPCL has plans to invest over Rs.30,000 crore over the next four years, of which around Rs.10,000 crore will be spent in the current fiscal. The capex for the current year will be primarily on the expansion of its Kochi refinery to 15.5 mtpa from the current 9.5 mtpa at a cost of about Rs.16,500 crore.
"We have already tied up substantial part of our funds for the Kochi expansion and the project is moving as scheduled," said Balasubramanian. BPCL has already tied up a loan of Rs.4,000 crore with State Bank of India for the expansion of its Kochi refinery.
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