Lalit Kumar Gupta, CEO, Essar Oil , said the Iraq crisis is unlikely to have negative impact immediately as there is enough oil supply in the markets. "Saudi Arabia has enough capacity to balance, besides there's not much of tension in the south of Iraq where most crude oil assets are located," he said. The Brent Crude is trading close to USD 113 amid the escalated tension between Iraqi forces and Islamic militants ISIS, which took control of another town on Monday. Also Iraq's biggest oil refinery, Baiji, has been shut down and its foreign staff has been evacuated.
However, Gupta said Essar Oil has enough refining capacity to avoid the crisis for now. He doesn't see any impact on refining margins due to rise in crude oil price.
The company's gross refining margins improved to USD 10.12 a barrel as against USD 9.06 a barrel year-on-year in the fourth quarter of FY14 . The company has posted a five-fold growth in net profit at Rs 1,008 crore in Q4FY14 as against Rs 200 crore Y-o-Y.
The fourth quarter went well as the year-end demand was good, said Gupta, adding that he expects margins to improve in the coming quarters.
Essar Oil's current rupee debt is over Rs 21,000 crore. Gupta said the company will use revenues to reduce debt, however, he said that they are not considering equity-led fundraising.
Below is the transcript of Lalit Kumar's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: Any plans for delisting any of the Essar Group stocks?
A: Let me reconfirm or reiterate that we have not received any communication from our promoters about delisting.
Latha: News reports also suggested that the Essar Group's subsidiary - Essar Energy is planning to sell the Stanlow refinery in Britain. If that does happen, is there any impact on Essar Oil?
A: I am the MD and CEO of Essar Oil and I have already told you on the delisting. I will not be able to comment on Essar Oil UK sale.
Sonia: Can you tell us about the business - the quarter gone by saw your gross refining margins go up a little more than USD 10 per bbl. What do you expect to see in the first half of FY15?
A: The Q4 of last year was a quarter where everything went right and the margins were good, the scenarios were good and the year end demands are always good. The margins generally are healthy but definitely there is correction in diesel corrects, they fall by USD 3-4 and going forward we expect reasonably good margin scenario, of course we do not give any guidance for the results.
Sonia: Is there any impact on account of what is happening in Iraq as far as the turmoil is concerned. I understand the company was amongst many that were shortlisted to bid for USD 4.4 billion Nassiriya oil fields. Can you give us the status check on that?
A: As far as Iraqi tensions are concerned, presently there is enough supply of oil in the market and Saudi Arabia has enough capacity to balance and presently in the south where the maximum crude oil assets of Iraq are concerned, there is not much of tension. As of now this tension is located mostly in north and we are not expecting immediately any problem but if the militants are able to capture somewhere south then there can be some issue otherwise crude oil supply in the market is enough and as far as India is concerned we have enough refining capacity which acts as the reserves for the country in terms of crises, so we should have no problems of products.
Latha: The standout performance in the fourth quarter were your GRMs, your gross refining margins went up from USD 6.8 to USD 9.4. Will that continue, what are your likely GRMs for the current quarter in the light of the crude prices rising, will there be an impact, crunching of margins?
A: A correction here – our Q4 GRMs were USD 10.2 approximately and as far as the current quarter and all is concerned, the rising crude oil prices virtually have no impact on the refining margins because refining margins are more dependent upon the cracks between the prices of products and crude oil and as I mentioned diesel cracks have fallen by about USD 3-4, so that will moderate the GRMs in the coming time.
Sonia: This time your lower finance cost is what really boosted your profitability, so Rs 700 crore is the interest cost that you bored, much less than Rs 900 crore last time. Can you give us an expectation in terms of how much your debt will go down by in this year and how much lower could your interest cost go down to?
A: In fact last quarter interest was less because we have virtually dollarised about a billion dollar of our rupee debts and that has started getting reflected in our interest cost. We are on a course to dollarise our rupee debt. We are in the process and as and when we are able to dollarise, it will further reduce the interest cost.
Sonia: Could you give us some numbers – how much is the rupee debt currently and how much could you further reduce it?
A: Our rupee debt currently- if you include all sales tax etc, is something about Rs 21,000 crore. We have no major capex going forward, we have always said this and therefore going forward whatever generations are there, there will be most to liquidate the debt only and once we dollarise, we will also have a maturity, so our plan is not to increase any debt, the interest cost should come down substantially because of conversion to dollar but it depends on the time horizon.
Latha: Any ballpark figures. The last time when you reported numbers the interest cost had fallen to Rs 690 crore, how much more does it fall?
A: We have dollarised about USD 1 billion and if we dollarise about USD 1-1.5 billion more then roughly about 6 percent of the amount should we be saving in interest cost which is about – if we dollarise USD 1.5 billion over a period of time then the full benefit will not come in this year but whenever the full benefit comes it should be about USD 90-100 million.
Latha: The qualified institutional placement (QIP) market is now hot and beckoning, will you be raising equity?
A: As of now we do not have any plans of major capex and therefore we have not thought about it.
