Competition from RIL-BP will make us more efficient: Mukesh Kumar Surana

There is an improvement in diesel and motor spirit cracks, says Mukesh Kumar Surana, Chairman & Managing Director, Hindustan Petroleum Corporation Ltd (HPCL). In a chat with Anurag Shah, Surana said, “HPCL is establishing a biofuel refinery in Bhatinda to produce 2G (second generation) ethanol via lignocellulose methodology by using agri-waste that remains after the crops are harvested.”

There is a significant decline in the company's profits year on year. What led to this and what is expected in the future?

HPCL has made a profit of more than Rs 6,000 crore in the last three years and it is among the highest-profit series of the company. Profit keeps changing quarter by quarter as it depends on many situations like inventory gain/loss, exchange rate variation, product cracks and cost of the crude. Cracks were quite low in the last quarter and there were inventory losses, and this is something that led to a decline in profits for every company. But HPCL's fall is quite less when compared to our competitors. 

Do you think that falling crude prices may increase inventory losses? 

As far as product cracks are concerned then there is an increase in diesel cracks, and it is better than the past. Similarly, there is an improvement in motor spirit cracks -- not as good as they should be -- but it is better than before. But other products haven't seen much boom yet. Crude prices have increased or decreased daily. Inventory loss and gains depend on the date when the crude was bought, processed and turns up to be a product. Thus, its net - whether there is an inventory loss or gain - can be calculated only after completion of the quarter. The previous year started and ended at $68 levels, but between this period crude prices went up to the $80 and down to $56, which led to inventory loss in some quarters and gains in others. 

Has the ongoing sales decline in the auto sector in the last four months had any impact on your sales?

The auto sector has been under distress because several narrations in the market are creating confusion. People are confused about the future of electric vehicles and the industry is hesitating in introducing new models due to BS-VI norms, which will be rolled out in the near future. Buyers are thinking whether they should buy a BS-VI vehicle or a BS-IV. We are getting the growth from the existing vehicle market, but there is a difference in the growth in demand from the new vehicles. I feel this is a temporary phenomenon and our growth will pick up once the ongoing narration is clear and people get a direction. 

What is your outlook on competition amid Reliance-BP Plc joint venture? 

Players such as RIL, Shell and Nayara have been in the market since 2007-08. Competition increases with the entry of new people and this is something that will make existing companies more efficient in terms of work as well as cost. This is a good thing for the industry as it will increase sharpness. At the same time, existing companies have their strength and new entrants will have their strength. So, in terms of market reach, understanding and infrastructure the existing companies have invested money and they should be able to compete with the competition. Even today, there is a huge competition between the existing companies. Interestingly, all these companies are not PSUs and they have already worked in a competitive environment in the past as well, and at that time too multinational companies were present in India. So we have originated through competition. I think we will be able to come out with our narration in this competitive environment with more cost efficiency, more leadership. 

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