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Overseas fund raising to continue despite RBI's restrictions: Essar Oil

Wednesday, 21 May 2014 - 7:50am IST | Place: Mumbai | Agency: dna

Q4 profit jumps five fold on higher GRM, forex gains

Essar Oil's dollarisation drive will not be affected by the Reserve Bank of India's recent guidelines which restricted the corporate from raising funds through external commercial borrowing (ECB) from foreign branches of Indian banks.

"Our dollarisation programme is based on specific approval of RBI and the recent circular will not have any impact on that. We continue to pursue dollarisation," Lalit K. Gupta, Managing Director and CEO, Essar Oil said in an earnings call. Dollarisation of balance-sheet involves conversion of rupee loans into the dollar borrowings, in order to reduce interest outgo by taking advantage of lower rates overseas.

The private refiner started converting its rupee loans in January-March 2013, following the RBI approval to raise $2.27 billion via ECBs. However the company's plan to dollarise domestic debt is running much slower-than-expected.

In October 2013, CFO Suresh Jain had said that if the company manages to raise $2.27 billion by fiscal end then the annual interest cost would halve to Rs 1,200 crore from Rs 3,000 crore. The oil retailer had raised nearly $1 billion by March 31, and still has a window to raise $1.27 billion. Management declined to give any timeline for raising these remaining ECBs and said that funds are raised based on availability of dollar.

Analysts said that the planned dollarisation of debt was getting delayed as the company was unable to negotiate balanced rates with lenders. Essar Oil's interest outgo declined by 6% in last fiscal to Rs 3,218 crore.

Jain said that unlike the January-March quarter where interest cost declined nearly 24% to Rs 694 crore from the year ago quarter, it's interest cost would remain in the range of Rs 3,000 crore. "Further dollarisation of debt would help reduce interest burden. We are looking at interest cost saving of 5-6%." The company's net debt including the sales tax liability reduced to Rs 19,109 crore on March 31 from Rs 21,751 crore in fiscal 2013. The company hopes to clear remaining sales tax liability of Rs 1,280 crore towards Gujarat government by October in two tranches.

Ruias-owned company posted five fold jump in fourth quarter net profit at Rs 1,008 crore, mainly due to higher gross refining margins and foreign exchange gains following the rupee appreciation.

During the quarter Essar's GRM rose to $10.12 per barrel from $9.6/bbl in year ago quarter. Forex gains for the quarter stood at Rs 200 crore against Rs 25 crore during the January-March 2013 quarter. GRM's for the quarter were supported by stronger gasoline cracks. Higher demand of vacuum gas oil in USA also helped the company to improve margins, Gupta said.

While he declined to give any guidance of future trend in GRM, he cited that new refining capacities were coming up in Saudi Arabia and China. Increased supply from these refineries is likely to keep GRMs under pressure.

Revenue during the quarter rose 7.5% on year to Rs 27,691 crore. For the financial year 2013-14, the company recorded at a net profit of Rs 126 crore against Rs 1,180 crore loss in the previous financial year.

Its revenue for fiscal crossed the Rs 1 lakh crore revenue mark and rose to Rs 1,07,190 crore vs 96,797 crore in FY13. In March quarter, it processed 5.05 MMT of crude, which was almost at the same level of 5.08 MMT processed in year ago quarter. Vadinar Refinery continues to operate above 100% capacity post expansion.

Essar Oil's CBM block at Raniganj currently produces around 190,000 standard cubic metres per day (scm/d) of gas, which is being sold locally through pipeline and cascades. Gupta said that CBM gas production is likely to increase to 1.2 million scm/d by end of current fiscal.

The company currently sales CBM gas to customers in Durgapore at $9.5-$10/mmbtu as per its previous agreement with government and is awaiting the government's announcement of new price. Revenue from sale of CBM gas in last fiscal stood at around Rs 50-55 crore.

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