InvestorQ : What explains the sharp spike in the profits of HPCL in the current quarter ending Dec-20?
Moii Chavate made post

What explains the sharp spike in the profits of HPCL in the current quarter ending Dec-20?

Tisha Malhotra answered.
11 months ago

IT was a stellar set of numbers by Hindustan Petroleum, helped adequately by the twin forces of gross refining margins and higher miscellaneous income emanating from forex gains during the quarter. In fact, HPCL reported a 3-fold rise in net profits to Rs.2,355 crore in the Dec-20 quarter largely fuelled by these two factors only.

The total revenues for the quarter fell by 2.9% to Rs.68,659 crore but this was largely expected in the case of HPCL. Their revenues are measured based on oil value which is the product of the quantity and price. With weak crude prices on a yoy basis at around $50/bbl through most of the quarter, the impact on top line was along expected lines.

The performance on the operating front was pretty impressive. For example, the EBITDA of Hindustan Petroleum Corporation also nearly tripled to Rs.3,302 crore. The improvement in the operating performance came largely on the back of a clear and solid improvement in the gross refining margin or GRM of HPCL during the quarter from a level of $1.85/bbl to $2.35/bbl.

In addition, HPCL also benefited from foreign exchange gains to the tune of Rs.870 crore during the quarter. HPCL has huge crude imports and it hedges its exposures with forward covers to protect their interests if the rupee was to weaken versus the dollar. However, at times this can create gains in the midst of volatility in the forex markets.

In addition, the rise in crude prices over the last quarter also means that the inventory valuation would have favourably impacted the profits of the company. This is a major boost to most oil companies in the downstream segment which has to maintain large inventories of crude stocks and refined oil. Most oil companies in the current quarter have seen top lines taper but profits have grown on better GRMs and inventory valuation boost.