Sailing Through

How Nishi Vasudeva steered oil behemoth HPCL through a tricky time of falling crude oil prices.
by Anilesh S. Mahajan   Delhi     Print Edition: January 1, 2017
Sailing Through
[Photo: Rachit Goswami]

During her two-year stint as Chairman and Managing Director of HPCL, Nishi Vasudeva's ability to steer the public sector oil company through periods of uncertainty and make hay of the positive developments helped the company reap the benefits over the long term.

Within a couple of months of Vasudeva taking over the reins of HPCL on March 1, 2014, Brent crude prices, which were about $110 a barrel, started their downward journey, and by the time she demitted office in March 2016 had crashed to about $39 per barrel. The continuous fall in the global price of crude oil had heads of even MNC oil majors worried, but Vasudeva was quick on her feet and countered the onslaught with the Integrated Margin Management (IMM), a platform for maximising margins from every barrel of crude oil. "Through this we could prevent the over-purchase of products, saving unnecessary costs, because every dollar bill saved is a dollar earned," says Vasudeva.


As part of her plan, she formed an empowered group, which had control over cross-functional processes, for maximising margins across the value chain, capturing opportunities and reducing margin leakages by introducing the concept of net corporate realisation. "Every month, this team, comprising heads of retail, operations, distribution, refinery and IT, among others, used to sit together and gauge the approximate quantity of the prospective sales. The analysis allowed us to determine almost the exact quantum of products required at each depot and terminal. Based on our sales forecast, we were able to calculate backwards how much crude we needed to import or buy. The purchase of crude or other products would happen accordingly," she adds. The team directly reported to her.

About 67 per cent of HPCL's revenue comes from sale of retail products, including petrol, diesel and liquefied petroleum gas. "Retail being our primary revenue earner, it was important for us to understand and identify the constraints for operational efficiencies, before undertaking actions for enhancing operational effectiveness. Once we started addressing them, HPCL started improving its performance," she says.

The move reflected in the company's fiscal numbers, with operating profit margins improving to 3.31 per cent in 2015/16 from 2.75 per cent in 2013/14, and net profit margin rising 1.32 per cent in 2014/15 - crossing the 1 per cent mark for the first time in four years. "I always told my colleagues, if you want to chase your dream and grow big in any organisation, you should not hide behind excuses for not taking tough assignments," says Vasudeva.

Says Vandana Hari, Founder of Singapore-based Vanda Insights: "It was impressive the way she led HPCL to healthy financial results from her first year at the company, and that, too, in one of the most challenging years for the oil industry. I hope she continues to inspire women in this male-dominated industry." Hari is not alone. Even her former bosses vouch for her. Says Arun Balakrishnan, a former CMD of HPCL (2007 to 2010): "She impressed all of us with her dedication, discipline and zeal to do things right. As a boss, it was very comfortable for me to rely on her to get things done. The tougher the task, the brighter Vasudeva would shine."

Vausudeva not only ensured her success up the corporate ladder, but also that of the PSU oil major, in the process. Last fiscal, HPCL posted 1.9 per cent net profit margin to clock Rs 3,862.74 crore net profit. Its consolidated profit hit Rs 4,929.41 crore from Rs 1,498.58 crore in the previous year. It also reported CAGR of 62.2 per cent in net profit - the best among its peers BPCL (41.1 per cent) and IOCL (21.8 per cent). This, despite the fact that BPCL clocked 3.4 per cent and IOCL posted 2.4 per cent net profit margins, much higher than HPCL's numbers. This is largely because IOCL and BPCL have much bigger refineries and petrochemical businesses, and have larger market share in the retail businesses.


In India, petroleum product sales witnessed growth of 9.3 per cent over the previous year. HPCL, among the public sector oil companies, increased its market share by 0.31 per cent to reach 21.25 per cent of the 51,870 petrol pump outlets across the country, in 2015/16. Soon, the IMM platform was being adopted by HPCL's PSU peers, IOCL and BPCL, which were keeping a close watch on the developments at HPCL, to arrest the fall in their profit margins. Says S. Jeyakrishnan, Director - Marketing, HPCL, "In the past two years, IMM was ingrained into our planning process in such a way that it will bear fruits even when we see some increase in crude oil prices."

Vasudeva was lucky, too. The then newly-elected government's oil sector reforms, including the decision to free up diesel prices from government control in September 2014, followed by the oil ministry's decision to give LPG subsidy benefits directly to the customers' bank accounts, helped improve the cash flow of the company, and reduced its dependency on taking debt from the market. In an earlier one-on-one with Business Today, B. Ashok, CMD, IOCL, had said: "Earlier, the government used to delay the compensation for the subsidy outgo. OMCs had to take debt from the market to maintain cash flows. The interest outgoes were never compensated." Like IOCL, HPCL, too, started saving on the subsidy spends.

Last fiscal, the three HPCL-controlled refineries recorded combined refining throughput of 17.23 MMT, compared to 16.18 MMT in 2014/15, with a capacity utilisation of 116 per cent. It is planning a 15 MTPA petro-chemical hub at Visakhapatnam in Andhra Pradesh. Along with other PSU OMCs, HPCL is also setting up a 60-MTPA refinery in Maharastra, in which it will have 25 per cent equity.

Now, it is up to Vasudeva's successor, Mukesh Kumar Surana, to ensure efficient implementation of her blueprint to help HPCL take flight even under the cloud of OPEC and allied countries threatening to cut crude oil production to jack up prices. ~

@anileshmahajan

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