Son rise at Essar Oil, quarterly results announced

Essar Oil on Wednesday (August 14) appointed Prashant Ruia non-executive chairman of the company, taking over from his father Shashi Ruia. Prashant, 44, will thus be heading the entire oil and gas business of the Essar group. He is also already chairman of the group's main promoter company, Essar Energy Plc, listed on the London Stock Exchange which he took over, replacing his uncle Ravi Ruia in December 2011.

Prashant is seen as the main force behind the turnaround Essar has seen in last two to three years. "With his appointment as chairman, there will be no gap in the decision making and communication between the two companies," says a confidant of the new chairman.

The company also announced its June quarter results on Wednesday, reporting a 12 per cent increase in revenues, which rose to Rs 24,721 crore, compared with the same quarter last year. The rise was primarily due to a 15 per cent improvement of throughput at the refinery, which stood at 5.14 million metric tones (MMT) during the quarter, against 4.48 MMT during the corresponding period last year.

Earnings before interest, taxation, depreciation and amortisation (EBITDA) stood at Rs 1,106 crore against a drop of Rs 178 crore in the same quarter last year. The current price gross refining margin stood at $7.01/bbl in the quarter, up 49 per cent from $4.69/bbl in the same quarter in 2012/13, reflecting the benefits of higher complexity after the completion of its expansion and optimization projects.

However, the company reported a net loss of Rs 863 crore during the quarter, mainly because of foreign exchange fluctuations due to the depreciation of the Indian rupee.  Essar Oil follows a prudent risk management policy, hedging all its risks against currency fluctuations. As a result, forex variations are mostly of a mark-to-market nature, which would be recoverable through sales or gross refining margins in next few quarters.

In this quarter, the refinery processed 5.14 MMT of crude, up 15 per cent from the same quarter last year. The refinery has been functioning at over its stated capacity of 20 MMTPA for the last four consecutive quarters with all its units stabilized. In this quarter, it operated at 103 per cent of its capacity.

The share of ultra heavy crude in refinery's crude intake rose to 56 per cent in this quarter from 48 per cent in the same period last financial year. Overall, the refinery processed 92 per cent of heavy and ultra heavy crude in this quarter.

The share of production of valuable middle and light distillates in the overall crude slate improved to 84 per cent in the June quarter, from 82 per cent in the same quarter last year, with the capability of producing Euro IV & V grade products.

 "The refinery has demonstrated excellent operating performance with a very strong focus on safety and has consistently outperformed the targeted benchmark IEA margins. Going forward, we are looking to further strengthen our retail business as the deregulation of diesel is eventually in sight based on regular increase in the retail prices," says a communique from the company quoting Managing Director and CEO LK Gupta.

Suresh Jain, CFO, Essar Oil was also quoted in the release as saying, "The quarter was marked by rupee volatility, which has impacted our profitability due to mark-to-market provisions. Due to prudent risk management policy followed by us, there are no cash losses.  We continue on our path to dollarize our debt and have converted rupee term loans into equivalent foreign currency debt of $340 million through ECBs /Swaps, taking our total dollarized debt to $821 million, in line with RBI approval. Besides providing interest saving, this also enhances our liquidity position."

Essar Oil is a fully integrated oil and gas company presence across the hydrocarbon value chain from exploration and production to refining and oil retail. It owns India's second largest single site refinery at Vadinar in Gujarat with a capacity of 20 million metric tones per annum (MMTPA) and complexity of 11.8 on the Nelson scale - a measure of refinery efficiency - which makes it one of the best globally. The company has a wide portfolio of onshore and offshore oil and gas blocks with about 1.7 billion barrels of oil equivalent in reserves and resources. There are more than 1,600 Essar-branded oil retail outlets in various parts of India.

The Essar group is US$ 39-billion multinational group with investments in Steel, Energy, Infrastructure and Services, with operations in 25 countries.